VA Loans: How They Work and Who Qualifies

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Buying a home is always a big step, and with costs of housing skyrocketing and interest rates steadily increasing, buying a home now may seem more like an impossibility than a hefty purchase. However, service members and veterans thinking about buying a house may have a leg up. VA loans are available to eligible service members, veterans, and surviving spouses. They offer competitive rates and limited closing costs and don’t require a downpayment or private mortgage insurance. For all of these reasons, a VA loan can turn your dream of buying a home into a reality, even in a tough housing market. 

VA loans were started in 1944 to support veterans returning from WWII. Since then these loans have been helping veterans achieve home ownership for over 70 years. We’re talking a closer look at how these loans work and what you need to qualify for one. 

What Are VA Loans? 

VA loans are home loans issued by private lenders but backed by the government. The reduced risk to the lender means that they can offer you more favorable loan terms.  For those who qualify for a VA loan, lenders are able to offer loans with better interest rates, less strict credit requirements, and less money required up front. Saving up for a down payment can be challenging, and not having enough for a down payment means paying more money monthly to insure your mortgage. VA loans eliminate both of these things (though some lenders may require some amount of money down, even if the VA doesn’t). They also limit closing costs. All of which means that the amount of cash you need in the bank to buy a home is significantly less. 

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VA loans aren’t just for first time homebuyers either. As a qualifying veteran, you can access VA loans repeatedly throughout your life in a variety of scenarios. VA loans can be used to buy a home or to refinance a mortgage. They can also be applied to costs associated with making a home more accessible for a disabled vet. If you’re unsure where to start, you can contact a VA loan specialists and they will provide a list of lenders for you to compare. There are also plenty of online resources which compare VA loans by minimum credit rating, so look around before you choose.

VA Loan Rates

Like other loan products, VA loan rates vary, and lenders will still offer different rates depending on your credit score, credit history, and the term of the loan you are seeking. However, VA loan rates have had the lowest average fixed interest rates for years. If you qualify for a VA loan, it’s an almost certain thing that you’ll receive a better rate through that loan than through a conventional mortgage loan. 

VA Loan Requirements  

To qualify for a VA loan, you must meet specific requirements regarding the amount of time served in active duty. Service members need to have served for at least 90 continuous days to qualify. For veterans, National Guard members, and Reserve members, the time requirement depends on the period of time in which you served. If you didn’t meet those time requirements but were discharged due to hardship, government convenience, a service-related disability, or a select few other eligible reasons, you may still qualify. Additionally, spouses of a veteran who passed away during active duty or due to an illness or disability from service may qualify. This is not a fully exhaustive list of qualifications, and if you think you may be eligible, talking to a VA loan specialist is an important next step. It’s important to note that service members who were dishonorable discharged aren’t eligible for a VA loan. 

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Once you’ve been determined to be eligible, you’ll need to obtain a Certificate of Eligibility (CoE). The VA decides if you’re eligible for the loan and grants the CoE, at which point you can begin talking to private lenders and learning about additional requirements they may have. 

The Native American Direct Loan (NADL) Program

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Native American service members and their spouses are eligible for a special loan through the VA called the Native American Direct Loan (NADL) program, which offers loans to help with buying, building, or improving a home on federal trust lands. There are additional eligibility requirements for this loan; namely your tribal government needs to have an agreement with the VA about how these loans will be used to buy, build, and improve properties on tribal land. To apply for an NADL loan requires you to already have a CoE, so you’ll want to talk to a loan specialist about your general eligibility first before talking about your eligibility for a NADL.