Who is Eligible for a VA Loan?

The U.S. Department of Veterans Affairs guarantees mortgage loans for qualifying active and retired members of the military and their family members. The VA loan program was established in 1944 as part of the Servicemen's Readjustment Act. An eligible borrower may use a VA home loan to purchase various types of property including a house, condo, manufactured home or farmland.

Military Service
According to the U.S. Department of Veterans Affairs, an individual must have served in active duty in any branch of the U.S. military for a minimum of 90 days before applying for a VA home loan. Exceptions apply for individuals who received an early discharge due to a disability. Non-active duty personnel, such as individuals in the Army Reserves or National Guard, may apply for a VA backed mortgage provided they have completed six years of service. The spouses of deceased or missing military members are also eligible if they have not remarried. Borrowers who received a dishonorable discharge from any military branch are not eligible.

Funding Fee
The federal government doesn't require eligible borrowers to pay a down payment on a VA loan, nor does it allow the mortgage lender to charge the veteran private mortgage insurance. It does, however, require the borrower to pay a one-time funding fee on their purchase. A borrower can choose to pay the fee up front or finance it into the total cost of the loan.

The funding fee for regular military members is 2.15% of the loan while reservists pay a fee of 2.40%. Should a member of the military or a qualifying family member make a down payment of 5%, the funding fee drops to 1.5%. It drops further to 1.25% if the applicant's down payment increases to 10% or more.

Credit History
Like other types of mortgage loans, your credit history plays a role in your eligibility for a VA home loan. Lack of a credit history, however, doesn't necessarily bar you from qualifying. The U.S. Department of Veterans Affairs understands that military members, especially those stationed overseas, may not have the same credit-building opportunities as other individuals. Because of this, records of timely payments to utility companies and landlords can be used in lieu of a valid credit history.

If you have a valid credit history, you must not have a recent derogatory entry within any of your credit files for the 12-month period before applying for the loan. Any Chapter 7 bankruptcy or foreclosure must have occurred at least two years in the past before the government will insure a VA loan. The VA does, however, grant loans to borrowers who are making satisfactory payments on a Chapter 13 bankruptcy plan.

If you qualify for a VA mortgage loan, the benefits of having your mortgage backed by the VA are numerous. Not only can you obtain financing for your new home purchase without a down payment, but VA mortgages are transferable?leaving you an escape route should you ever find yourself threatened by foreclosure. If you think you may be eligible, your loan officer can provide you with paperwork to review to ensure your eligibility before you apply for a VA mortgage loan.  By Ciele Edward

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