The Department of Veteran Affairs’ home loan program is one of the most popular benefits it provides to active duty and retired members of the military.
In 2020, the VA guaranteed over 1.2 million loans totaling $363 billion from various VA lenders, a record high for the program. In April and May of this year alone, the VA has guaranteed 419,000 loans for a total of $128 billion.
Who qualifies for a VA loan?
The VA loan program is open to active duty members and veterans of all branches of the military (Army, Navy, Marines, Air Force), as well as members of the Reserves, Coast Guard and National Guard. In general, most people who have served since September 15, 1940, will qualify, though length of service requirements vary.
Cadets and midshipmen studying at military academies such as West Point or the Naval Academy are also eligible, as are certain officers of the National Oceanographic and Atmospheric Administration and members of the Public Health Service. Some surviving spouses can also apply for a VA loan.
In addition to service time requirements, there may be other cases where you may qualify for a VA loan. You should contact your local VA center for more information on full eligibility criteria.
Requirements for veterans:
If you served:
- During war time — 90 consecutive days of active duty service or less if you were discharged with a service-related disability
- Between August 2, 1990, and today (Gulf War) — 24 continuous months or at least 90 days of active duty service or, at least 90 days of service if you were discharged due to a hardship or reduction of force or, less than 90 days if you were discharged due to a service-related disability
- During peacetime — 181 consecutive days of active duty service or less if you were discharged with a service-related disability
- Between September 8, 1980, and August 1, 1990 — 24 continuous months or at least 181 days of active duty service
- If you separated from the service after September 7, 1980 — 24 continuous months or at least 181 days of active duty service, or at least 181 days of service if you were discharged due to a hardship or reduction of force, or less than 181 days if you were discharged due to a service-related disability
Requirements for active duty service members
- Currently on Active Duty — 90 continuous days.
Requirements for national guard members and reserves
- Between August 2, 1990, and today — 90 days of active duty service
- Any time period — 6 years of service in the Select Reserves or National Guard where you participated in drills but were not actively deployed plus one of the following:
- You received an honorable discharge
- You were placed on the retired list
- You were transferred to the Standby Reserve or the Ready Reserve after serving honorably
- You continue to serve in the Select Reserve
Requirements for surviving spouses
You may be able to qualify for a VA loan if you are a surviving spouse of an eligible member of the Armed Forces and you meet at least one of the following:
- Your spouse is missing in action
- Your spouse is a prisoner of war
- Your spouse passed away while in service or from a service-related disability
- Your spouse was totally disabled and passed away
- In order for a surviving spouse to qualify for a VA loan, you must not have remarried before December 16, 2003, or on or after your 57th birthday.
How do I get my VA Certificate of Eligibility?
The VA is not a mortgage lender per se. Instead, private lenders originate the loan, and the VA guarantees a portion of it. In order for the lender to make a VA-backed loan you must provide proof that you meet the eligibility requirements. The Certificate of Eligibility, or COE, serves as that proof.
You can request your COE directly from the Veterans Administration. Many VA loan lenders will also help you apply for your certificate if you need assistance. While it’s useful to have your COE ahead of time, you don’t need it before applying for a VA loan.
How many times can you use a VA loan?
Technically, there is no limit to how many times you can apply for a VA loan. However, there are situations where you may be required to make a down payment. It all has to do with your entitlement.
An entitlement is how much money the VA is willing to guarantee on a mortgage loan provided by a private lender. Entitlements are capped at $36,000 if your mortgage amount is less than $144,00. However, if your mortgage is higher than $144,000, the VA will guarantee 25% of the loan amount.
Think of the entitlement as a substitute for a down payment. It’s a guaranteed amount of money the lender will receive in case of a default.
Your COE will have the entitlement amount on it so the lender knows how much the VA will give them if you were to default. As long as you have entitlement left over, you can apply for another VA loan. If your entitlement is $0, then you would have to make a down payment on a new loan.
Your full entitlement is restored if you’ve paid off a previous VA loan. If you are still paying another loan, you may have a partial entitlement. You can also restore your full entitlement by paying off any previous existing loans, refinancing to a different loan type or selling the home.
What are your financial requirements for a VA loan?
The VA does not have a minimum credit score requirement. However, each VA lender will have its own minimum credit score and financial requirements that you’ll have to meet in order to get approval.
The application process will work very much like a conventional home loan. Your lender will evaluate your credit score, income, debt-to-income ratio and savings in order to evaluate your eligibility for a mortgage.
Naturally, a good credit score will help you qualify for a lower interest rate, but it’s not the only determining factor. One of the advantages of VA loans is that they take a more holistic approach to determining your creditworthiness. Items such as residual income (money left over each month after paying all your expenses) and credit history will play a part in the lender’s decision as well.