VA Loan Entitlement Basics

The VA loan entitlement is a benefit for military veterans, made available after the service member has served a minimum amount of time in uniform. According to VA.gov, currently serving military members and recently discharged veterans are eligible for the VA loan benefit as follows:

“If you are now on regular duty (not active duty for training), you are eligible after having served 181 days (90 days during the Gulf War) unless discharged or separated from a previous qualifying period of active duty service.”

There are a few common misconceptions about the VA home loan benefit. For example, many assume that the Department of Veterans Affairs lends money and is responsible for the VA loans; this is not true. The VA provides a guarantee for the loan to the private lender who approves your loan.

The Department of Veterans Affairs also does not set or regulate interest rates on VA home loans. It only requires that the rates and terms for VA home loans be “reasonable and customary” for comparable loans in your market.

VA loans are not guaranteed; borrowers must apply for the loan through a private lender who has credit score and employment requirements that must be met. The VA Certificate of Eligibility for a VA mortgage is not a promise from the Department of Veterans Affairs that you will be approved for a home loan. In general, borrowers with credit scores below 620, for example, will find it difficult to locate a lender willing to work with them. If you are actively working on improving the credit score, it’s best to wait until your score is at or above 620 before starting your search for a participating VA lender.

The VA does not require a down payment on VA home loans, unlike FHA or conventional mortgages where a “minimum cash investment” is required. Does this mean a borrower should NOT put money down on a VA home loan? Or would NEVER be required to make a down payment?

No. Many borrowers choose to make a down payment on their VA home loans because it reduces the amount of the VA Loan Funding Fee, which is a required expense connected with VA home loans. Some borrowers make down payments because the asking price of the home is higher than the VA appraised value of the property; borrowers who still want the home must either re-negotiate the sales price with the seller or pay the difference between the sales price and the appraised value of the property in cash. (Borrowers cannot finance the difference into the loan amount.)

Additionally, a type of VA mortgage known as the VA Graduated Payment Loan does require a down payment.

VA home loans don’t require private mortgage insurance, unlike conventional mortgages and FHA home loans. VA mortgage loans may be offered with variable rates or as a fixed-rate mortgage; your VA loan entitlement also permits 15-year or 30-year mortgage terms. Borrowers cannot be penalized for early payoff of a VA guaranteed home loan, and there are caps on the amount of interest rate changes allowable on variable rate home loans.

One of the best features of the VA home loan entitlement is the borrower’s right to have the Department of Veterans Affairs assist them in times of difficulty. If a borrower experiences trouble making house payments, experiences damage to the home in a natural disaster, if there are disputes between borrower and lender, the VA offers advice and resources to help the borrower through the situation.

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