In lieu of conventional lending programs, there are many other, more flexible programs available to help those desiring to achieve homeownership. Out of the many loan programs available, the Veteran’s Administration (VA – specific info below), Federal Housing Administration (FHA), and United States Department of Agriculture (USDA) programs are the more popular, as they all provide flexible eligibility requirements and competitive interest rates in addition to other, numerous benefits.
All a potential homeowner has to do is simply pick whichever loan program that best suits his/her needs, and, if eligible, begin enjoying a better home buying experience, an experience that may require less out-of-pocket expense than other home loan programs.
The VA Loan
Are you or were you a member of the military? You may want to consider a Veteran’s loan, which is a loan partially backed by the United States Department of Veterans Affairs, and which is a loan available to veterans or active duty US service members. Because the VA ensures part of each loan, borrowers receive flexible and competitive loan terms making it ideal for any prospective home buyer.
VA Program Benefits
- zero down payment
- no required mortgage insurance
- flexible debt-to-income ratios
The FHA Loan
Looking to purchase your first home, or just wanting to update your current home? An FHA loan may be the best option for you. The FHA home loan program offers a variety of different programs to help borrowers purchase their first home, renovate a fixer-upper, or even update their current home to be more energy efficient. FHA even has a financing option for manufactured housing and mobile homes. Benefits accompanying a FHA loan include:
• 3.5% down payment
• low closing costs
• down payments can be made in the form of a gift
The USDA Loan
Looking to live outside city limits, or in a more rural area? A USDA loan might be for you. Through its Department of Rural Development, the USDA provides two types of loans: a Guaranteed Housing Loan, and a more flexible option, the Direct Housing loan, for low-income households. In addition to offering the comforts of country living, a USDA loan offers:
- Zero down payment
- No mortgage insurance
- flexible credit guidelines
All of these home loan programs provide potential borrowers, even those with imperfect credit, with the opportunity to purchase a home. Over 75% of each of the program’s participants would not have been able to achieve homeownership though a conventional loan. Although the programs all offer flexible eligibility requirements, many approved lenders will desire a mid-range credit score of at least 620. Even if a potential borrower is concerned about their credit or their eligibility, they are still encouraged to apply as borrowers with a history of foreclosure and/or bankruptcy have been considered in the past. (Thanks to: Brandon Fischer)
General Rules for VA Loan Eligibility
Military Service Requirements for VA Real Estate Loan Eligibility
Note: Applications involving other than honorable discharges will usually require further development by VA. This is necessary to determine if the service was under other than dishonorable conditions.
Wartime - Service During:
- WWII: 9/16/1940 to 7/25/1947
- Korean: 6/27/1950 to 1/31/1955
- Vietnam: 8/5/1964 to 5/7/1975
You must have at least 90 days on active duty and been discharged under other than dishonorable conditions. If you served less than 90 days, you may be eligible if discharged for a service connected disability.
Peacetime - Service during periods:
- 7/26/1947 to 6/26/1950
- 2/1/1955 to 8/4/1964
- 5/8/1975 to 9/7/1980 (Enlisted)
- 5/8/1975 to 10/16/1981 (Officer)
You must have served at least 181 days of continuous active duty and been discharged under other than dishonorable conditions. If you served less than 181 days, you may be eligible if discharged for a service connected disability.
Service after 9/7/1980 (enlisted) or 10/16/1981 (officer)
If you were separated from service which began after these dates, you must have:
- Completed 24 months of continuous active duty or the full period (at least 181 days) for which you were ordered or called to active duty and been discharged under conditions other than dishonorable, or
- Completed at least 181 days of active duty and been discharged under the specific authority of 10 USC 1173 (Hardship), or 10 USC 1171 (Early Out), or have been determined to have a compensable service-connected disability;
- Been discharged with less than 181 days of service for a service-connected disability. Individuals may also be eligible if they were released from active duty due to an involuntary reduction in force, certain medical conditions, or, in some instances for the convenience of the Government.
Gulf War – Service during period 8/2/1990 to date yet to be determined
If you served on active duty during the Gulf War, you must have:
- Completed 24 months of continuous active duty or the full period (at least 90 days) for which you were called or ordered to active duty, and been discharged under conditions other than dishonorable, or
- Completed at least 90 days of active duty and been discharged under the specific authority of 10 USC 1173 (Hardship), or 10 USC 1173 (Early Out), or have been determined to have a compensable service-connected disability, or
- Been discharged with less than 90 days of service for a service-connected disability. Individuals may also be eligible if they were released from active duty due to an involuntary reduction in force, certain medical conditions, or, in some instances, for the convenience of the Government.
Active Duty Service Personnel
If you are now on regular duty (not active duty for training), you are eligible after having served 181 days (90 days during the Gulf War) unless discharged or separated from a previous qualifying period of active duty service.
Selected Reserves or National Guard
If you are not otherwise eligible and you have completed a total of 6 years in the Selected Reserves or National Guard (member of an active unit, attended required weekend drills and 2-week active duty for training) and
- Were discharged with an honorable discharge, or
- Were placed on the retired list, or
- Were transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service characterized as honorable service, or
- Continue to serve in the Selected Reserves
Individuals who completed less than 6 years may be eligible if discharged for a service-connected disability.
You May also be determined eligible if you:
- Are an unremarried spouse of a veteran who died while in service or from a service connected disability, or
- Are a spouse of a serviceperson missing in action or a prisoner of war
Note: Also, a surviving spouse who remarries on or after attaining age 57, and on or after December 16, 2003, may be eligible for the home loan benefit. However, a surviving spouse who remarried before December 16, 2003, and on or after attaining age 57, must apply no later than December 15, 2004, to establish home loan eligibility. VA must deny applications from surviving spouses who remarried before December 6, 2003 that are received after December 15, 2004.
Eligibility may also be established for:
- Certain United States citizens who served in the armed forces of a government allied with the United States in WW II.
- Individuals with service as members in certain organizations, such as Public Health Service officers, cadets at the United States Military, Air Force, or Coast Guard Academy, midshipmen at the United States Naval Academy, officers of National Oceanic & Atmospheric Administration, merchant seaman with WW II service, and others.
Obtaining a VA Certificate of Eligibility
VA determines your eligibility and, if qualified, a certificate of eligibility will be issued. Eligibility applications can involve:
- An original determination of eligibility for the real estate – home loan benefit
- A request to replace a lost certificate of eligibility
- A request for restoration of the benefit after payment in full of a previous VA home loan
- Issuance of a certificate reflecting a current outstanding loan for refinance purposes.
Requesting an Eligibility Certificate Through Your Lender:
In many cases, your lender will be able to obtain a Certificate of Eligibility for you by using ACE (Automated Certificate of Eligibility). ACE is a web-based application that is able to determine eligibility and issue an online Certificate of Eligibility in a matter of seconds. Not all cases can be processed through ACE. If there is insufficient data in our records, the certificate will have to be requested from VA using the procedures below:
Requesting a certificate from VA:
- Complete VA Form 26-1880, Request for a Certificate of Eligibility for VA Home Loan Benefits.
- Send the completed VA Form 26-1880 and any supporting evidence (see 3 and 4 below) to our Winston-Salem Eligibility Center. Under normal circumstances a response can be anticipated in roughly 10 days. This time frame will vary during periods of heavy activity.
- Include photocopies of your most recent discharge or separation papers covering active military duty, which show active duty dates and type of discharge. If you served on regular active duty (not a reservist) and were discharged after 1975 or you have previously had a VA loan, it may not be necessary for you to provide documentation of your military service. However, it is best to provide such evidence with your VA Form26-1880 if it is readily available so as to avoid possible delays in processing your request.
- If you are seeking restoration of your previously used benefit, you should include any evidence of payment in full of your prior loan (copy of HUD-1, settlement statement for example) that you have in your possession. Normally VA receives notification that a loan has been paid, but this does not always happen. VA determines your eligibility and, if you are qualified, VA will issue you a certificate of eligibility to be used in applying for a VA real estate – home loan.
If you were discharged from regular active duty
If you were separated after January 1, 1950, the appropriate documentation of your military service would be DD Form 214, Certificate of Release or Discharge from Active Duty. If you were discharged after October 1, 1979, DD Form 214, copy 4 would be appropriate. A photocopy of DD214 will suffice. Do not submit an original document.
If your service was in Selected Reserves
If you served in the Selected Reserve you must provide documentation sufficient to establish that you served a minimum of 6 years with points earned for weekend drills or active duty for training and received an honorable discharge. Since there is no uniform document similar to DD214 for proof of service in the Selected Reserve, a number of different forms may be accepted.
For those who served in the Army or Air National Guard and were discharged after at least 6 years of service, NGB Form 22 may be sufficient.
Those who served in the Army, Navy, Air Force, Marine Corps or Coast Guard Reservesmay need to relay on a variety of forms. Often it will be necessary to submit a combination of documents such as an Honorable Discharge certificate together with a Retirement Points Statement.
If you remain on active duty
If you are now on regular active duty and have not been previously discharged from active duty service, you must submit a statement of service which includes the name of the issuing authority (base or command), and is signed by or at the direction of an appropriate official. The statement must identify you (SSN), and provide your date of entry on active duty and the duration at any time lost. If you remain on active Selected Reserve duty, the statement of service should be from your unit CO and should cite the length of time you have served with the reserve unit.