As a veteran, you may be eligible for a VA loan. This provides you with 100% financing on a home that you live in full-time or as your primary residence. What if you want your primary residence to be overseas? Are you still eligible?
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Unfortunately, you cannot use your VA benefits for a purchase abroad. The home must be located within the United States and its surrounding territories. This does include areas such as the America Samoa, Virgin Islands, Puerto Rico, and Guam.
Why You Can’t Use Your Benefits Overseas
It might not seem fair that you can’t use your VA benefits wherever you want, but it’s for one reason – the VA benefits are created under US law. The VA program helps protect you, the buyer, here in the states. The VA has no jurisdiction when you head abroad. They cannot protect your investment and they would not want to put you in financial danger.
VA guarantees the loans for veterans. This means they basically handle the down payment for veterans. If you default on your loan with the VA, the VA pays the lender back 25% of the loss. This is the ‘down payment’ the lender did not get from you. This way the lender knows one way or another they will get the money they are owed.
In exchange for this guarantee, the VA inspects the home you purchase and holds it to strict standards regarding the condition and
value of the home.
The VA doesn’t have that type of power overseas. They cannot see the homes and/or know their values or condition. They would be guaranteeing a loan on a home that they know nothing about. It’s too risky of a situation for the VA and you, the borrower.
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Using Your VA Benefit in the United States
If you decide to buy a home in the US, the VA benefit is a great way to buy a home. You get 100% financing and you can qualify fairly easily. The VA requires:
- A credit score of at least 620
- You must meet the VA’s disposable income guidelines
- Your debt ratio should not exceed 43% on the back-end
- You must not have any defaults on federal loans
That’s about all the VA requires. As long as the property passes the VA appraisal, you are in good shape.
As a veteran, you are eligible to purchase a home up to the national conforming limit of $453,100 unless you live in a high-cost area, where you will be able to receive more.
Once you use your entitlement, though, you cannot reuse it until you pay off the mortgage and sell the home. At that point, you can apply for reinstatement of your entitlement. As we discussed above, the VA guarantees 25% of the loan amount. If you took the full $453,100, the VA would guarantee $113,275.
This is how lenders are able to give
looser guidelines for VA loans. It’s very unlikely the lender would get a $113,275 down payment from any borrower, so taking the VA loans gives them the guarantee that they will see at least that much of the loan.
Believe it or not, the VA has some of the lowest default rates out of any loan program. They claim it is due to their focus on the disposable income requirements. They require families of different sizes and from different regions to have a certain amount of money left over each month after paying their bills. If they don’t meet the requirements, they can’t have a loan. In fact, that’s one of the larger factors of VA loan approval.
While you cannot buy a home overseas with a VA loan, you can buy a nice home in the United States with no down payment. The VA also limits the amount of the closing costs you can pay making it a very affordable option to buy your primary residence.
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