VA Home Loan Certificates: What Are They and How to Apply

Sacrificing for your country shouldn’t leave you at a disadvantage when it comes to buying a home. The VA home loan program was created in 1944 to level the playing field for service members and veterans who want to finance a home purchase.

VA home loans are guaranteed by the U.S. Department of Veteran Affairs, which means the government will repay a portion of the loan to the lender if the borrower defaults. This guarantee enables qualified lenders to confidently provide financing to veterans who may not otherwise be able to secure a home loan. Since its inception, the loan program has helped more than 24 million veterans achieve the dream of homeownership.

If you’re an active-duty service member, a veteran, or the surviving spouse of a service member, you may be eligible for a VA home loan. Read on to find out about eligibility requirements and how to apply.

What Is a VA Loan Certificate of Eligibility?

A VA loan certificate of eligibility (COE) is proof that your military service meets the requirements necessary to secure a VA home loan. Since the loan was created in 1944, the program has expanded to include veterans from multiple conflicts, as well as service members of the National Guard and Selected Reserve. Here are the eligibility requirements for a VA loan certificate:

• You’re either an active-duty service member or a veteran, who has been honorably discharged.
• You’ve completed at least 90 consecutive days of active duty during wartime or 181 consecutive days of active duty during peacetime.
• You’ve completed more than six years of service in the National Guard or Selected Reserve.
• You are the unmarried, surviving spouse of a veteran who died while on active duty or as a result of a service-connected disability.
  
  

If you don’t meet the minimum service requirements, according to VA.gov, you may still be able to get a COE if you were discharged for one of the following reasons:

• Hardship
• The convenience of the government (i.e., you served at least 20 months of a 24-month enlistment)
• Early out (i.e., you served at least 21 months of a 24-month enlistment)
• Reduction in force
• Certain medical conditions
• A service-connected disability (i.e., a disability related to your military service)
  
  

You may also be able to restore an entitlement you used to buy a home in the past with a VA loan if you meet one of the following requirements, as explained on VA.gov:

• You have sold the home that you bought with the prior loan and paid off that loan in full.
• A qualified veteran transferee agrees to assume your loan and substitute their entitlement for the same amount of entitlement you used originally.
• You’ve repaid your prior loan in full but haven’t sold the home you bought with that loan—note that you can only do this one time.
  
  

For a more complete list of requirements and exceptions, visit the U.S. Department of Veterans Affairs webpage.

What Are the Advantages of a VA Home Loan?

Because VA home loans are guaranteed by the U.S. Department of Veteran Affairs, the terms are more favorable than for most mortgage loans. A VA loan entitlement is the amount of money the VA will guarantee the lender if you default. The basic entitlement is 25 percent of your total mortgage or $36,000—whichever is less.

Lenders are typically willing to loan up to four times the amount of the entitlement, so you may be able to get a loan for $144,000 on the basic entitlement. If you need to purchase a home for more than $144,000, a bonus entitlement can be used, which is up to 25 percent of the Federal Housing Finance Agency (FHFA) loan limit ($510,400 in 2020), minus the basic entitlement.

Here are a few advantages of a VA home loan:

• No down payment: With a VA loan, you have the option of zero down payment, although if you opt for zero down, you will pay a slightly higher VA funding fee.
  
  
• No need for mortgage insurance: Because the entitlement usually amounts to more than 20 percent of the home’s value, there’s no need to purchase mortgage insurance. You will have to pay a VA funding fee instead, which will vary based on the size of your down payment:
• With no down payment, the typical fee will be 2.3 percent of the mortgage.
• A 5-10 percent down payment will have a fee of 1.65 percent.
• A down payment of 10 percent or more will have a fee of 1.4 percent.
• No minimum credit score requirement: While there is no set minimum, you will be more likely to get approved for a loan with a score of 620 or higher.
  
  
• Low interest rates: VA loans will likely have lower interest rates than conventional loans.
  
  
• Possibility of reducing your interest rate by refinancing a VA loan through the interest rate reduction refinance loan (IRRRL).
  
  

When taken together, the advantages of a VA home loan make financing a home achievable for service members and veterans.

How Do I Apply for a VA Home Loan Certificate?

Applying for a VA home loan certificate can be surprisingly simple. Here are a few ways to apply:

• Online through the eBenefits portal.
• Through your lender. Any qualifying lender should be able to walk you through the process.
• By mail. This method will take longer, but it is an option for those who don’t want to apply online. Fill out VA Form 26-1880 and mail it to the address listed on the form.
  
  

Here’s what you’ll need to apply:

• Veterans: DD Form 214
• Active service: Signed statement of service, which should include:
• Full name
• Date of birth
• SSN
• Date started duty
• Any lost time
• Name of command providing info
  
  

Applying for your certificate of eligibility is just the first step toward securing a VA home loan. Once you have your COE, the next step is for your lender to request a VA appraisal of the house, which will provide an estimate of the house’s market value at the time of inspection.

The lender will then review the appraisal, as well as your credit and income information, and decide if they should accept your loan application. If everything looks good, you will be granted a VA home loan and be on your way toward purchasing your new home.

Interested in Learning More About VA Home Loans?

A VA home loan is an excellent way to finance a home if you’re a service member or veteran. If you’re interested in learning more about VA home loans and whether you qualify, get in touch with a loan officer today.