Ask Homes.com: Reader seeks guidance on using VA home loan benefit

Key takeaways

• VA loans make homeownership more accessible for eligible service members and veterans. The program allows qualified borrowers to buy a primary residence with no down payment and no private mortgage insurance.
• In addition to active‑duty service members and veterans, some surviving spouses, service academy graduates and certain federal officers may qualify.
• Approval requires extra steps and property standards, not just borrower qualifications. Buyers must obtain a VA Certificate of Eligibility, and homes must meet VA health, safety and appraisal requirements.

One benefit the United States offers to those who serve their country is a mortgage program that can go a long way toward helping them buy a home. A reader wanted to know how to use the benefit.

The question was edited for clarity.

Q. I am inquiring about purchasing a home with the veterans loan program.

A. The U.S. Department of Veterans Affairs Home Loan Program enables active-duty soldiers, veterans, their spouses and a limited number of federal service professionals to buy homes on favorable terms, with:

• Zero down payment
• Competitive mortgage rates
• No minimum credit score

Borrowers must use the home as their primary residence. They pay a special lending fee, which may be a percentage of the loan amount. It must be paid up front or rolled into the loan. The fees vary and may be waived for certain veterans, such as those with service-related disabilities. A VA loan has its challenges. Homes must meet certain health and safety standards — such as no lead paint — and appraisal requirements. These can make a purchase more difficult or costly, especially if the home needs repairs before closing. VA loans also charge applicants service fees, raising the overall cost of the home.

While the loan program is directed at homebuyers, home sellers must ensure their properties meet certain health and safety standards and appraisal requirements if there is a VA loan involved in the purchase.

An example shows how much money is at stake:

Consider buying a $400,000 home. A lender will typically want to see a 20% down payment —$80,000 — when evaluating the loan application. They can accept a smaller percentage but will charge applicants a monthly private mortgage insurance fee. Lenders also prefer buyers with higher credit scores. These compensate for the risk of extending a loan and then having to foreclose if the buyer can’t make payments.

The U.S. government guarantees a VA loan, driving down the risk. Lenders feel more confident extending a loan to applicants with no money down and lower credit scores. Also, VA loans do not have private mortgage insurance.

Contact the VA for the qualification requirements based on your service. But in general, military personnel must have served on active duty for a minimum amount of time, depending on when they joined their service. For example, borrowers currently in the military must have served for at least 90 consecutive days.

Spouses can also qualify for benefits when a veteran dies or is disabled. Again, check the VA for its requirements. In general, a veteran must have died on duty or suffered from a 100% disability. The widow also must be eligible for a Dependency and Indemnity Compensation benefit award. The DIC is a payment to survivors of a veteran killed or deceased by a service-related condition.

Applicants who fail to meet the above criteria may still be able to qualify for a loan. They include veterans who were:

• Discharged for hardship, or at the convenience of the government or a reduction in force
• Discharged as part of an early-out and served at least 21 months of a two-year enlistment
• Attended a service academy (U.S. Military Academy, Naval Academy, Air Force Academy or Coast Guard Academy)

Officers of the Public Health Service or the National Oceanic and Atmospheric Administration also may qualify for VA home loans.

A VA Certificate of Eligibility serves as official proof that a veteran, service member or eligible spouse has met the legal requirements to qualify for the loan program. A certificate can be requested online by a lender using an online system called Web LGY.

A certificate also can be requested by mail by filling out a Request for a Certificate of Eligibility (VA Form 26-1880) and sending it to the applicant's regional VA loan center.

Veterans should start the process by obtaining their formal separation document, known as a DD214. Active duty servicemembers should obtain a statement of service, signed by a commander, adjutant or personnel officer, that includes the following information:

• Applicant's full name
• Social Security number
• Date of birth
• The date applicant entered duty
• The duration of any lost time
• The name of the command providing the information

The VA will review the request and make a decision on eligibility. The status of the request can be checked online. If approved:

• The applicant presents the certificate to a lender
• The lender requests a VA appraisal of the house, which estimates the home's market value at the time of inspection
• The lender reviews the appraisal
• The lender reviews the applicant's credit and income information
• The lender decides whether to accept the application
• If accepted, the lender works with the applicant to choose a title company to close on the home

Do you have a real estate question you'd like us to answer? Write us at AskNews@Homes.com.