If you’ve served in the military, you can get one of the best tangible rewards for that service by taking advantage of two big government programs: the Veterans Affairs Home Loans program or, in the case of veterans disabled in the line of duty, special grants to build or adapt homes more compatible with those disabilities.
If you’re unfamiliar with either program, this guide breaks down the basics, including benefits, eligibility, and how to apply. We also include a mortgage calculator that any prospective homebuyer can use to figure out what he or she can afford.
VA Home Loans: What are the Benefits?
Uncle Sam offers a great benefit for military members and veterans who want to become homeowners: the Veterans Affairs Home Loans program. VA loans offer some hard-to-pass-up perks that make them an even better deal than FHA loans, one of the other major government-backed loan programs.
A VA loan is issued by private lenders but backed by the federal government. That means Uncle Sam picks up the tab if you can no longer pay your mortgage payments, and that guarantee allows the lender to relax lending criteria and offer several benefits that are rare with non-government-backed loans. Those include:
- No down payment: Even if you don’t have a down payment saved up, you can still get a VA loan as long as the sales price of the home is less than or equal to the home’s appraised value. FHA loans, which are also backed by the government but available to non-military buyers, still require at least a 3.5% down payment.
- No mortgage insurance: Mortgage insurance, which you typically pay when you make a down payment under 20% of the home’s purchase price, can tack on a lot to your monthly payment. VA loans don’t carry this requirement, while FHA loans do.
- No or low closing costs: VA loans cap what you’ll pay in closing costs, and allow the seller to pay them instead of the buyer.
- No early-payment penalty: If you pay off your 30-year mortgage in 20 years, your lender won’t penalize you because it’s losing interest.
- Payment assistance: You may be eligible for VA loan assistance programs if you fall behind on your mortgage.
- Loans are assumable: A qualifying home buyer can assume your VA Loan instead of obtaining a new one.
What’s the catch? Most recipients will have to pay a funding fee to close their VA loan. The exact percentage, which ranges from 1.25% to 3.3% of your loan amount, varies according to your eligibility, whether this is your first or a subsequent VA loan, and what down payment (if any) you will be offering. You can roll it into the loan or pay in cash at closing.
Eligibility for VA loans
With benefits like that, Uncle Sam wants to make sure only those who are truly eligible can get a VA loan.
First, you must be obtaining a VA home loan for a qualified purpose: buying a home; buying a condo in a development approved by the VA; buying and improving a home; making improvements related to energy efficiency; or buying a manufactured home and/or lot.
Second, you must be able to obtain a certificate of eligibility (COE) to get a VA loan. To get the COE, you’ll have to meet the following requirements:
- Active-duty military members must have been in service for a minimum of 90 continuous days.
- Veterans must not have been dishonorably discharged. They must have served for specified minimum time periods that vary according to whether their service was during wartime or peacetime. Requirements, spelled out on the VA homepage, range from 90 total days to 24 continuous months.
- Members of the National Guard or Reserves must have either 90 days of active Gulf War service, or six years of other service and meet select requirements regarding the end of their service, such as honorable discharge, detailed at the link above.
- Veterans’ spouses may also be eligible. They must be 1) unmarried after their veteran spouse died in service or from a service-related disability or 2) remarried at age 57 or older, on or after Dec. 16, 2003. Spouses of servicemembers who are missing in action or are prisoners of war may also be eligible.
Certain other individuals, including military academy cadets and U.S. citizens who served under an allied country during World War II, may also be eligible.
Note that you can have a COE and still be turned down if you don’t meet a lender’s criteria for making the loan. You’ll likely still need to have a certain minimum credit score (this will vary, but 620 is a common cut-off) and have a favorable debt-to-income (DTI) ratio, meaning you aren’t already burdened by too many debt payments. In most cases, VA lenders are going to want to see a DTI of 41% or less, meaning your required debt payments don’t exceed 41% of your gross income each month.
Before you apply for your VA loan, you’ll want to crunch the numbers to see what you can best afford. The Simple Dollar’s mortgage calculator can help you do that.
To use our calculator, you’ll need to know your credit score. If you’re not sure of this all-important number, check out “What is a Good Credit Score?” for the best places to obtain it. Certain credit card companies also provide cardmembers with their FICO credit score free of charge.
Next, choose from three common types of mortgages (30-year fixed rate, 15-year fixed rate, and a 5/1 adjustable rate mortgage). Not sure what kind of mortgage is for you? Our article “How to Find the Best Mortgage Rates” gives you the pros and cons of various types.
Finally, input the cost of the home you’re thinking of buying, and any down payment you have. Remember, while you aren’t required to have a down payment for a VA loan, putting some money down will allow you to build equity faster and possibly qualify for a better interest rate. A down payment may also mean you pay a lower funding fee for your VA loan. In our calculator, the interest rate will automatically adjust according to your loan type and credit score, but you can also adjust it manually.
The results section will show you your projected monthly payment as well as the principal of your home loan and the equity you’ve built for each year of your loan term.
Grants for Disabled Veterans
The VA also offers two housing grant programs for veterans with disabilities: The Specially Adapted Housing Grant (SAH) and Special Housing Adaptation Grant (SHA).
Specially Adapted Housing Grant
With SAH, veterans with disabilities can build a new specially adapted home or remodel one to be specially adapted; they can also use grant money to help pay down the mortgage for an adapted home obtained with a non-VA home loan. A number of renovations are covered under SAH. Those include modifications to kitchens, bedrooms, and bathrooms; the addition of special ramps and walkways; installation of security and safety features; and much more. SAH grants are capped at $73,768 in 2016, and you can use a maximum of three grants. Reduced grant amounts may be available for those temporarily living with family members; amounts are capped at $32,384 per year.
Special Housing Adaption Grant
With SHA, a disabled veteran can adapt their own home or that of a family member, adapt a home they or their family wants to buy; or help buy an already-adapted home. You can use SHA for the same adaptations that SAH covers, but eligibility criteria are different (see below) and the amount you can receive is lower: SHA grants are capped at $14,754 in 2016, or $5,782 for those living temporarily with family members. As with SAH, you can use a maximum of three grants.
To be eligible for SAH or SHA grants, your disability must be a result of your military service, and you must be adapting your permanent home.
- Qualifying disabilities for SAH: Loss of or loss of use of both legs; loss of or loss of use of both arms; blindness in both eyes having only light perception, plus loss of or loss of use of one leg; loss of or loss of use of one lower leg together with residuals of organic disease or injury; loss of or loss of use of one leg together with the loss of or loss of use of one arm; certain severe burns; or the loss, or loss of use of one or more lower extremities due to service on or after Sept. 11, 2001, which so affects the functions of balance or propulsion as to preclude ambulating without the aid of braces, crutches, canes, or a wheelchair.
- Qualifying disabilities for SHA: Blindness in both eyes with 20/200 visual acuity or less; loss of or loss of use of both hands; certain severe burn injuries; or certain severe respiratory injuries.
Where to Get a VA Loan
You can work with any VA-approved lender to obtain a VA home loan — simply ask whether the lender has completed the VA certification process. However, you may want to consider a military-focused lender that will likely have a lot more experience with VA loans than other institutions. Here are several options to investigate:
- USAA is consistently among the top-ranked banks for customer service for most loan types, including mortgages. It’s the fourth-largest lender of VA loans by loan amount. USAA membership is restricted to military members and their families.
- Navy Federal Credit Union is the nation’s largest credit union and the sixth-largest lender of VA loans. Membership is open to active military members, certain Department of Defense civilian employees, and their families.
- Veterans United Home Loans is a lender that works solely with VA home loans and refinancing loans. It is now the third-largest lender of VA loans.
- iFreedomDirect specializes in VA and FHA loans. It’s among the top 40 largest largest lenders of VA loans.
- The Federal Savings Bank is a veteran-owned lender specializing in VA loans. It is among the top 15 VA lenders.