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More than 29 million veterans
and service personnel are eligible for VA financing. Even
though many veterans have already used their loan
benefits, it may be possible for them to buy homes again
with VA financing using remaining or restored loan
entitlement.
Before arranging for a new mortgage to
finance a home purchase, veterans should consider some of
the advantages of VA Home Loans:
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The most important consideration, no
down payment is required in most cases.
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Loan maximum up to 100 percent of
the VA-established reasonable value of the property. Due
to secondary market requirements, however, loans
generally may not exceed $203,000.
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Flexibility of negotiating interest
rates with the lender.
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No monthly mortgage insurance
premium to pay.
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Limitation on buyer's closing costs.
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An appraisal which informs the buyer
of property value
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Thirty year loans with a choice of
repayment plans:
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Traditional Fixed Payment--
constant principal and interest; increases or
decreases may be expected in property taxes and
homeowner's insurance coverage
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Graduated Payment Mortgage (GPM)--
low initial payments which gradually rise to a level
payment starting in the sixth year and
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In some areas, Growing Equity
Mortgages (GEMs)-- gradually increasing payments with
all of the increase applied to principal, resulting in
an early payoff of the loan.
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For most loans for new houses,
construction inspected at appropriate stages to ensure
compliance with the approved plans, and a 1-year
warranty is required from the builder that the house is
built in conformity with the approved plans and
specifications. In those cases where the builder
provides an acceptable 10-year warranty plan, only a
final inspection may be required.
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An assumable mortgage, subject to VA
approval of the assumer's credit.
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Right to prepay loan without
penalty.
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VA performs personal loan servicing
and offers financial counseling to help veterans avoid
losing their homes during temporary financial
difficulties.
These loans are made by a
lender, such as a mortgage company, savings and loan or
bank. VA's guaranty on the loan protects the lender
against loss if the payments are not made and is intended
to encourage lenders to offer veterans loans with more
favorable terms.
The amount of guaranty on the loan
depends on the loan amount and whether the veteran
previously used some entitlement. With the current maximum
guaranty, a veteran who hasn't previously used the benefit
may be able to obtain a VA loan up to $203,000 depending
on the borrower's income level and the appraised value of
the property. The local VA office can provide more details
on guaranty and entitlement amounts.
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Veterans with active duty
service, that was not dishonorable, during World War II
and later periods are eligible for VA loan benefits.
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World War II (September 16, 1940 to
July 25, 1947), Korean Conflict (June 27, 1950 to
January 31, 1955), and Vietnam era (August 5, 1964 to
May 7, 1975) veterans must have at least 90 days'
service. Veterans with service only during peacetime
periods and active duty military personnel must have had
more than 180 days' active service.
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Veterans of enlisted service which
began after September 7, 1980 or officers with service
beginning after October 16, 1981 must in most cases have
served at least 2 years.
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Persian Gulf Conflict. Basically,
reservists and National Guard members who were activated
on or after August 2, 1990, served at least 90 days and
were discharged honorably are eligible. VA regional
office personnel may assist with eligibility questions.
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Members of the Selected Reserve,
including National Guard, who are not otherwise eligible
and who have completed 6 years of service and have been
honorably discharged or have completed 6 years of
service and are still serving may be eligible. The
expanded eligibility for Reserves and National Guard
individuals will expire October 28, 1999. Contact the
local VA office to find out what is needed to establish
eligibility. Reservists will pay a slightly higher
funding fee than regular veterans. (See paragraph
entitled "Costs of Obtaining a VA Loan").
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To buy a home, including
townhouse or condominium unit, in a VA-approved project.
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To build a home.
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To simultaneously purchase and
improve a home.
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To improve a home by installing
energy-related features such as solar or heating/cooling
systems, water heaters, insulation, weather-stripping/
caulking, storm windows/doors or other energy efficient
improvements approved by the lender and VA. These
features may be added with the purchase of an existing
dwelling or by refinancing a home owned and occupied by
the veteran. A loan can be increased up to $3,000 based
on documented costs or up to $6,000 if the increase in
the mortgage payment is offset by the expected reduction
in utility costs. A refinancing loan may not exceed 90
percent of the appraised value plus the costs of the
improvements. Check with a lender or VA for details.
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To refinance an existing home loan
up to 90 percent of the VA-established reasonable value
or to refinance an existing VA loan to reduce the
interest rate.
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To buy a manufactured home and/or
lot.
The more you know about our
home loan program, the more you will realize how little
"red tape" there really is in getting a VA loan. These
loans are often made without any down payment at all and
frequently offer lower interest rates than ordinarily
available with other kinds of loans. Aside from the
veteran's certificate of eligibility and the VA-assigned
appraisal, the application process is not much different
than any other type of mortgage loan. And if the lender is
approved for automatic processing, as more and more
lenders are now, a buyer's loan can be processed and
closed by the lender without waiting for VA's approval of
the credit application.
Additionally, if the lender is
approved under VA's Lender Appraisal Processing Program
(LAPP), the lender may review the appraisal completed by a
VA-assigned appraiser and close the loan on the basis of
that review. The LAPP process can further speed the time
to loan closing.
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Apply for a Certificate of
Eligibility. A veteran who doesn't have a certificate
can obtain one easily by making application on VA Form
26-1880, Request for Determination of Eligibility and
Available Loan Guaranty Entitlement, to the local VA
office.
- Decide on a home the buyer wants to
purchase and sign a purchase agreement.
- Order an appraisal from VA. Usually
this is done by the lender. Most VA regional offices
offer a "speed-up" telephone appraisal system. Call the
local VA office for details.
- Apply to a mortgage lender for the
loan. While the appraisal is being done, the lender
(mortgage company, savings and loan, bank, etc.) can be
gathering credit and income information. If the lender
is authorized by VA to do automatic processing, upon
receipt of the VA or LAPP appraised value determination,
the loan can be approved and closed without waiting for
VA's review of the credit application. For loans that
must first be approved by VA, the lender will send the
application to the local VA office which will notify the
lender of its decision.
Close the loan and the buyer moves
in.
To obtain a VA loan, the law
requires that:
1. The applicant must be an eligible
veteran who has available entitlement.
2. The loan must be for an eligible
purpose.
3. The veteran must occupy or intend
to occupy the property as a home within a reasonable
period of time after closing the loan.
4. The veteran must be a satisfactory
credit risk.
5. An experienced mortgage lender will
be able to discuss specific income and other qualifying
requirements.
Funding Fee
A basic funding fee of 2.0 percent of
the principal loan amount must be paid to VA by all but
certain exempt veterans. A down payment of 5 percent or
more will reduce the fee to 1.5 percent and a 10 percent
down payment will reduce it to 1.25 percent.
A funding fee of 2.75 percent must be
paid by all eligible Reserve/National Guard individuals. A
down payment of 5 percent or more will reduce the fee to
2.25 percent and a 10 percent down payment will reduce it
to 2.0 percent.
The funding fee for loans to refinance
an existing VA home loan with a new VA home loan to lower
the existing interest rate is 0.5 percent.
Veterans who are using entitlement for
a second or subsequent time who do not make a down payment
of at least 5 percent are charged a funding fee of 3
percent.
NOTE: For all VA home loans, the
funding fee may be paid in cash or it may be included in
the loan.
Other Closing Costs
Reasonable closing costs may be
charged by the lender. These costs may not be included in
the loan. The following items may be paid by the veteran
purchaser, the seller, or shared. Closing costs may vary
among lenders and also throughout the nation because of
differing local laws and customs.
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VA appraisal
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Credit report
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Loan origination fee (usually 1
percent of the loan)
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Discount points
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Title search and title insurance
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Recording fees
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State and/or local transfer taxes,
if applicable
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Survey
No commissions, brokerage fees, or
"buyer broker" fees may be charged to the veteran buyer.
Remaining Entitlement
Veterans who had a VA loan before may
still have "remaining entitlement" to use for another VA
loan. The current amount of entitlement available to each
eligible veteran is $36,000. This was much lower in years
past and has been increased over time by changes in the
law. For example, a veteran who obtained a $25,000 loan in
1974 would have used $12,500 guaranty entitlement, the
maximum then available. Even if that loan is not paid off,
the veteran could use the $23,500 difference between the
$12,500 entitlement originally used and the current
maximum of $36,000 to buy another home with VA financing.
An additional $14,750, up to a maximum entitlement of
$50,750 is available for loans above $144,000 to purchase
or construct a home.
Most lenders require that a
combination of the guaranty entitlement and any cash down
payment must equal at least 25 percent of the reasonable
value or sales price of the property-- whichever is less.
Thus, in the example, the veteran's $23,500 remaining
entitlement would probably meet a lender's minimum
guaranty requirement for a no down payment loan to buy a
property valued at and selling for $94,000. The veteran
could also combine a down payment with the remaining
entitlement for a larger loan amount.
Restoration of Entitlement
Veterans can have previously-used
entitlement "restored" to purchase another home with a VA
loan if:
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The property purchased with the
prior VA loan has been sold and the loan paid in full,
or
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A qualified veteran-transferee
(buyer) agrees to assume the VA loan and substitute his
or her entitlement for the same amount of entitlement
originally used by the veteran seller. Remaining
entitlement and restoration of entitlement can be
requested through the nearest VA office by completing VA
Form 26-1880.
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The entitlement may also be restored
one time only if the veteran has repaid the prior VA
loan in full but has not disposed of the property
purchased with the prior VA loan.
Veterans seeking more detailed
information concerning the VA home loan program may
request VA Pamphlet 26-4 "VA-Guaranteed Home Loans for
Veterans", or VA Pamphlet 26-6 "To the Home-Buying
Veteran" from the nearest VA office. Loan Guaranty
personnel at that office will also be pleased to answer
specific questions and provide any other assistance they
can.
Remember, VA-guaranteed financing is a
benefit which Congress intended eligible veterans should
have. If you are a veteran homebuyer or know of one, it
makes sense to look into the VA loan program as a good way
to finance a home purchase.
A list of VA offices may be found in
Help & Information option. Your local VA regional office
may be reached by dialing 1-800-827-1000.
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