If Your Spouse Is Not A Veteran
Only one spouse needs to be eligible for a VA loan in order to secure the full guaranty. In fact, its common for couples consisting of a service member or veteran and a person not in the military to use a VA loan to buy their home. According to the Lenders Handbook VA Pamphlet 26-7, the requirements for spouses vary depending on whether or not their names will be on the loan. If a spouse is not participating in the purchasing process, their credit history doesnt need to be considered, but their debts do factor into the calculation as part of the households liabilities. If a spouse will be contractually obligated for the loan, then their income, credit, and debts should be verified and weighed just like the vets. The spouses income will also come into play if the vet is relying on their spouses income to qualify for the loan or counts alimony, child support, or maintenance payments as part of their income.
What if you live in a community property state? As The Mortgage Reports explains, community property states consider assets and liabilities amassed during the marriage to be jointly owned. Therefore, vets applying for a VA loan in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin should expect for their nonmilitary spouses credit, income, and debts to be reviewed whether theyre contractually obligated for the loan or not.
Take A Bad Debt Deduction If Your Child Doesnt Pay You Back
One of the advantages of a loan contract is that if your child doesnt pay, you can take a deduction for a non-business bad debt.
Additionally, you dont have to pay gift tax to the IRS on the amount like you would if you had gifted the money.
To take a bad debt deduction, you must prove that you tried to collect the debt.
The debtor should make a written statement that he or she cannot pay. The statement should also include a reason for why they are unable to make the payments.
Can I Transfer My Home To My Children While I Still Have A Mortgage
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Transferring your home to your children might seem like a good idea for a few reasons. Maybe you want to avoid having your property pass through the probate process when you die, or you might be concerned about asset implications in the event you should ever need Medicaid. Depending on where you live, you might be able to transfer your home even if there’s still a lien against it. This is unlikely in California, however.
Tip
If you can successfully transfer your home to your children through a quitclaim deed, you are still responsible for paying the mortgage as well as being held for gift tax and your children would likely be hit with capital gains tax.
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How Loan Assumption Works
If you assume a loan, you dont just take over where the seller left off. The first step is paying the seller the difference between the homes value and the agreed upon sales price. Heres an example:
You sign a purchase contract for $200,000. You wish to assume the sellers loan, which has a $150,000 balance. You then owe the seller $50,000. Youll also owe any closing costs on the loan.
Once the lender approves you for the loan assumption, you go through a closing. This is the same process you would go through if you took out your own loan. Youll sign paperwork for the loan, putting it in your name, rather than the sellers name. At that time, you pay the seller what you owe as well as any closing costs. Once the closing is complete, you have a new VA loan and a new home.
Capital Gains Tax Issues
Your child will receive a step up in the tax basis of the home if it passes to her when you die, either through probate or via a beneficiary deed. This, in turn, will minimize any capital gains tax they would probably have to pay if they ultimately decide to sell the property.
Capital gains tax is assessed on the difference between the initial purchase price or value of a property and the property’s sales price. The “step up” moves the home’s value up to what it was worth on the date of your death, not when you first acquired it.
If you’ve owned the property for some considerable time, the stepped-up basis is probably significantly more than what you paid for it, which is a good thing. It means there will be less of a difference between that value and the sales price, and that means less paid in capital gains tax.
The home will not receive a step-up in basis after your death if you create a joint tenancy with your child by making a new deed during your lifetime. They would have to inherit the home instead. Otherwise, your child would owe capital gains tax based on what the property was worth when you initially bought it.
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Guide To Va Loan Eligibility
There are many different options when it comes to purchasing a home with a VA-insured mortgage. Some borrowers are confident buying the house by themselves, while others prefer the shared responsibility and lower monthly financial obligation by co-borrowing on their VA loan. And some need a co-signer to make the loan happen.
Who Qualifies For A Va Mortgage
According to the VA official site, the following people qualify for VA home loan consideration:
- Military members with minimum qualifying service
- U.S. citizens who served in the armed forces of a government allied with the United States in World War II
- Qualifying surviving spouses of military members who died as a result of military service
- Members of certain organizations, such as Public Health Service officers, cadets at the United States Military, Air Force, or Coast Guard Academy, midshipmen at the United States Naval Academy
- Officers of National Oceanic & Atmospheric Administration, merchant seaman with World War II service
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Make Sure To Transfer Before Leaving Service
Please note that transferring GI Bill benefits to spouses or dependents must occur while youre still a member of the armed forces.
You must make your transfer request, and the transfer must be completed, before youve retired, or otherwise left the service.
And that too, is a very important point, because I get literally hundreds of comments a year from people asking how to transfer their GI Bill benefits to kids and spouses after theyve already left the service.
Its simply NOT possible!
What Is A Certificate Of Eligibility
A COE is a document that shows your mortgage lender that youre eligible for a VA loan. To get a COE, you need to demonstrate proof of service. The proof you need to submit varies based on whether youre an active-duty military member, a veteran, a surviving spouse, etc.
If youre eligible, Rocket Mortgage® can help you secure your COE.
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What Impact Does Death Or Divorce Have On Va Home Loans
Military members and veterans get divorced just like everyone else in the world. VA home loans are for the benefit of those who have served in the U.S. military. The spouse only has the benefit by association. When a veteran or service member has a civilian spouse, that spouse can participate in obtaining the VA loan. The income of the civilian spouse may be considered by the lender in determining the amount of the loan, and the spouse may be a co-signer on the loan.
If the couple later files for divorce, the VA loan issues can become a problem. The simplest solution is for the divorcing couple to sell the home and divide the proceeds. In that event, the veteran or service member can apply for restoration of VA loan eligibility. If the civilian spouse keeps the house, the spouse is technically in violation of VA occupancy regulations unless the house is refinanced with a conventional loan. So long as the civilian spouse remains in in the home, making payments on the VA loan, the veteran or military member will be unable to restore VA loan eligibility. Once the spouse pays off the VA loan or refinances, the veteran/service member can reapply.
Va Home Loan Rules On Occupancy
Because the VA Lenders Handbook requires the property purchased with a VA mortgage to be a primary residence, the borrower generally has 60 days to take ownership and occupy the home after loan closing. The borrower has, at this stage, signed a legally binding agreement stating at least one borrower obligated on the mortgage will do so and use the home as the primary residence.
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Can Dependent Spouses Or Children Apply For Va Home Loans On Their Own
Dependent children who have no qualifying military service have no access to VA loans on their own in spite of their status as military dependents. Spouses generally have no ability to apply for VA loans without the service member under most conditions.
However, surviving spouses of military members who died as a result of military service may be eligible but this is not automatic. You must apply for VA home loan eligibility through the Department of Veterans Affairs.
If Your Father Was A Veteran Can You Get A Va Loan
December 10, 2018 By JMcHood
The VA offers a variety of benefits for veterans of the military, National Guard and Reserves. They even offer some of these benefits to the surviving spouse of a military member that lost his/her life as a result of their time in the military or while in the military. But, what about the surviving children, can they use the VA home loan benefit that their father was eligible to receive?
Unfortunately, the answer is no. Surviving children are not eligible for their fathers VA home loan benefit. They may be eligible or other benefits, such as medical benefits, but not the home loan benefit. Even though children arent eligible for the program, there is a way that they can benefit.
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What Is A Va Loan
A VA loan is a government backed home loan program started in 1944 available to Americans who served or are currently serving in the U.S. military. Administered by the United States Department of Veteran Affairs, the VA does not actually make home loans. The VA only protects approved lenders from loss in the event of borrower default. By guaranteeing the loan, the Veterans Administration is essentially affirming the veterans credit worthiness. A VA loan is for the purchase or refinance of the borrowers primary residence.
The three most notable features of a VA loan are:
The Surviving Spouse Benefit
In some cases, a surviving spouse may be eligible for the VA home loan benefit. If the veteran died while he was on active duty or as a result of their time on active duty, the surviving spouse may be able to use his home loan benefit. If the surviving children are still living with the surviving spouse, they too benefit from the program.
The surviving spouse gets the same benefits the veteran had, which means a 100% loan up to $453,100 based on the amount of entitlement left and the spouses qualifying factors. Each veteran receives entitlement up to $453,100 in most areas. This means the veteran or surviving spouse can apply for a loan up to $453,100. Once some of the entitlement is used, it is no longer available. In order for the surviving spouse to reuse the funds, she must sell the home and pay off the mortgage.
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Va Loan Requirement Guidelines
Below are some basic VA loan requirements to keep in mind when thinking about purchasing a new home. Getting all your documents organized and established makes the home buying process a much smoother experience.
- A Decent Credit Score
- Certification of primary residence of occupancy
- Organization of tax records and financial documents
What exactly is a VA home loan? Its like a conventional mortgage, in that the money is loaned to you by a private lender. The difference is, the VA backs 25% of loans that are over $144,000. In other words, the Federal Government guarantees lenders that if you default on your loan, they will be paid back 25% of the loan amount. This means lenders are able to relax traditional requirements and lower the threshold to make VA home loan qualifications much easier to obtain. It gives them much more confidence when approving loans, and as you can imaginethe more confidence a lender has in you the better!
Conventional mortgages also add Private Mortgage Insurance for any loan with less than a 20% down payment. PMI protects the lender if you happen to default on your mortgage. This is not an issue with a VA loan, because the VA guarantees the loan for you. Not having a PMI payment could save you hundreds of dollars every month. You redirect that money into savings, or enjoy some extra buying power.
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Who Is Eligible For A Va Loan
There are a lot of questions and confusion around veteran benefits, and who they extend to. For example, relatives of veterans who are hoping to cash in on veteran benefits in some way, whether it be through health care, shopping discounts or the VA home loan program.
Unfortunately, very rarely do the benefits of past service extend past the spouse or minor children of the veteran. In some circumstances, dependent disabled adult children can access their parent veteran’s benefits.
So who is eligible for a VA loan? The VA home loan program has even more stringent rules than many of the other benefits.
For example, disabled adult dependents cannot use it. Veterans can personally use the VA home loan if they meet the time-in-service eligibility requirements. Spouses of deceased veterans who died on active duty or as a result of a service-connected disability, or spouses of veterans who are missing in action or prisoners of war, are also eligible. These spouses forfeit this benefit if they choose to remarry. Unless they remarry after the age of 57.
However, disabled adult dependents of veterans are not eligible to use a VA loan. Therefore children, cousins, parents or siblings can not use the VA loan either.
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Other Factors To Consider
- A child’s subsequent marriage will not affect his or her eligibility to receive the educational benefit however, after an individual has designated a child as a transferee under this section, the individual retains the right to revoke or modify the transfer at any time.
- A subsequent divorce will not affect the transferees eligibility to receive educational benefits however, after an individual has designated a spouse as a transferee under this section, the eligible individual retains the right to revoke or modify the transfer at any time.
Reallocation of Benefits
If a Veteran or Servicemember wants to reallocate transferred benefits they can do so using the TEB Portlet in MilConnect at .
Reallocation of Benefits if a Family Member Dies
The Harry W. Colmery Veterans Assistance Act of 2017, allows for designation and transfer of Post-9/11 GI Bill benefits to eligible dependents of the Veteran/servicemember upon the death of the Veteran/servicemember or of a dependent who had unused transferred benefits. See our web page .
Nature of Transfer
Family member use of transferred educational benefits is subject to the following rules:
Spouses
Children
Show You Will Occupy Or Intend To Occupy The Property
The VA wants borrowers to use the home as their residence. Put another way, the VA does not want veterans to use their mortgage benefit to buy investment properties. Accordingly, the VA requires the borrower to either live in the property or “use it as his or her home within a reasonable time,” according to the VA Lenders Handbook. The exception to this rule are IRRRL loans.
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Gi Bill Transferability Rules
Perhaps the best benefit offered by the Forever GI Bill or the Post 9/11 GI Bill is the option to transfer it either entirely, or in part, to spouses , children or other dependents .
Since these benefits can save your dependents tens of thousands of dollars in student loan costs, effectively allowing them to get a college degree entirely for free, you have a very good reason to pay close attention to this pages content, and to make sure that you fully understand the way the transfer process works.
Unfortunately, Im still receiving tons of questions from military personnel who did not pay close enough attention to the fine print, and who left the service before transferring their benefits, or who did something else that invalidated their benefits transfer , leaving their dependents on the hook for tens of thousands of dollars in student loans that they could have avoided!
Make sure that you avoid financial disaster by reading this entire post, asking questions about parts of the transfer process that you dont understand, and verifying that you really do have access to transferability benefits, because failure to do any one of these things could cost your family a great deal of money.
