VA Loans Open Doors for Our Veterans

11/11/2011 6:30 am EST


Terry Savage

Author, The Savage Truth on Money

The very favorable mortgage terms provide opportunities that may not otherwise exist for our honored soldiers, writes personal finance expert Terry Savage.

Veterans Day is upon us—and if this story seems familiar, it’s because I have written several times about the great deal that the Veterans Administration mortgage program offers to those who have served our country: 3.875%, 30-year, fixed-rate mortgages.

Here are two true stories about people who read my previous columns and contacted VA mortgage expert Daniel Chookaszian about buying or refinancing using the VA loan program:

A Hand Up
California residents Paul and Jennifer were sinking in their monthly bills, behind on their credit cards and even their property taxes. They had a traditional mortgage at a rate of 6%.

They recently closed on a VA refinance, which allowed them to take out cash out to pay off $12,000 in credit-card debt and $6,000 in past-due real estate taxes. Their new VA mortgage has cut their overall monthly payments by more than $400.

Note that VA lenders offer qualified veterans the opportunity to refinance for up to 100% of current home value. A VA mortgage also allows them to withdraw cash above their current loan amount, up to 95% of the value of the home. And there is no PMI (private mortgage insurance) payment on a VA loan.

Opening Doors
Diana is a 35-year-old disabled veteran of the Iraq war. She receives monthly VA disability income as well as Social Security Disability for life. Her father gave her my column about VA loans from earlier this year.

Now, Diana has just closed on her first home using her VA eligibility, with no money down and a 15-year fixed rate of 3.75%. Her disability income was used to qualify Diana for the loan.

Do You Qualify?
The VA loan program may be the answer to your questions about finding an affordable loan. So here are the qualifications you must have to secure a VA loan:

  • You must have been honorably discharged from the US military.
  • You must have a Certificate of Eligibility (available from the VA Eligibility Center at 888-244-6711).
  • Your credit score must be above 640.
  • You must be able to demonstrate steady income, or a two-year history of self employment, or a stream of retirement benefits.
  • Spousal income can help you qualify.
  • Your total debt payments cannot be more than 41% of your total income.
  • You cannot have any unpaid liens or judgments.
  • You must wait until two years after a bankruptcy to apply, and cannot have any subsequent late payments.

You can qualify for VA home-loan benefits no matter how long ago you were honorably discharged. And even if you took out a VA loan many years ago, you remain eligible for another VA loan if the first loan was paid off.

The maximum amount of the full VA no-down-payment mortgage loan is $417,000. However, if you purchase a more expensive home and need to borrow money above that amount, you must put down 25% of the amount above the $417,000 limit, and pay a slightly higher rate to get the larger mortgage.

The VA loan program is not intended for speculators or investors. The property must be owner-occupied, although the loan can be used for single-family homes, condos, or one- to four-unit properties. And a VA loan can also cover a “jumbo” mortgage, making it an attractive alternative for higher-priced homes.

There is no age restriction on qualifying for a VA mortgage loan, and you can get a new loan even if you had one many years ago. The surviving spouses of veterans with benefits also qualify if they have not remarried.

To learn more about VA loans, you can contact the VA Regional Loan Center in St. Paul, Minnesota, at 800.827.0611 to speak with a VA loan specialist.

The VA loan is not a solution for those who have bad credit, or who currently owe much more than their home is worth. But for those who have served our country, and are now looking to buy a home or refinance an existing loan, this is one small reward for their service. And that’s The Savage Truth.