Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 25, 2012

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Reeling from the continued credit crunch, banks have tightened their lending standards. Fortunately, home loans are available to qualified veterans looking to purchase a home.

In the mortgage process for veterans, the Department of Veterans Affairs is not the direct lender. Rather, private lenders offer VA-backed loans that are guaranteed by the federal government. Fortunately for prospective borrowers that qualify, these mortgages feature plenty of benefits. Here are five of the best reasons why borrowing a VA home loan is an excellent decision.

Eligibility

The majority of service members, including those of the National Guard, are eligible for a VA home loan.

Spouses of veterans may also apply if their husband or wife died, went missing, or became disabled while on active duty.

Most members qualify for veteran home loans after six months of active duty service. Unfortunately, reservists and members of the National Guard must wait six years before they gain VA eligibility. However, that eligibility is expedited if they are called up for 181 days of service or more.

Down Payment

Your common citizen will discover that it’s impossible to find a mortgage lender who will offer a no-down-payment home loan. Fortunately for military service members, that impossibility doesn’t apply—VA home loans do not require a down payment.

Additionally, VA mortgages do not require mortgage insurance even though borrowers don’t put any money down. This allows most borrowers to end up saving a significant amount on their monthly payments.

This benefit is especially helpful for military members who did not earn a large amount of money or were unable to save up money during their service career.

Fees

The VA requires a one-time funding fee to cover the availability and cost of processing a loan, however that fee is typically lower than the fees required for conventional mortgages.

The funding fee varies slightly depending on whether a service member is or was active. Even though reservists and National Guard members pay slightly higher funding fees than active-duty members, they still pay less than they would for a conventional mortgage.

For disabled applicants, the fee is completely waived, allowing them to save even more money.

Underwriting Requirements

While the Department of Veteran Affairs does not have credit score requirements, private lenders operate under separate policies and practices which limit who they can lend money to.

As with any other loan application process, VA home loan borrowers must show they have a sufficient debt-to-income ratio. Fortunately, VA home loan lenders are generally very flexible with their credit and income requirements when compared to conventional lenders.

This remains true even for those who suffered past financial distress. While conventional mortgage lenders sometimes lock previously foreclosed homeowners out from borrowing again for almost a decade, mortgages for military service members are available to previously bankrupt or foreclosed homeowners after just one year.

Default Protections

Veteran Affairs has seen to it that borrowers undergoing financial distress receive mediation. Additionally, financial counselors can help borrowers negotiate repayment plans, loan modifications, and other alternatives to foreclosure.

Despite these benefits, mortgage loans for veterans may only be used to finance a primary home and cannot be used to purchase or refinance vacation homes and investment properties.

Prospective borrowers that qualify for a VA mortgage should really take advantage of their chance to purchase a home with this veteran-specific financing. Having volunteered for service, it is more than fair for service members to enjoy the home ownership benefits that specifically come with VA home loans.