VA Loan Eligibility and Service Requirements

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Getting approved for a VA home loan can be a lengthy, confusing, and frustrating process. When you’re in the midst of it, it can feel like you’re a show dog, being forced to jump through hoops. It’s so challenging, in fact, that many Americans give up on their dreams of owning a home and assume that they will only ever be able to rent.

However, there are a lot of resources out there to help people who otherwise wouldn’t qualify for a home loan experience the joys of homeownership. One such route is applying for a VA home loan.

A VA home loan is a mortgage loan that is backed (though not actually offered) by the Department of Veteran Affairs. Banks love VA home loans because they are guaranteed to recuperate some of their loss if the homeowner defaults on their mortgage (usually 25% of the loan).

As you might guess, though, VA home loan eligibility involves more than just proving you’ve served in the United States military. We’ll do our best to shine some light on the process by helping you determine your VA loan eligibility, show you how to obtain a VA Loan Certificate of Eligibility, and teach you the types of properties you can buy with a VA loan.

Benefits of a VA Loan

Before we dive into the how-to of getting a VA loan, let’s talk about why you should even consider this route.

No Down Payments

The most significant benefit of a VA home loan (and what makes it stand out from other home loans) is that if you meet VA loan qualifications, you typically don’t have to make a down payment on the home. While there are some exceptions to this rule (for example, if the cost of the home exceeds the VA loan limit for your area), most people who qualify can close without a down payment.

There is a one-time funding fee (1.25 to 3.3% of the loan amount) but depending on your situation it can either be added to your loan or waived entirely. For example, if you have a service-related disability or your spouse was injured/killed in the line of duty, the funding fee can be waived.

Competitive Interest Rates

Usually, the people who get low-interest rates on home loans either have excellent credit or can make a hefty down payment. People who qualify for VA loans, however, often benefit from interest rates that are significantly lower than national standards for conventional mortgages.

To give you an example, at the time this article was written (July 2019), the average interest rate for a 30-year fixed-rate VA Loan is 4.41%. This is compared to an average of 4.62% for lenders and 4.70% or FHA loans.

Please note that this is simply an example, and interest rates can change on a daily basis and will vary based on many factors including the individual’s credit history and score, debt to income ratio, income, price and location of home, market factors, and other factors.

One Set Admin Fee

When closing on a home, there can be a lot of hidden administrative fees that can add up quickly. Application fees, application processing fees, document preparation, and notarization fees, closing and settlement fees, and tax service fees are just a few of them. However, with VA home loans, lenders can only charge one fee of up to 1% of the loan amount to cover all the above.

Who Is Eligible for a VA Loan?

VA loan eligibility is dependent on a variety of factors, including the branch you served in, when you served, how long you served, and the circumstances surrounding the end of your service.

Currently, you may qualify if:

You Served During WWII, the Korean War, or the Vietnam War

You must have served a minimum of 90 active days unless you were discharged for a service-related disability.

You Served During Gulf War

You must have served in one of the following conditions:

  • 24 continuous months of active duty
  • Within 90 days to full term ordered
  • A minimum of 90 active days with discharge as a result of early out, government convenience, hardship, force reduction, a condition that interferes with duty, or a compensation-qualifying service-related disability

Served During Peacetime

You must have continuously served 181 active days or more unless you were discharged for a service-related disability.

Veterans, Separated from the Military

You must have served:

  • 24 continuous months of active duty
  • Within 181 days to full term ordered
  • A minimum of 181 active days with discharged as a result of early out, government convenience, hardship, force reduction, a condition that interferes with duty, or a compensation-qualifying service-related disability

Active Duty

Eligibility can be established after 90 consecutive days of service and must be re-established if you are discharged or released from active duty.

Serve(d) in Selected Reserve or National Guard

You can meet the eligibility criteria through active duty service while in the Guard or Reserves. You can also meet eligibility requirements once you’ve served for six years and meet any of the following criteria:

  • Honorable discharge
  • Retired
  • Transferred to Standby or Ready Reserve because of honorable service
  • Still in Selected Reserve
  • Served for less than six years due to a service-related disability

Spouse of Military Member

  • Your spouse died while in service or because of a service-related disability and you have not remarried
  • Your spouse died while in service or because of a service-related disability and you remarried on/after age 57 or on/after December 16, 2003
  • Your spouse is MIA or a POW
  • You are the surviving spouse of a veteran whose death was NOT service-related, BUT you receive DIC benefits

In all instances above a dishonorable discharge from service will disqualify you.

VA Loan Certificate of Eligibility

Once you’ve looked over the VA loan guidelines and established your VA home loan eligibility, the next step is to obtain a VA Loan Certificate of Eligibility (CoE). This document shows lenders that you qualify for a VA-backed loan.

There are three ways to get a VA Loan Certificate:

  • Online,
  • via snail mail, or
  • through your lender.

The route you pursue will be based on your eligibility requirements. I have previously purchased a home with a VA Loan through two different lenders. Each time I requested the CoE through the lender, which was able to obtain the document from the VA within a few days.

You will also need to provide specific pieces of evidence based on your VA loan qualifications. They are listed below:

Veterans with Active Duty Service

If you fall into one of these categories, you need to fill out and submit a copy of your DD Form 214. Specific attention will be paid to items 24 (character of service) and 28 (narrative reason for separation).

Active Duty Service Member

If you are currently on active duty, you need to provide a current statement of service. It should include your full name, social security number, birth date, entry date of active duty, length of any lost time, and the name of the commander providing the info. It should also be signed (or directed by) the adjutant, the personnel office, or the commander of your unit or higher quarters.

Guard & Reserve Members

Current National Guard or Reserve Member (Never Activated)

  • You need to provide a statement of service. It should include your full name, social security number, birth date, entry date of active duty, length of any lost time, and the name of the commander providing the info. It should also be signed (or directed by) the adjutant, the personnel office, or the commander of your unit or higher quarters.

Discharged National Guard Member (Never Activated)

You should submit the following:

  • NGB Form 22
  • Report of Separation
  • Record of Service for each service period
  • NGB Form 23
  • Retirement Points Accounting
  • Proof of the character of service

Discharged Member of Selected Reserve (Never Activated)

  • You should submit the most recent copy of your Annual Retirement Points Statement as well as evidence of honorable service.

Surviving Spouse

The process for surviving spouses depends on whether or not you are receiving Dependency and Indemnity Compensation (DIC) benefits. DIC is a tax-free monthly benefit paid to eligible survivors of military Servicemembers who died in the line of duty or eligible survivors of Veterans whose death resulted from a service-related injury or disease.

Receiving DIC Benefits:

  • You need to complete and submit VA Form 26-1817 as well as Veteran’s DD214 (if available). Be sure to include your and your spouse’s social security numbers on Form 26-1817.

Not Receiving DIC Benefits – You will have to provide the following:

How to Qualify for a VA Loan

As you probably guessed, qualifying for a VA loan is more than just filling out paperwork. You also have to meet some financial requirements.

Underwriting Requirements

When you initially go to see a lender, they will feed your info into the Automated Underwriting System so that they can get through the process more quickly. This helps them figure out upfront whether you meet the base credit and income requirements. Some red flags that will kick you out of the running include:

  • No credit depth or history
  • A bankruptcy within the past two years
  • Defaulting on federal debt
  • Federal debt delinquency
  • Late mortgage payments
  • Foreclosure
  • Short Sale
  • Deed-in-lieu of foreclosure

In some cases, you may have to work with a live underwriter, which means the requirements to progress to the next level will likely be more stringent. For example, they may have less wiggle room to work with you on your debt-to-income ratio, and it may impact the amount of your loan.

Debt-to-Income Ratio

Even if you qualify in every other respect, if your debt-to-income ratio (in other words, how much of your monthly income goes towards debts), is over 41%, your VA loan application will likely be rejected because you will be viewed as a high liability. They also don’t want to put veterans in situations where they will become embroiled in even more debt, so if you don’t qualify in this area, it is likely best to wait until you do anyway.

The easiest way to determine your Debt-to-Income ratio is to divide your annual income by 12 and then multiply that number by .41. If your monthly debt obligation is not higher than that number, you should be able to qualify for a VA home loan.

Credit Score

While the VA doesn’t require borrowers to have a specific credit score to consider you for a home loan, they are unable to control what the lenders ask for. With that being said, it’s common for lenders to require a FICO score of 620 or higher.

They also, as mentioned above, take into consideration your past credit patterns, especially within the past year. So, if you have a low credit score, but have spent the past year or so making regular payments to eliminate debt, you will look much more appealing than someone who has a lot of delinquent debt that they have not paid on at all.

Types of Property You Can Buy with a VA Loan

If you’ve gotten this far and feel confident that you meet the VA loan requirements, you might be wondering exactly what kind of property you can buy with a VA loan. The VA can and will require you to have the property you are interested in buying not only inspected but appraised before they will agree to anything. If the property doesn’t meet the VA minimum property requirements, the loan will not go through.

Residential Property

One of the more obvious requirements is that the property must be primarily for residential use. This means that:

  • It must have the space for basic living amenities (living, sleeping, cooking, dining, and bathroom quarters)
  • It must have safe and operable mechanical systems, such as a water heater, furnace, etc.
  • You must live at the property
  • No more than 25% of the property can be used for commercial use
  • Any commercial use of the property should not interfere with the property’s primary function as a place of residence
  • It must be structurally sound
  • It must be accessible by foot and by car

Existing Property

If you hope to secure a VA home loan to buy a home that you’ve had your eye on, it has to have been completed at least one year before being approved or have been previously occupied by the owner.

New Home

  • If you want to buy a home that does not fit the above criteria for an existing home, there’s still hope! If it meets any of the following requirements, it may still be eligible for a VA home loan:
  • It’s covered by a one-year VA builder’s warranty
  • It’s actively covered for ten years by a HUD insurance policy
  • It was built by the veteran under a general contractor role and will be his/her place of residence
  • It is properly appraised and not found lacking
  • It has a permanent foundation and taxed as real estate
  • It is an approved condominium development (if it is a condo)

Multi-Family Homes

One really cool thing about the VA home loan program is that it does allow you to buy a multi-family home for up to four units. The only stipulation is that the veteran or qualifying spouse must live in one of those units.

A few other things to note about properties is that while a VA home loan can be approved for one to four residential, owner-occupied properties, they are not intended for use towards vacation properties, investment properties, second homes, or non-residential farms. The loan is intended to enable veterans and qualifying spouses to buy primary residences.

Lastly, remember that VA loan limits do exist when you are choosing the best route to take. The loan limit for most areas is around $484,350, but you can use a VA Loan Limit Calculator to get a more accurate figure for your area.

Where to Apply for a VA Loan

Ther are many great companies that can process a VA Loan. In fact, most home lenders offer VA Loans. The best thing to do is to contact several lenders to compare your options and the total cost of the loan. Be sure to compare factors such as interest rate, origination fees, closing costs, cost of points, whether or not they service the loan or sell it, and other factors.

Here are some VA Lenders to get started (or click on your state on the map below):

  • Veterans United – Most Popular (they closed the most VA Loans in the U.S. in 2018).
  • Quicken Loans – All Online Process – Easy to Use.
  • NASB – Top 10 VA Lender – they do not charge an origination or application fee for VA loans.
  • J.G. Wentworth – Great for refinancing a VA Loan.

I hope that this helps to demystify the VA Loan eligibility process for you. If you have any questions, feel free to ask away in the comments section.

Ryan Guina served over 6 years on active duty in the USAF and is currently serving in the IL Air National Guard. He has been writing about military and financial topics since 2007. He also writes about money management and investing at Cash Money Life and military benefits and related topics at The Military Wallet. Ryan uses Personal Capital to track and manage his track his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free account here.

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