The U.S. Department of Veterans Affairs (VA) offers home loan guarantee benefits that allow approved lenders to offer loans at attractive interest rates while requiring little to no down payment. If you are a veteran, you may be eligible to receive a mortgage loan under the VA guarantee program. Here are 3 things you need to check on now to see if you are eligible.
1. Check Your Service Record
Your service record will determine whether you are eligible to participate in the program. There are different service requirements depending if you are active duty, retired, National Guard or the spouse of a military service person. Here is a summary of the most common eligible service records.
- Active duty.
- You are currently active duty and have been active duty for more than 180 days.
- Reserves and National Guard.
- You have served in the National Guard or the Selected Reserve for 6 years. Alternately, you were called up to active duty and served at least 90 days.
- You were active duty for 90 days during a war or more than 180 days during peacetime.
- Surviving spouse.
- You are the surviving spouse of someone who died during military service or died from a service related disability.
- Other than dishonorable discharge.
- If you were discharged for a disability related to your service, certain medical conditions, hardship or a reduction in force, you may be eligible even if you did not meet the regular service requirements.
2. Check Your Credit
Meeting the service requirements of the program does not automatically qualify you for a loan. In addition to having sufficient income, you will also need a FICO credit score of 620 or higher.
FICO credit scores range from 300 to 850. Although FICO no longer publishes median credit score information, the national median the last year it did in 2006 was 723. Many conventional loans require FICO scores between 720 and 740.
Your credit score takes into account your past credit history. Paying bills and credit cards on time will give you a better credit score. It’s also important to check the report that comes with your credit score for errors. Errors are not uncommon but you must contact the credit reporting agencies to have them corrected.
3. Check For a Funding Fee Exemption
The VA loan guarantee program is funded in part by tax payer dollars, but it is also paid for through a funding fee paid directly to the VA when the loan is created. The fee is calculated based on the amount of the loan, the down payment, if any, your type of military duty, and your past VA loan program use. The fee is as high as 3.3% of the loan amount, but you may be eligible for an exemption.
Borrowers who were discharged or released from the military due to a disability related to their service, or are eligible to receive disability compensation, or would be eligible if they did not receive military retired pay, are exempt from the funding fee.
The surviving spouse of someone who died as part of military service or died as a result of a service-related disability is also exempt.
The Final Word
Forms must be filed with the VA for any of these situations. The VA has the final say on eligibility and on exempting borrowers from the funding fee. If you are not sure if your situation qualifies you to participate in the VA home loan guarantee program or for a funding fee exemption, contact your local VA representative to review your service record.