To date, the VA Home Loan program has helped more than 20 million veterans and service members become homeowners. Veterans who are eligible for a VA loan have what is referred to as VA Loan entitlement, which is a specific amount that the Department of Veterans Affairs promises to repay to the lender, in the event you default on your mortgage.
This entitlement is what gives lenders the confidence to extend financing on VA Loans with exceptional rates and terms. However, to be eligible for the VA Loan, potential homebuyers must first meet the basic service requirements.
Service requirements fall into two categories – wartime and peacetime – and homebuyers must satisfy one of the following service requirements set forth by the Department of Veterans Affairs to be eligible. Those that served during wartime must have served 90 consecutive days, and if you served during peacetime, you must have served 181 days. Those who served in the National Guard or Reserves must have done so for at least six years to qualify.
Spouses of service members who died in the line of duty, or as the result of a service related disability, may also be eligible.
If you meet one of the above requirements, then you will need to verify this through the VA by applying for a Certificate of Eligibility. You can apply for the Certificate of Eligibility yourself, or have a VA approved lender do the heavy lifting.Get Started with your VA Loan Request
VA approved lenders are able to access your Certificate of Eligibility through ACE, otherwise known as Automated Certificate of Eligibility. ACE makes it possible for your lender to expedite the process with, in many cases, just your name and social security number. However, it's best to have all documentation ready for quicker processing time.
If you plan to file for a Certificate of Eligibility yourself, you will need to fill out a governmental form called the VA Form 26-1880, Request for a Certificate of Eligibility for Home Loan Benefits. This document is available for download and print online on the VA’s website.
There are several requirements that must be met before your VA loan is approved. As mentioned above, you must hold a valid Certificate of Eligibility, proving you are qualified to receive the VA loan. You must be using your VA Loan for a valid purpose, such as a single family home, townhouse, condominium or other approved property. Additionally, the VA Loan cannot be used for rental property or a vacation home, but only as a primary residence. You must also intend to occupy the house within a reasonable time period after closing.
Next, you must meet basic credit and income requirements. The VA does not impose a credit score minimum, but most lenders look for a minimum of 620.
Lastly, VA Mortgages follow the underwriting principles of Qualified Mortgages. What this means is that each potential homebuyer must meet a set of requirements to ensure they can afford the mortgage they are receiving. Much of this revolves around the Ability to Repay rule, which uses eight financial metrics to determine mortgage approval, including: current income or assets, current employment status, credit history, monthly mortgage payment, other monthly mortgage payments, monthly payments for mortgage related expenses, current debt obligations – including child support and alimony – and your monthly debt to income ratio.
You may still be eligible for more entitlement even if you've taken out a VA loan in the past. Because the entitlement amounts have increased over time, there may be a difference between the amount you were initially entitled to when you first took out your loan and the amount the government allows now. Currently, the entitlement amount for houses under $144,000 is $36,000, and over $144,000 is $60,000. So, for example, if you took out a VA loan in 1975 and used $12,500 of your entitlement amount, you may still be eligible for an additional $23,500 (or more).
However, to be eligible for this second entitlement, you must have either sold your house and paid the original loan amount in full, if you still own the home but have paid the full amount of the loan, or if another veteran-transferee agrees to assume your loan and transfer his or entitlement to you.
There are no rules concerning the disposition of the first property once the loan has been paid in full, leaving it to be served as a rental property or vacation home without penalties or restrictions from the VA. However, the new property purchased with the VA loan is still under department regulations involving occupancy, business use of the space and marketability, among other issues.
Additionally, prospective homeowners are able to apply for restored VA loan entitlement for a new home, but it must only be after the first loan has been paid and the property has been sold. Since this can be difficult to accomplish, the VA offers a one-time exception, giving the potential homebuyer the opportunity to keep the first home, while seeking a new VA Loan for their new residence. Borrowers who choose to utilize the “one-time restoration” allowance will have to dispose of all property in the future if they again seek restoration of entitlement.