When you apply for a VA loan, you’ll notice there is a little checkbox on the application that asks what type of loan you’re looking for. One of those boxes is marked “VA.” Checking this box lets the lender know upfront what type of loan you’re seeking. But the lender will need a bit more verification than just checking a box. The VA loan is a very attractive option for those who are eligible.
VA loans are 100% financing and do not require a down payment, plus the veteran is restricted from paying certain types of closing costs. There is also no monthly mortgage insurance premium and rates are extremely competitive. There’s a lot to like about the VA loan.
Those that are eligible for the VA loan program include active duty personnel with at least 181 days of service, veterans, National Guard and Armed Forces Reserve members with at least six years of service and un-remarried surviving spouses of those who have died while serving or as a result of a service-related injury. But how does someone prove eligibility other than checking a box on the application? There is only one way acceptable to the VA and that’s with a copy of the Certificate of Eligibility, or COE, included with the loan file.
The COE is generated directly from the Department of Veteran’s Affairs. To obtain this certificate, the applicant will fill out DOD form 26-1880, Request for Certificate of Eligibility. The VA will review the application and return the Certificate of Eligibility back to the applicant. When documenting the loan file with other pieces of information such as pay stubs and bank statements, included will be the COE. The applicant can mail the form directly to the VA, fax it or deliver it in person to the nearest regional VA center.
The COE will not only show whether or not the individual is eligible for a VA loan but also show how much entitlement is available. Today, the maximum entitlement amount will show $36,000 and the VA will guarantee four times that amount up to $144,000. For loans above that amount, the VA will then set the maximum VA loan at the prevailing loan limit for conforming loans. For most parts of the country that loan limit is $484,350.
However, when the applicant works directly with the VA to get this certificate, it can take some time. You might imagine how much time it might take to get this certificate. The VA is no stranger to bureaucracy and getting your 26-1880 form reviewed, approved and a certificate mailed can take some time. If you have a sales contract that shows a closing date 30 days away and it’s 15 days into the contract and you still don’t have it, it’s possible your closing will be delayed.
But there’s no need to work directly with the VA. Instead, you can let your mortgage company do the groundwork for you. VA lenders have access to ACE, or the Automated Certificate of Eligibility. The lender can take a copy of your application and run it through the ACE system and get your certificate almost instantly. As a plus, you’re not going to be mired in VA-related paperwork.
This certificate is required for both a VA purchase as well as a VA refinance. When using the VA loan for a subsequent purchase, the certificate is used to see how much entitlement you have remaining. Because veterans can use the zero-down VA loan more than once, there is a possibility the full amount of entitlement won’t be available. This doesn’t happen very often because once the home is sold to someone else, entitlement is restored and can be used again. When there is partial entitlement remaining, the loan limit returns to the original formula.
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