Considerations For Using Your VA Loan Benefits as a Veteran
If you have never used your VA home loan benefits and are planning to retire or separate from the military, there are some issues to consider. For example, if you are not retiring, but separating from the military, buying a home may be more complicated if you don’t have a job lined up at loan application time. This is not a problem in all cases, but for some applicants, it is a factor to consider.
Why? VA loan rules have minimum employment and income guidelines. Not necessarily a dollar amount, but instead minimum time on the job may be required depending on the nature of the employment and other variables. And what about the applicant who has separated but is still searching for work?
Your lender will need income to verify for the loan and if your job hunt winds up taking longer than you anticipate, that might be a complicating factor when it comes to loan approval. It’s smart to consider talking to a loan officer long before you actually decide to retire or separate if you want to buy a home after becoming a civilian again.
Your lender may have requirements to certify how much time you have remaining in your current enlistment or commission; the lender may not be able to approve a home loan without a minimum service commitment or evidence that you have accepted a job that will begin after you retire or separate.
Applying For a VA Loan as a Veteran
Getting a VA loan as a retired or separated military member involves some different requirements than for those on active duty. One example? Retired and separated applicants will be required to show proof of discharge by providing the lender with a copy of DD Form 214 or the Guard/Reserve equivalent. You will need to provide this along with a VA Certificate of Eligibility.
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Veterans (as opposed to those currently serving) may have VA-rated disability ratings awarded after retirement or separation. Any veteran who receives or is eligible to receive VA compensation for service-connected medical issues may apply for a waiver of the VA loan funding fee, which can amount to a savings of thousands of dollars.
The waiver is not automatic and must be applied for. It is not available until you have been formally awarded a VA disability rating, and your lender may require you to pay the VA loan funding fee if the VA hasn’t made a decision at application time. The good news is that you can apply for the funding fee refund once your VA rating is official. The refund, like the waived fee itself, is not automatic and must be applied for.
VA Loan Considerations
Your future plans can play an important part in the decision-making process for a home loan. Some might want to own a home and go to college using their GI Bill benefits. The Post 9/11 GI Bill offers a housing stipend to qualifying GI Bill users equal to the housing allowance for an E5 with dependents.
It would be easy to assume you could qualify for a VA mortgage using that housing stipend as income, but that would be the wrong assumption to make. The VA Loan program specifically instructs lenders not to accept GI Bill housing payments as income because those payments are limited to a specific amount of time and are not “likely to continue”.
You can’t draw the housing stipend indefinitely, it is only paid when you actually attend class, and your lender can’t count on that as verifiable income under VA loan program rules.
Some veterans transition from military life into a civilian career with few problems. Consider the Air Force pilot who moves into a civilian airline job right out of the military. A VA loan for a highly-skilled employee like a pilot or engineer would not be as difficult to approve because the borrower has the ability to compete for lucrative, hard-to-fill opportunities.
But what happens to the military member who leaves the service with the goal of starting her own business? Lenders typically want to see two years of income from self-employed applicants, plus business paperwork like profit-and-loss statements, taxes, etc. If you haven’t been self-employed for two years at application time you may have difficulty getting a loan approved.
The same is true for those who want to work on a commission basis, operate as freelancers or independent contractors, etc. In short, the nature of the work you pursue outside the military could affect your home buying plans, especially if you want to purchase right away after getting out of the military.
Depending on the branch of military service, mission demands, staffing issues, and other variables, you may be allowed to request permissive TDY to go house hunting before you retire or separate.
This can be especially important for those who, due to circumstances, must separate from an overseas location. If your final out-processing is accomplished overseas, you may wish to use permissive TDY for house hunting to help ease the transition. Ask your command support staff, First Sergeant, Command Sergeant Major, or Detailer about the TDY option and what it may require to be approved.
Using a real estate agent in such cases may be a very good idea. If you want to get help narrowing down your choices while still serving (especially overseas) an agent could become your best friend in the house hunting journey.
And if you do choose this option, consider getting pre-approved for a VA mortgage loan to help home sellers take you more seriously as a buyer. Pre-qualifying and pre-approval are often viewed as two separate steps in the home loan process. What you want to do first is to fill out the basic pre-qualification form, get an estimated loan amount, and talk to the lender about preliminaries.
With a pre-qualification letter in hand, you and a real estate agent can work together to find a suitable home even if you are still assigned overseas when the process begins.
This is a stage that leaves you vulnerable to fraud, hacking, and scamming if you aren’t careful. Beware of replying to unsolicited offers, don’t respond or click on links in email or text messages. Be especially wary of any communication asking you to initiate or receive a wire transfer. Many lenders state specifically that they will never ask you to participate in a wire transfer by email.
Why the concern? Scammers use wire transfers because they are easy ways to take your money and disappear. It’s one of the most common features of a scam–the inability or refusal to accept payment in any way except a wire transfer.
Things to Remember About the VA Loan Process
Everything about the VA loan application process will require details about your current status. If you don’t have a DD Form 214, or if you do not have a retirement/separation date yet, a loan officer may not be able to help much. The same is true for things like the waiver for the VA loan funding fee; if your records show your current status as awaiting a VA decision, the lender can’t act on future updates to your records. They must take the data that is shown in your records as current at face value.
That is one reason why it is smart to talk to a VA lender long before you apply–knowing when to submit your application (based on status updates and other factors) may change your mind about the speed of the entire process. In the same way that it’s better to wait to apply for a home loan until you have a solid 12 months of on-time, every time payments on all financial obligations on your credit report, it’s also a good idea to wait in some cases until you have had your status updated, received your separation date, etc.
For some, that wait may not be an option, but if it is, consider the timing of your loan. It could wind up being an important factor.
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