For military borrowers and veterans of the U.S. Armed Services, VA loans via the Department of Veterans Affairs are often the easiest, least-expensive paths to homeownership.
allow for up to 100% financing with no mortgage insurance required, while offering flexible mortgage guidelines and some of the lowest .
Not all homes will be VA loan-eligible, however. The Department of Veterans Affairs prohibits certain home-types from using its popular VA loan mortgage program.
VA Loans Offer 100% Financing With No PMI
The historic VA Loan Guaranty program has helped millions of veterans and service members obtain home financing since 1944.
Sponsored by the Department of Veterans Affairs, VA loans are available for purchase and refinance, and can be used by members of the Army, Navy, Air Force and Marines; as well as members of the U.S. Coast Guard, National Guard, and Reserves.
Primary residences are the heart of the VA home loan program.
70 years ago, VA loans were created to help U.S. veterans purchase properties to live in “full-time”.
With program features including 100% financing, plus a waiver on private mortgage insurance requirements, the VA loan program has helped to open the doors to homeownership to hundreds of thousands of military borrowers who might otherwise struggle to secure a mortgage.
However, because the VA loan program is geared toward primary homes, some buyers may find the program unsuitable for their needs.
The VA insures a lot of home types nationwide, but not all of them.
VA Loan Program For Primary Residences
VA loans are similar to in that the Department of Veterans Affairs isn’t the group which makes the actual home loan. Rather, the VA insures the loan — or, rather, a portion of the loan, to be exact.
The VA’s loan insurance is known as the VA guaranty, and it gives U.S. lenders the confidence required to make 100% LTV mortgages to qualified VA borrowers.
Veterans can use their hard-earned home loan benefits to purchase condos, single-family residences, and even multi-unit properties so long as they plan to live in the home as their primary residence.
However, the VA won’t issue its guaranty for what it considers “ineligible purposes.”
Some of those ineligible purposes can include:
- Buying land with the intent to build a home on it in the non-immediate future
- Buying a property to be used as a rental or investment property
- Buying a home to be used as a second home or vacation property
- Buying a home in a foreign country
Military borrowers wanting to use the VA loan program for anything other than a primary residence will find lenders unwilling to make such loans. The lone exception is for the refinance of a home which was previously owner-occupied, but which is now a rental home.
The VA will allow homeowners who once lived in a home which is currently a rental to refinance using the VA Streamline Refinance.
VA Loans Which Lenders Won’t Always Approve
The Department of Veterans Affairs maintains a rulebook by which all of its guaranteed loans must abide.
Lenders have to meet those guidelines in order to receive the VA’s financial guaranty. But lenders are allowed to build in additional requirements that go beyond the VA guidelines. That’s because it’s the lender, not the VA, who’s ultimately facing the bulk of the loss if the borrower defaults.
These additional hurdles are often known as “investor overlays.”
Three common investor overlays for VA loans are:
Veterans can use their VA loan benefits to purchase manufactured housing, which is sometimes referred to as a “mobile home”.
However, it can be difficult to find a VA lender willing to make a loan for mobile homes. This is because mobile homes / manufactured homes typically lose value over time whereas a single-family resident typically gains value over time.
There are lenders who make VA loans for mobile homes so, if at first your loan is turned down, consider getting a second opinion.
The Department of Veterans Administrator allows for a no-down payment construction loan, but there are very few banks which offer such a loan anymore. Veterans in search of construction loans, it’s more common to use the program; or, to obtain a construction loan from a local bank.
Both loan types can be refinanced into a VA mortgage as construction nears completion.
VA borrowers may also have trouble finding lenders to finance homes with income-producing attributes, including homes with working farmland; a horse barn; or, an outbuilding containing a shop.
Investor overlays for income-producing properties can vary wildly among lenders. Veterans considering such properties, therefore, should alert their lender soon as possible. This way, you can know whether a home is “financeable” while potentially saving yourself the cost of both a home appraisal and home inspection.
Get Today’s VA Mortgage Rates
VA mortgages are a terrific way for veterans to join the ranks of homeownership. Approval standards are relaxed for military borrowers, downpayment requirements are waived, and accompanying VA mortgage rates are often lower than for comparable home loan programs via Fannie Mae and Freddie Mac.