This assistance provides the lender a "guarantee" that a portion of the mortgage loan, used for the purchase of a primary dwelling, will be guaranteed against loss in the event of default or foreclosure.  Each eligible veteran receives an "entitlement"  up to a maximum of $50,750 that may be used in place of a down payment and which can result in a  100% loan of the full purchase price. The VA provides a 25% assistance to a purchase therefore, the maximum amount of a VA-Guaranteed loan is $203,000.  

The agency does not provide the mortgage funds but rather guarantees the home mortgages loans made by private industry lenders such as savings & loans, banks, and mortgage brokers.

Advantages to Borrowers

• No down payment required (except for certain graduated payment loan programs when the purchase price exceeds appraised value).
• Low interest rate.
• Borrower is not allowed to pay discount points. 
• May be assumed by a subsequent buyer (veteran or non-veteran) at the same loan rate (no due-on-sale clause).   If the assuming buyer is a veteran, his/her entitlement may be used thereby restoring full entitlement to the selling veteran. If the assuming buyer is not a veteran, the seller's entitlement is not restored. 
• The dwelling must comply with the VA's minimum construction standards.
• No commissions, brokerage or "buyer broker" fees may be charged to a veteran buyer.

Disadvantages to Borrower

• Requires more time for processing, borrower must obtain VA eligibility and entitlement certification. 
• The restriction against the VA borrower/buyer paying discount points may be a disadvantage if the seller refuses to pay this cost .  The borrower may have to withdraw the offer or pay more for the property through the sellers' readjustment of the sale price. 
• Established loan limits for VA loans may prevent a borrower from borrowing all he needs even though he may qualify for a larger loan.
• VA sets high standards on the property and may not guarantee obsolete, poorly located homes, or homes in areas where essential utilities are lacking.
• In event of an assumption, seller remains liable unless expressly released.  Entitlement could be negatively impacted.

Lender Advantages

• VA approved lenders have a competitive advantage over non-VA lenders because many veterans want a VA loan.
• If forecloses, VA takes title and resells the property relieving the lender and lowering administrative costs. 

Lender Disadvantages

• Greater administrative burden in processing VA loans.
• Greater risk of borrower default in the earlier years due to the less stringent qualifying and higher loan to value ratios.
• Higher risk of loss if the borrower defaults because most VA loans are 100% loans and lender may not fully recover the debt balance  plus foreclosure costs.

The VA program is like a partnership between the federal government and the private lending sector.   The guarantee issued by VA is paid for with premiums collected from borrowers.  The mortgage insurance protects both lenders and secondary market investors against loss  from default and foreclosure by the borrower. 

What Veterans are eligible?

Veterans with active duty service that were not dishonorably discharged and served a minimum amount of active duty as follows:

Selected Reservists

Members of the Selected Reserve may be eligible, including National Guard, who were not otherwise eligible and who 1) completed at least 6 years of service, 2) were honorably discharged or, 3) completed 6 years of service and are still serving. This expanded eligibility for reservists expired 10/28/99. 

Spouses

Surviving spouses of veterans who died during active duty or as a result of injuries received during active military duty, are fully eligible for VA loan benefits but only if their deceased spouse would have been eligible. The eligibility terminates upon remarriage. Veterans considered Prisoners-of-War and Missing-in-Action, and spouses of POWs and MIAs are also eligible.

Veterans should contact any VA office or VA lender for additional information or an exact determination of their eligibility.

VA Loan Program

Presently,  VA offers a fixed rate, fully amortizing loan with a term of 10, 15, 20, 25 or 30 years.  Adjustable Rate Mortgage (ARM) loans were made at one time but VA  lost the authority to offer ARMs on September 30, 1995 when the option expired and was not renewed by Congress.

VA loans are available for:

• purchase or construction of a new home, condominium, or mobile home up to the maximum loan of $203,000 with not less than 25% guarantee entitlement ($50,750). 

• refinance on an existing home but the entitlement available for a refinance loan is reduced to $36,000 with a maximum Loan-to-Value ratio of  90%.

VA Loan Limitations:

• No veteran may have more than one VA loan at a time. ( If an existing home was purchased with a VA loan, the loan must be paid in full before a new home may be purchased thus restoring  VA  loan benefits.)

• No veteran may concurrently own more than two VA homes at any one time, even if both VA loans have been paid off.  Either the first or second home must be sold before a third can be purchased with a VA loan.

• Any home acquired with a VA loan must be occupied as a primary home.

VA Entitlement:

• The maximum entitlement is $36,000 (or up to $50,750 for certain loans over $144,000). Most lenders will lend up to 4 times the available entitlement to a qualified veteran without requiring a down payment provided the property appraises for the asking price.

Typical VA Loan Costs

• Veterans may have to pay a  2%  VA Funding Fee (VAFF) based on the loan amount to the Department of Veterans' Affairs.  The fee may be reduced to 1.50% with an enhanced cash down payment between 5-9.99% and to 1.25% with a down payment of 10% or more.  Eligible reservists must pay an additional 0.75% (2.75% total), reduced by .50% or .75% with cash down as noted above.

• Veterans may be eligible for an Interest Rate Reduction Refinance with the payment of a 0.50% funding fee.   Veterans using their entitlement a second or subsequent time, must pay a funding fee  up to 3.00% depending on the cash down payment.

• All Funding Fees may be financed in the loan or paid in cash, provided the loan amount does not exceed the $203,000 maximum. 

• Certain veterans with service connected disabilities are exempt from payment of a VA Funding Fee on all loan transactions.

Like any other mortgage loan, there are other costs associated with a VA loan that include:

• Credit Report Fee

• Appraisal Fee

• Flood Zone Determination

• Market Discount Points

• Lender's Origination Fee (Limited to 1.00%)

• Survey

• Title Insurance Premiums and Attorney fees

• Documents Recording and transfer Taxes

• Prepaid charges including hazard insurance, tax escrow and interim interest

To obtain more information?

Visit the VA website at http://www.va.gov  or  check out   

     VA  Frequently Asked Questions 

How do I get a Certificate of Eligibility?

Complete VA Form 26-1880, Request for a Certificate of Eligibility for VA Home Loan Benefits and submit to VA Eligibility Centers along with proof of service.