When a qualified veteran takes out a mortgage, the loan qualifies for insurance from the Department of Veterans Affairs. That protects the lender against loss, which makes it easier for the veteran to get a loan at a more attractive rate. A veteran's surviving spouse also may qualify for mortgage insurance.
A surviving spouse may be eligible for a VA loan if the military member died while in service or from a service-related disability. The surviving spouse of a totally disabled veteran may be eligible even if the disability didn't directly cause the veteran's death. Spouses of prisoners of war or military members missing in action can apply too.
The spouse of a dishonorably discharged veteran is not eligible for a VA loan, even if she otherwise qualifies.
Surviving spouses normally have to be unmarried to qualify. However once a widow or widower turns 57, they can remarry and still apply for a VA loan.
Qualifying for Loans
A spouse who wants a VA loan must first apply for a certificate of eligibility, or CE. If the spouse has already established his right to benefits, he submits Form 26-1817,along with the veteran's discharge papers. If he hasn't applied for benefits, he first must submit VA Form 21-534, along with the discharge papers, his marriage license and the veteran's death certificate. The spouse can submit 26-817 through the lender or mail it to the VA.
Having the CE still doesn't guarantee the VA will insure a specific mortgage on a specific house. The VA won't insure a loan unless the applicant is a good credit risk and has enough income to make the monthly payments. However, as VA loans don't require down payments, they're more affordable than a regular mortgage.
The VA only guarantees loans for a personal home, not investment properties. The loan can be used to buy or build a home, purchase and improve the property or make energy-efficient improvements to a home the spouse already owns.
Surviving spouses of someone who died while in service, or of a service-related disability have an extra benefit: they don't have to pay the usual VA fee for guaranteeing a loan.
A spouse who co-signed a VA-backed mortgage can apply for a VA refinance loan -- known as a streamline refinance -- after her spouse dies. This is an option even if the surviving spouse wouldn't otherwise qualify for a VA loan. This has some distinctive requirements:
- The applicant must be current in the mortgage, with only one late payment in the past year.
- The new monthly payment must be lower than the old payment, unless the refinance switches from an adjustable rate to a fixed rate.
- The applicant can't get any cash out of the refinance.
- The property must have been bought with a VA loan.