Using Your VA Benefit to Purchase a Home

Veterans work hard to fight for our country. The GI Bill and their VA benefits can be used to help purchase a home.

The government has been supporting veterans and their families dream of home ownership since 1944 when the GI Bill was first introduced. This bill provided a government loan guarantee to lenders willing to provide veterans with a home loan. This reduced lenders risk and made purchasing a home easier for veterans. Since then over 25 million veterans have use the GI Bill to purchase a home and you could become one of them.

Many people do not understand how a VA loan works or who issues them. The government does not directly lend to veterans, rather it guarantees the loan so that other lenders (banks, credit unions, brokers) can lend to veterans knowing the government will guarantee the loan in the event the mortgage does not get paid. They guarantee 25% which is what allows VA loan programs to provide mortgage loans at reasonable loan rates and with zero or low down payments. Think of the government as your personal cosigner. Instead of a rich uncle signing on your loan – you have Uncle Sam.

In order to qualify for a VA loan there is a time in service requirement. Veterans need to be active duty or discharged with a minimum of 90 days served during war time or 181 days served during peace time. All branches of the military qualify including the National Guard. Those in the National Guard need to have served for six years. The other condition is that your discharge paperwork cannot be for a dishonorable discharge.

The VA is determined to ensure veterans and their families can own a home that they can afford. During the underwriting process they will determine if you can afford the home you want to purchase. Normally lenders calculate your debt to income ratio (how much you pay monthly toward debt obligations compared to how much income you make) by going off of your credit report and future home payment. The VA does additional analysis to take into account real life expenses like food and caring for children. This additional underwriting helps to ensure that veterans are in a home that is the right price bracket for what they can reasonably afford.

The VA also wants to make sure that the home is safe and in good condition so an appraisal is required. When the appraisal is conducted the home must have a life expectancy at least that of the loan term. For example if the home is deemed to need to be replaced in 20 years a borrower will not qualify for a 30 year loan. This is especially important if a veteran is purchasing a manufactured home. If the appraisal shows that values in the area are declining the loan cannot be for more than 90% of the value. This is to ensure that the loan does not become upside down (owing more than the home is worth). These additional rules are geared toward protecting veterans and ensuring they do not enter a loan situation that could be negative for them down the road.

If you are a veteran that has served or is currently serving in the military contact a professional mortgage lender to learn how you can use the GI Bill to purchase a home. If you already own a home your VA benefit can be used for a refinance loan. Rates are low and home values are stabilizing so now is a great time to purchase. Contact a mortgage banker to determine what mortgage rates and mortgage loan programs you qualify for.

 

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