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How the VA’s Home Loan Entitlement Works

2024-10-18

The GI Bill (also known as the Servicemen's Readjustment Act) was a groundbreaking piece of legislation that transformed American society by providing servicemembers with a low-cost home loan to encourage homeownership. The bill’s impact on homeownership has been profound, helping millions of military families buy, refinance, or tap into home equity.

Now that interest rates are dropping, many AAFMAA Members are interested in finding out what a VA Home Loan can do for them. To help Members better understand and optimize their VA Home Loan entitlement, we asked Kevin Crooks, Jr., Business Development Manager with AAFMAA Mortgage Services LLC (AMS), to explain more. Kevin was also recently interviewed for a LinkedIn Live session on this topic, which you can watch here.

AMS: Who can qualify for a VA Home Loan?

Kevin Crooks: To be eligible for a VA Home Loan, you must have served on active duty in the U.S. military or in the armed forces of a U.S. ally and you must have been discharged under conditions other than dishonorable. If you served less than 90 days, you may still qualify if you were discharged due to a service-connected disability.

Related: 3 Ways to Save Faster to Buy a Home in 2024

AMS: Is the entitlement for VA Home Loans automatic?

KC: Yes, every servicemember or Veteran automatically has a fixed entitlement amount, based on one-fourth of the conforming loan limit.

AMS: Is a VA Home Loan still advantageous to those who can qualify for conventional or other loan types?

KC: VA Home Loans offer advantages beyond other loan types for those who can qualify. First, you may be able to purchase a home with zero down, and there are no minimum credit requirements, which may be important to buyers with some dings in their credit report. Second, VA Home Loans often have lower interest rates than conventional loans, which can lead to significant savings over the life of the loan. Unlike conventional loans, VA Home Loans do not require private mortgage insurance or PMI, which can save you hundreds of dollars each month. However, a VA funding fee may be required. Plus, you can use VA Home Loans multiple times, allowing you to take advantage of the benefits whenever you need them.

AMS: Would there be an advantage to making a down payment even though it’s not required?

Crooks: Putting some money down on a VA Home Loan may have some financial benefits, including paying a lower funding fee and having more affordable monthly mortgage payments.

Related: What Size Home Loan Can I Afford?

AMS: Can you explain the VA funding fee?

KC: The VA funding fee is a one-time charge paid at closing and can be rolled into the loan. This fee helps fund the VA Home Loan program and ensures that it remains sustainable for future Veterans and servicemembers. The amount of the fee depends on several factors, including the type of loan, the number of times you’ve used your VA benefits, and your down payment amount.

The funding fee ranges from 0.5% to 3.3% of the loan amount. The first time you take out a VA Home Loan, the funding fee is 2.15% (see VA funding fee structure), but you can use your entitlement multiple times. So it’s common that someone purchasing for the second time puts 5% down, and saves more than a point and a half (1.8%) in funding fees. By taking 5% and putting it into the equity of your home, you can save yourself 1.8% of the funding fee.

AMS: What are the different types of VA Home Loans?

KC: VA Purchase Loans are designed to help eligible active-duty servicemembers and Veterans buy a home, whether it’s a single-family home, multi-family home (up to four units), approved condominium or manufactured home. Additionally, VA Purchase Loans can be used to build a new construction property or buy a home and renovate it.

For refinancing, the VA Streamline Refinance, also known as the Interest Rate Reduction Refinance Loan or IRRRL (pronounced like the name “Earl”), allows current VA Home Loan holders to refinance their existing VA Home Loans at a lower interest rate or with better terms. This streamlined process simplifies refinancing, making it quick and cost-effective for the lender and homeowner. It's particularly useful for Veterans looking to reduce their monthly mortgage payments without undergoing a lengthy application process.

VA Cash-Out Refinance Loans allow homeowners to access their home’s equity. This type of loan replaces your current VA Home Loan with a new, larger one and provides you with a lump-sum payment. This can be an excellent option if you need funds for home repairs, consolidating debt, or covering unexpected expenses. However, it's essential to consider the impact of increasing your loan balance on your overall financial situation.

Related: Download Our Free Homebuying Guide

AMS: With interest rates dropping are you seeing an increasing interest in VA Home Loans?

KC: Yes, we’re getting a lot of calls from homebuyers and homeowners looking to refinance. Our message to them is that VA Home Loans offer significant benefits that can make homeownership more attainable and affordable. Whether you’re looking to buy a new home, refinance an existing loan, or access your home’s equity, VA Home Loans provide favorable terms and conditions that can help you achieve your financial goals.

We’re Here to Help

Whether you’re thinking about buying, ready to start home-shopping in earnest, or considering a refinance, an AMS Military Mortgage Advisor will be happy to provide you with an honest and fair comparison of your mortgage options, including a wide range of affordable mortgages designed to meet your needs.

Ensuring AAFMAA Members obtain the best mortgage possible is our mission. Get your free mortgage assessment today or give us a call at 844-422-3622!