A home loan benefit is available to past and present members of the U.S. military. The U.S. Department of Veterans Affairs, or VA, backs mortgage loans issued through private lenders. To be eligible for VA home loans, borrowers must meet the minimum criteria set by the VA.
Certificate of Eligibility
First, a borrower must have a certificate of eligibility from the VA in order to obtain a loan. To receive this certificate, the borrower must file VA Form 26-1880, Request for Determination of Eligibility and Available Loan Guaranty Entitlement. Veterans with documented active duty service of at least 90 days during World War II or in later wars are eligible for the certificate. The requirements for veterans who served only during a time of peace varies by year and station, but the minimum service time ranges from 181 days to two years. Reservists and National Guard members activated after August 2, 1990 who were on active duty for at least 90 days may be eligible for a certificate. Spouses of service members who died during service or due to a disability as a result of service are also eligible under specific circumstances, as determined by the VA. Persons who received a dishonorable discharge at any time are usually not eligible for a certificate.
The VA requires an appraisal, or determination of the home's market value by a professional, for every VA loan. The borrower or another party involved in the deal, such as the lender, requests a VA appraisal by filing VA Form 26-1805, Request for Determination of Reasonable Value. The VA will assign an appraiser to determine whether the home is worth the amount of the mortgage loan being requested.
Current or former service members get a set entitlement amount, which is the dollar total the VA will insure the loan for. A member's basic entitlement amount is $36,000 as of 2010, acording to the VA. Some entitlement must be available in order to receive a VA loan. For example, a person with a prior VA loan that was paid in full frees up her entitlement when she sells the home. A person who has paid a VA loan in full but still owns the home is allowed to have eligibility restored to obtain another VA loan only once.
Acceptable Financial Status
The VA requires that a borrower's income be documented and sufficient for meeting the loan's monthly repayment obligations. Employment outside of the military must cover at least two years. The borrower must provide a written explanation if her employment doesn't cover a two-year period. The lender will search for unpaid federal debts, such as student loans, and the borrower must address these debts before the VA loan will be approved. Although some credit decisions are left up to the private lender, the VA requires borrowers with poor credit histories to pay all past due accounts in full and make timely payments for at least 12 months on current accounts. Bankruptcies that were discharged two or more years from the date of the application are not considered, but a more current bankruptcy merits additional investigation by the lender.