Veterans, service members, and their families believe in homeownership. In fact, the homeownership rate among veterans far outpaces that of civilians. But the financial toll of military service can make it tough for some veterans to get a financial foothold, let alone land a home loan. The good news is those who serve have access to a host of home-buying benefits and protections, from what’s arguably the most powerful home loan on the market to financial safeguards and more.
Let’s take a closer look.
VA loan program
Since the VA loan program’s inception in 1944, the Department of Veterans Affairs has backed more than 21 million loans for veterans, active-duty military members, and their spouses. This program has made buying a home more accessible to those who most deserve the American dream they helped build and protect.
VA loans feature many benefits that help make home buying possible, including the following:
No down payment requirement
No mortgage insurance
Lower average interest rates
Limits on closing costs
More lenient credit requirements
VA home loans have boomed in recent years, attracting many veterans and military members who may not qualify for conventional loans, which have stricter credit requirements. Still, many eligible buyers are unaware of the benefits of VA home loans and the protections they offer. Some buyers also make the mistake of assuming a government-backed loan comes with endless red tape and miss an opportunity to benefit.
Typically, veterans and active-duty service members are eligible for a VA home loan if they served in the following capacity:
90 consecutive days on active duty during wartime
181 consecutive days on active duty during peacetime
6 or more years in the National Guard or Reserves
Some spouses of military members who died in the line of duty or of a service-related disability may also be eligible for a VA loan.
Talk with a VA lender about obtaining your Certificate of Eligibility and getting a sense of your purchasing power.
Occupancy & power of attorney
VA loans are focused on getting buyers into homes they’ll live in full time. But the program makes exceptions for some veterans and active-duty service members.
For example, a spouse or children may be able to fulfill the occupancy requirement on behalf of a VA buyer. Also, a VA buyer who is deployed or otherwise unable to manage the loan process can typically assign a power of attorney to a spouse or family member to manage the loan process and sign documents. There are two types of power of attorney: general and specific. The type needed depends in part on what loan-related documents the VA buyer can sign.
The occupancy and power of attorney options mean an eligible VA buyer’s spouse and children could buy a home during a deployment or unaccompanied assignment, helping alleviate the emotional toll of multiple moves on military families.
Basic allowance for housing
Many active-duty military members who receive a monthly housing allowance are surprised to learn that they can use this money to qualify for a home loan. Lenders can count Basic Allowance for Housing (BAH) as effective income. That can help service members make the leap from renting to owning, especially in higher-cost areas. BAH is based on several factors, including the location of your duty station, your pay grade, and your family size. The housing allowance can change on an annual basis. To calculate your BAH, refer to the BAH calculator on the Defense Department’s website.
Even after becoming homeowners, active-duty service members can face unique financial challenges. Deployment and changes of station can strain a family emotionally and financially. The Servicemembers Civil Relief Act (SCRA) provides active-duty military personnel and their families financial protection involving interest rates, income tax payments, eviction, foreclosure, and more.
For example, military personnel can ask creditors—including their mortgage lender—to cap their interest rate at 6% during their term of service. The SCRA also forces lenders and servicers to seek a court order to foreclose on active-duty military members during their time of service and up to nine months afterward.
Veterans Affairs also offers foreclosure avoidance protection assistance for homeowners. The VA has a team of experts who work with lenders and servicers on behalf of struggling homeowners to find alternatives to foreclosure. Their efforts have helped nearly 500,000 veterans and service members avoid foreclosure in the past six years alone.
Check with your local Armed Forces Legal Assistance office for more information regarding the Servicemembers Civil Relief Act. VA homeowners in jeopardy of defaulting on their mortgage can contact the VA loan program at 877-827-3702.
This article was written by Chris Birk, director of education at Veterans United Home Loans and author of “The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits.”