Last Updated on February 8, 2023 by Bob Filipczak
The VA home loan program has been around for decades, but the VA loan for reserves is a recent development. A lot of reservists don’t even know they are eligible for the benefit. As a reservist, you should learn more about your VA benefits, and if you are in the market to buy a house, the VA loan system is something you will definitely want to take advantage of.
The two things you probably want to know up front:
- Am I eligible?
- How much can I save?
The short answer to the first one is, you are eligible if you have 6 years of service and were mobilized for at least 90 consecutive days of active duty service. You are also eligible if you were discharged for a service-related disability.
The answer to “how much can I save?” is a lot. A VA loan for reserves does not require a down payment, you will get a lower interest rate on your loan and you don’t have to pay private mortgage insurance. That adds up to thousands of dollars in savings, up front and over the life of your loan. We will get a bit more into that later.
What is the VA Loan? The Short Course
As an eligible reservist, you are entitled to a VA insured loan. This insured mortgage is backed by the U.S. Department of Veterans Affairs (VA for short) so that, when you go to a private mortgage broker, they can waive the down payment because of the guarantees made by the federal government. The VA loan system was developed to help eligible veterans and active duty service members – including reserve members of the military and National Guard – buy homes and refinance.
Here is a breakdown of the VA loan benefits for reservists:
- There is no down payment required–unless the cost of the house is higher than the appraised value (the average mortgage down payment in the U.S. is $10,000 to $15,000 and this is savings for you)
- The program provides lower interest rates than the current market, which will lower your monthly mortgage payment
- Private monthly mortgage insurance (PMI) is also not required (average monthly payment between $100 and 315)
- The VA will limit your maximum closing costs, which can be paid by the seller.
- There is no minimum credit score required from the VA. Although private lenders, who will be granting the mortgage, typically want a minimum credit score of 580.
- There is no penalty for paying your mortgage off early.
- You do not have to be a first-time home buyer to use a VA home loan.
- You can reuse the benefit throughout your lifetime, as long as you live in the the home you are currently buying.
- Your VA home loan is assumable as long as the person assuming the loan also meets VA requirements.
- There is no maximum loan amount, however the VA does limit its guarantee. You can borrow up to $647,000 without a down payment in most of the country.
- The VA allows a flexible debt-to-income (DTI) ratio requirement, which is the comparison of your monthly income to the debts you have to pay each month.
- VA loans can be used for single-family homes (up to four units), condos, manufactured homes, new builds and home improvements like solar panels.
VA Loans for Reserves Aren’t Just One Thing
To hear people talk about it, you might think that the VA loan is just one kind of loan, but it’s actually four different loans. Each of these VA loan variations serve a different purpose and can help you out when you purchase a house, or later on, if you want to refinance your mortgage.
Purchasing a House with a VA Loan
This is the main VA loan. Using this VA loan to get a mortgage to buy a home is the most popular use of the financial tool. In fact, VA loans have helped more than 25 million veterans and active duty military service members since it began, and it helped 1.2 million military heroes in 2020 alone.
VA IRRRL
The VA Interest Rate Reduction Refinance Loan (VA IRRRL) may not be on your radar, but it should be. This is a refinance loan you can use to reduce the interest you pay on your mortgage. That typically becomes an option if interest rates are falling. If you can successfully refinance, this option can reduce your monthly payment in the short term, AND your overall mortgage payments in the long term.
This is known as a streamline refinance by the VA. It requires a lot less documentation, fewer requirements and less stress overall. It is also a fast refinance and can usually be in place in about 30 days.
This option is only open to those who already have a VA mortgage.
VA Cash Out Refinance
This is another refinance option from the VA, but this lets you refinance your mortgage and turn the equity you’ve developed in the property into cash. You can use this cash to repair your home, renovate it, install energy efficient elements, pursue your education and take care of emergencies (for example, medical bills).
The VA Cash Out Refinance is not streamlined and very much like a typical refinance with all the rules and documents.
This option is open to VA borrowers and conventional mortgage holders who qualify for a VA loan but may have missed it the first time out. The ability to convert a conventional loan into a VA mortgage, and get cash back, makes this a very attractive option under the right circumstances.
Native American Direct Loan
If you’re a veteran, and either you or your spouse is Native American, you could be eligible for the Native American Direct Loan or NADL. These loans let military veterans and active-duty service members buy, build or improve a property on federal trust land. If you qualify, you can also use this loan to refinance your current mortgage.
VA Loan for Reserves Eligibility Factors
We already mentioned the primary eligibility for reservists: 6 years of service in the Reserves and 90 days of active duty.
Another document you will need before closing is the VA loan Certificate of Eligibility (COE), which is a basic requirement for a lot of the benefits you apply for with the VA (not just for mortgages). You will need to get your COE by the time you reach closing on the loan.
The VA guarantees your loan, but a lot of your time will be dealing with a private VA-approved lender, which could be a bank or a mortgage company. They will be lending you the money, and they may require additional information along with the VA Certificate of Eligibility. These are some of the additional items that may be requested:
- Army Reserve: DARP Form FM 249-2E or ARPC Form 606-E
- Navy Reserve: NRPC 1070-124
- Air Force Reserve: AF 526
- Marine Corps Reserve: NAVMC HQ509 or NAVMC 798
- Coast Guard Reserve: CG 4174 or 4175
When working with a private lender, remember that reserve homebuyers may be able to include their service income in order to qualify for a mortgage. Lenders are looking for a homebuyer that has stable and reliable income, so you can use your service to help make your case.
VA Funding Fee for Reservists
While the VA loan program will save you a lot of money as you purchase or refinance your home, there is a funding fee that almost everyone pays. The VA funding fee helps keep the program running and helping veterans. Some veterans get the fee waived if they have a service-related disability or were awarded the Purple Heart. Otherwise, the one-time fee is pretty universal. Before Jan 1, 2020, Reserve members paid a higher VA funding fee. Then they passed the Blue Water Navy Vietnam Veterans Act of 2019, so the funding fee is now equal for all service types. The VA funding fee is typically 2.3% or 3.6%. It’s possible to roll the fee into your mortgage, or you can ask the seller to pay it.
$3,000 Average Savings with Homes for Heroes
Finding a new home and getting a mortgage is a lot of work. We at Homes for Heroes can help on both counts.
“Overall great experience. I was able to use the Homes for Heroes program along with my VA loan and purchased the home of my dreams. The Homes for Heroes real estate agent was phenomenal and I couldn’t be happier. Thank you!” – Stephen, Navy, bought a new house in Texas.
When you are looking for a home, Homes for Heroes will connect you with a real estate agent that understands your issues and can coach you on all the intricacies of the real estate world. Then, when you are looking for a lender to help you land a VA loan for Reserves, we can help there too. We have a network of mortgage loan officers and brokers who can help you with all the documents and requirements.
One more thing: After closing on a home with our local specialists, when you’ve got a new house and mortgage done, we will send you a check. That’s our Hero Rewards savings and it averages $3,000. It’s our way of saying thank you for your service to our country and to our communities.
