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By Carol Church

The VA loan program, born in 1944 to assist returning veterans of World War II, has helped more than 20 million veterans over the years—a truly amazing number. Yet many veterans and service members still don’t know much about this highly beneficial program, or misunderstand it. This is one of the most valuable benefits offered to those who serve, and every service member ought to understand his or her options under the program. Read on to understand more about the benefits of a VA loan and key things to know.

Who is Eligible for a VA Loan?

Some may assume that only veterans are eligible for a VA loan (due to the name), but this is inaccurate. Generally speaking, these four groups of people can qualify:

  • Active duty service members who have served more than 90 continuous days
  • Veterans who have served more than a specified amount
  • Reservists or National Guard members who served more than 6 years
  • Surviving spouses of service members who died due to a service-related disability or during active duty, and certain other surviving spouses

To see the specific rules for eligibility, view the government’s chart here.


What is the Process to Apply?

Applying for a VA loan is easy, but first the applicant needs to obtain a certificate of eligibility (COE) from the VA to prove that he or she meets the qualifications above. This can be obtained through Then the applicant simply applies for a loan through any private lender who participates in the VA Home Loan Guaranty Program.

VA loan applicants also go through a unique process to determine how much they can afford to repay. To decide on the amount, the VA looks at debt and income inflow and outflow, requiring every borrower to have a certain amount left every month for basic expenses after making his or mortgage payment. These so-called “residual income” guidelines help ensure that payments are affordable and that loans do not go into foreclosure.

What Can a VA Loan Be Used For?

While a VA loan obviously can be used to buy a house that is not its only possible use. The money can also be used to:

  • Build a new home

Building from the ground up with a VA loan is more challenging, but not impossible. Borrowers may need to first take out short-term construction loans and then refinance to a VA loan as the project nears completion. A few lenders may be willing to do the loan from the beginning, but this situation is in flux.

  • Refinance an existing VA mortgage

And Interest Rate Reduction Refinance Loan (IRRRL) is intended to lower the homeowner’s monthly payment by refinancing an existing VA loan to one with a lower interest rate. (These loans can also be used to go from an adjustable rate to a fixed-rate mortgage.)

  • Cash out home equity on a VA or non-VA loan while also switching to a new VA mortgage

Under this option, homeowners can cash out up to 100% of their home’s appraised value while replacing their current mortgage with a new VA mortgage. Of note, the borrower does not actually have to take any cash. This is simply the path to converting a non-VA loan to a VA loan, if that is desired.

  • Make improvements to an existing house that increase its energy efficiency

In Part 2 of this series, we’ll review the advantages and disadvantages (there aren’t many!) of VA loans. Stay tuned!