In the VA Loan industry there seems to be many myths about who and when one can qualify for a VA Loan. Don't let these common misconceptions deter you from looking into it and hopefully the information below will help you secure a loan for your home.
#1 Myth: I don't have a full two years of service so I'm not eligible.
This is not necessarily true across the board. As a general eligibility rule, the VA handbook states that
"a veteran is eligible for VA home loan benefits if he or she served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard and was discharged under conditions other than dishonorable after either:
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90 days or more, any part of which occurred during wartime
OR
181 continuous days or more (peacetime).
2-Year Requirement: A greater length of service requirement must be met by a veteran who:
Enlisted (and service began) after September 7, 1980
OR
Was an officer and service began after October 16, 1981.
These veterans must have completed either:
24 continuous months or more
OR
The full period for which ordered to active duty, but not less than 90 days (any part during wartime) or 181 continuous days (peacetime)."
Also keep in mind that the VA may make exceptions for qualifying veterans under the following circumstances:
Still on active duty Compensable service-connected disability Discharge or release for: Early Out Convenience of the Government after 20 months service Reduction-in-Force Hardship Preexisting medical condition Certain physical or mental conditions
Selected Reserve Including National Guard and Air National GuardUn-remarried Surviving Spouse of Veteran Who Died While in Service or from a Service-Connected DisabilitySpouse of Serviceperson Missing in Action or Prisoner of WarService with Allied Countries in World War IIOther Types of Qualifying Service during World War II and Later
#2 Myth: I can only use my VA benefit for my first home.
According to VA guidelines there are several circumstances in which you may reuse your VA entitlement to secure a home loan:
"Entitlement previously used in connection with a VA home loan may be restored under certain circumstances. Once restored, it can be used again for another VA Loan. Restoration of previously used entitlement is possible if:
o the property which secured the VA guaranteed loan has been sold, and the loan has been paid in full.
-OR-
o an eligible veteran-transferee has agreed to assume the outstanding balance on a VA loan and substitute his or her entitlement for the same amount originally used on the loan. The assuming veteran must also meet occupancy, income and credit requirements of the law.
-OR-
o the prior VA loan has been paid in full and the veteran has made application for a loan to be secured by the same property which secured the prior VA loan. (ie: refinancing situations in which the prior loan will be paid off at closing from a VA Refinancing on the same property.)
-OR-
o the prior VA loan has been paid in full, but the veteran has not disposed of the property securing the loan. The veteran may obtain restoration of the entitlement used on the prior loan in order to purchase a different property one time only. Once such restoration is effected, the veteran's Certificate of Eligibility will indicate the one time restoration. It will also advise that any future restoration will require disposal of all property obtained with a VA loan."
#3 Myth: I have a bankruptcy or foreclosure on my credit history, and therefore am ineligible for a VA loan.
According to VA guidelines, "the fact that a bankruptcy exists in an applicant's (or spouse's) credit history does not in itself disqualify the loan."*
Chapter 7 Bankruptcy (Straight Liquidation and Discharge): In most cases, bankruptcies discharged more than two years ago would not affect eligibility under VA guidelines. If the bankruptcy was discharged within the past one to two years you may still be eligible if you acquired consumer items on credit subsequent to the bankruptcy and have made on-time payments over a continued period of time, AND if the bankruptcy can be shown to have been caused by circumstances beyond your control (such as unemployment, prolonged strike, medical bills not covered by insurance, etc.). These circumstances must be verified and documented.
You would generally not be eligible if the bankruptcy was discharged within the past 12 months or less.
Chapter 13 Bankruptcy: Since this type of filing indicates an effort to pay creditors, you may have an easier time qualifying.
According to VA guidelines, if the applicant has finished making all scheduled payments, he/she has reestablished satisfactory credit and is eligible.
If the applicant has made at least 12 months worth of on-time payments to the Trustee and/or the Trustee or Bankruptcy Judge approves the new credit (such as a refinance to lower interest rate and monthly payment), the veteran may be eligible providing they meet all other criteria.
*Keep in mind that these are VA guidelines, and that while the VA might guarantee your loan based on these criteria, mortgage lenders and banks may have tighter guidelines for approval. You will still have to credit qualify based on your lender's guidelines.
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