What Does a VA Loan Cover?

If you’re a Veteran or active military member, you may qualify for a VA home loan. In this post, we’ll cover what a VA loan is, what you can use it for, and how to get started.

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Introduction

The U.S. Department of Veterans Affairs (VA) offers home loan guaranty programs to help eligible servicemembers, veterans, reservists, National Guard members and certain surviving spouses obtain home loans. The programs are designed to offer affordable financing with flexible terms to eligible homebuyers.

The VA does not actually lend money for VA loans. Instead, the agency provides a guaranty that protects lenders from loss if a borrower defaults on a loan.

What is a VA Loan?

A VA loan is a home loan that is backed by the US Department of Veterans Affairs. These loans are available to eligible veterans, active-duty service members, and their spouses. VA loans offer several benefits, including no down payment, low interest rates, and flexible credit requirements. VA loans can be used to purchase a home, build a home, make energy-efficient improvements to a home, or refinance an existing home loan.

What Does a VA Loan Cover?

A VA loan can be used to cover a wide range of expenses, including:
-The purchase of a home
-The construction of a new home
-The purchase of a manufactured home
-The purchase of a condo or co-op unit
-The refinancing of an existing home loan
-The purchase of a second home or investment property

Down Payment

The Department of Veterans Affairs (VA) guarantees a portion of your loan, so lenders don’t take as much of a risk when approving you. That guarantee means you can buy a home with as little as 0% down in some cases. In most markets, the average down payment for a home is around 10%, so a VA loan can help you get into a home with less money down.

Closing Costs

Much like any other loan, the VA loan comes with closing costs. These are the fees associated with originating and processing the loan, and they can vary depending on the lender you use. Some closing costs, like the appraisal fee, are paid directly to third parties. Others, like the VA funding fee, are added to your loan balance.

The VA allows borrowers to finance their closing costs, which can make buying a home more affordable. But keep in mind that doing so will increase your loan balance and monthly payments. You may also want to compare the cost of financing your closing costs with the cost of paying them out of pocket.

Mortgage Insurance

VA Mortgage Insurance. If you put less than 20% down on your home purchase, you’ll likely be required to pay for mortgage insurance. With a VA backed loan, however, you can often avoid this extra expense, as long as the lender is willing to waive it.

Home Improvements

Home improvements can be an expensive proposition. Fortunately, the VA loan program can help eligible homeowners finance improvements with a VA-backed loan.

The first step is to get a VA appraisal of your home to determine its value. The appraised value will be used to set the loan amount. Once you have the loan, you can make any improvements you like, as long as they don’t exceed the appraised value of your home.

In addition to the standard equity requirements, there are a few other things to keep in mind when taking out a VA loan for home improvements:

-The improvements must be permanent in nature. This means that you can’t take out a VA loan to finance repairs that will need to be repeated in a few years ( like a new roof ).
-You can’t use a VA loan to finance luxury items like a swimming pool or hot tub. The updates must be necessary for the safety or habitability of the home.
-You can include the cost of renovations in your loan amount, but you’ll still need to come up with money for your down payment and closing costs.

Eligibility for a VA Loan

The Department of Veterans Affairs (VA) does not lend money for VA loans, but guarantees a portion of the loan against loss to the lender. When a veteran applies for a VA loan, the veteran must first obtain a Certificate of Eligibility (COE) through the automated Web LGY system, mail, or other methods . A prior home loan with the VA is not necessary. Once obtained, the COE verifies to the lender that the applicant qualifies under one or more of six requirements:

-Served 181 days during peacetime
-Served 90 days during wartime
-Served in an area where hostilities occurred (during wartime) and received special pay
-Has completed a total of six years in the Selected Reserve or National Guard
-Is the spouse of a service member who died in service or as a result of service-connected disabilities

Qualifying veterans and their spouses generally have full entitlement available to them. The level of entitlement is determined by law and reflects how much a qualified Veteran can expect from the Department should he or she encounter difficulty making their mortgage payments.

Applying for a VA Loan

In order to apply for a VA loan, you will need to obtain a Certificate of Eligibility (COE). You can do this one of three ways:
-Contact your lender and have them request the COE on your behalf
-Mail in a completed VA Form 26-1880 to the Veterans Benefits Administration
-Complete the process online through the Veterans Benefits Administration eBenefits Portal

Conclusion

To sum it up, a VA loan can be used to finance just about any type of property, including a single-family home, a condominium, a manufactured home, or even land. The main restriction is that the property must be for your own personal occupancy; you can’t use a VA loan to finance an investment property.