The Department of Veterans Affairs (VA) is responsible for guaranteeing home loans made by lenders to qualified veterans. While this lending option has been around for many decades, it seems to stay in the shadows of the more popular programs offered by Fannie Mae, Freddie Mac and even the FHA. However, if you are either a veteran or active-duty service member, you should consider checking with your mortgage professional to learn how a VA guaranteed loan could help finance your home.
One of your advantages as a VA borrower is that of the loan guaranty. Instead of your lender requiring a down payment or mortgage insurance, the guaranty by the VA replaces these requirements and protects your lender in case you fail to repay your debt. The guaranty allows your lender to offer you more favorable terms such as 100 percent financing and flexible credit standards too.
But before you can enjoy all of the benefits and borrowing power of a VA loan, you must obtain a Certificate of Eligibility (COE). This is a formal document that certifies you have a VA entitlement and are eligible to participate in the program. The entitlement is the amount of money the VA will guarantee on your loan. Without this document, you won’t be able to proceed with your request for VA financing.
To get a COE, you have to prove to your lender that you are eligible for one. According to the VA, there are three categories of applicants. The first is veterans, active duty, and reservists/national guard members who have served on active duty. The second is reservists/national guard members who have never served on active duty and the third is surviving spouses of veterans who have died in service or as a result of service. There is a chart at benefits.va.gov/homeloans/eligibility that explains in detail the evidence needed to document your eligibility for each of these categories.
Upon receipt of your proper documentation, your lender can access the VA’s electronic database and determine within seconds your eligibility, assuming there are current records for you in its system. Should this process be unsuccessful, it doesn’t necessarily mean that you are not eligible. It might just require that your lender prepare a new electronic application to update your file with the VA or directly mail in your request. Once you have your COE, it won’t expire. Although, your lender may want to see a recently issued COE or, in certain cases, a restored one if you’ve previously used your entitlement.