Home Loans for Service Members: Do You Qualify?

Buying a home can be a complicated and challenging process, often requiring you to ask countless questions about the property and the process. You'll probably wonder whether you'll be able to settle there for a long time, whether it's a good place to raise a family and, even more importantly, whether you can afford it. Now imagine if your job required you to permanently move every few years or could require you to temporarily live abroad in hostile areas. All of a sudden what was already a complicated process has become even more vexing.

The fact is that, based on their service, those in the military have a very different lifestyle affecting the choices they and their families make, including the decision to buy a home. Often times because of their constant moves and income limitations, service members put off buying a house until they leave the military. While this may be their only viable option, it also deprives them of the investment and equity they could have earned in a property during their time in the service.

Fortunately, there are home-buying resources available to those who have served and who are currently serving. In particular, the Veterans Administration, along with various state governments, help veterans to obtain loans with very favorable terms, including some which may not require down payments. Read on to learn more about these loans and whether you might qualify.

What is a VA Loan?

 The government does not guarantee 100% of a VA Loan, but only a certain percentage which is based on the principle amount, as indicated below:

• Up to $45,000: The VA will guarantee up to 50% of the loan.
• Between $45,001 and $56,250: The VA will guarantee between 40% and 50% of the loan.
• Between $56,251 and $144,000: The VA will guarantee up to 40% of the loan.
• Over $144,000: The VA will guarantee up to 25% of the loan.

VA Loans work much the same way as Private Mortgage Insurance (PMI), except that PMIs involve loan mortgage guarantees by private entities (rather than the government) at added cost to the home buyer. The VA does charge a funding fee which must be paid at the closing of escrow. The amount of the fee depends on a few different factors such as how many times you've used a VA Loan, whether you paid any down payment and whether your service was in the Reserves or National Guard.

In some limited circumstances, the VA also offers direct loans which do not involve private lenders. Under the Native American Direct Loan program, for example, the VA will loan money directly to Native American veterans for the purchase, construction or improvement of homes on Federal Trust Land. The VA also may offer direct loans for the purchase of homes that have been acquired by the VA due to default and foreclosure.

VA Loans can be used to:

• Purchase a home
• Alter or repair a home
• Refinance a home
• Make energy efficient improvements

Benefits of Using a VA Loan

Because the federal government guarantees a certain amount of a VA Loan, the private approved lender can offer more favorable terms. Typical benefits associated with a VA Loan include:

• No down payment requirements
• No PMI requirements
• Competitive interest rates
• Easier qualification processes
• No prepayment penalties

Are you Eligible?

Over the years eligibility for VA loans has expanded dramatically. Typically eligibility has been based on the time period and duration of service. So, for example, those who served in the post-Vietnam era (from 1975 to 1980), must have served at least 181 continuous days of active duty service to be eligible. For those currently serving, they need only serve at least 90 continuous days of active duty service to be eligible.

In addition, those in the Reserves and National Guard are eligible if they have at least 6 years of service and were discharged honorably, even if they never served on active duty.

Spouses of veterans may also be eligible if:

• The veteran died while in service or from a service connected disability (and the spouse has not remarried)
• The veteran died and was totally disabled even though the disability may not have been the cause of death
• The veteran is missing in action or was a prisoner of war

Additional Resources

You can learn more about VA Loans, including how to obtain a Certificate of Eligibility, and how to apply by visiting the VA online or by contacting your local VA office. In addition, you may be eligible for veteran home loan benefits through your state. To learn more contact you state's agency responsible for veterans affairs. For more information on buying homes in general, see FindLaw's section on the Home Buying Process.