Lender after lender talks about how great VA loans are. But to be eligible for one of these VA-guaranteed loans, you still need to meet credit and income standards and most of all – have a valid Certificate of Eligibility (COE). To get your COE isn’t complicated, but there is information that can be helpful.
You basically must have been discharged under conditions other than dishonorable and meet certain service requirements. And of course, there is certain exceptions-to-the-rule, too, that allow others to be eligible that were discharged due to hardship, reduction-in-force, certain medical conditions and other reasons.
“The COE basically started in 1944 when the VA loan program began to basically help veterans coming back from war to be able to buy homes and set up businesses,” says John Bell, assistant director of Loan Production and Valuation at Department of Veterans Affairs in Washington, D.C. “The program has definitely grown through the years. But a lot of the laws that regulate the programs were started back then. That says a lot about the people who created it so many years ago.”
The COE is just part of the process, but it is the first step to determine whether someone is eligible to take advantage of the benefit of getting a VA loan. The eligibility is tied to when they served, their time in service and their credit of service.
“In other words, it’s a little different if you served in World War II or the Vietnam War or the recent Gulf War,” Bell explains.
For example, the minimum active duty service requirement for someone in active duty right now would be 90 continuous days. Someone who had been in the post-Vietnam War era would have had to serve 181 continuous days. Those in the selected reserve or National Guard must have six years of service unless they served 90 days of active service in the current Gulf War starting in August 1990.
“Things have so improved from the days when a manual form was filled out to get a COE,” Bell says. “Sixty-seven percent of the time now, a veteran or service member can push a button on their computer and see their eligibility.”
The VA has simplified things for veterans and lenders. Vets can go to the eBenefits.va.gov website.
“It’s our main source of information for veterans. They can go there to see what their compensation is, or hit the tabs for their education or loan guarantee benefits. It automatically populates for them,” he states.
Lenders who work with VA loans a lot also know that they can go into the website and get a veteran’s COE automatically.
Getting a COE doesn’t cost anything to the veteran or service member. And no one needs a COE to walk into the door of a lender or talk with a lender.
“We even ask lenders to get the CEO for the veterans. We offer localized training for lenders about VA loans. The eight regional centers also offer webinars. But there is no formalized certification for lenders,” he says.
Since the VA requires a COE, hence, lenders the lender has to require it too to help the veteran use his/her benefit,” Bell says.
“A VA loan is an enticement for a lender. The VA covers 25 percent of their risk,” he says.
A COE tells three things:
- Whether or not someone is eligible for a VA loan
- How much entitlement that veteran or service member has available
- Whether or not he/she are exempt from the funding fee
The VA charges a funding fee which helps do what it says – fund the loan program. The price varies depending on how much down payment they are putting toward the loan.
Most veterans don’t pay any down payment. So, the standard funding fee is based on a zero-down loan. For this down payment level the veteran or active service person will pay 2.3 percent for the amount of the loan, if they are a first time user of a VA loan. That adds up to $4,600 for a $200,000 loan. The money can be rolled into the loan. If this person already had a VA loan, the price would go up to 3.6 percent.
A veteran who puts down 10 percent or more would pay only 1.4 percent if they were a first time user.
Disabled veterans and surviving spouses get a reprieve and don’t have to pay the funding fee. About one-third of those getting a VA loan end up not paying the fee, Bell says.
“Realtors are such a big part of all this,” Bell adds. “If they aren’t asking a veteran if they served, the real estate agents are costing them money. Whether or not a veteran picks a VA loan doesn’t matter. But if they are eligible, it is there for them.”