A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs (VA). The program is for American veterans, military members currently serving in the U.S. military, reservists and select surviving spouses (provided they do not remarry) and can be used to purchase single-family homes, condominiums, multi-unit properties, manufactured homes and new construction.
The VA does not originate loans, but sets the rules for who may qualify, issues minimum guidelines and requirements under which mortgages may be offered and financially guarantees loans that qualify under the program.
The basic intention of the VA home loan program is to supply home financing to eligible veterans and to help veterans purchase properties with no down payment. The loan may be issued by qualified lenders.
The VA loan allows veterans 103.3 percent financing without private mortgage insurance (PMI) or a 20 percent second mortgage and up to $6,000 for energy efficient improvements. A VA funding fee of 0 to 3.3% of the loan amount is paid to the VA; this fee may also be financed and some may qualify for an exemption. In a purchase, veterans may borrow up to 103.3% of the sales price or reasonable value of the home, whichever is less. Since there is no monthly PMI, more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment. In a refinance, where a new VA loan is created, veterans may borrow up to 100% of a property’s reasonable value, where allowed by state laws. In a refinance where the loan is a VA loan refinancing to VA loan (IRRRL Refinance), the veteran may borrow up to 100.5% of the total loan amount. The additional .5% is the funding fee for a VA Interest Rate Reduction Refinance.
VA loans allow veterans to qualify for loan amounts larger than traditional Fannie Mae / conforming loans. Standard VA guidelines state that the VA will insure a mortgage where the monthly payment of the loan is up to 41% of the gross monthly income vs. 28% for a conforming loan assuming the veteran has no monthly bills, although there is no hard limit to the DTI for a VA home loan. Veterans have been known to be approved with a DTI of up to 80%, if there are other factors that strengthen their loan application. These factors include a low Loan-To-Value (LTV), sufficient residual income, additional income received but not used to qualify for the loan, good credit, etc…
The original Servicemen’s Readjustment Act, passed by the United States Congress in 1944, extended a wide variety of benefits to eligible veterans. The VA loan guarantee program was especially important to veterans. Under the law, as amended, the VA is authorized to guarantee or insure home, farm, and business loans made to veterans by lending institutions. Over the history of the program, 20 million VA home loans have been insured by the government. The VA can make direct loans in certain areas for the purpose of purchasing or constructing a home or farm residence, or for repair, alteration, or improvement of the dwelling. The terms and requirements of VA farm and business loans have not induced private lenders to make such loans in volume during recent years.
The Veterans Housing Act of 1970 removed all termination dates for applying for VA-guaranteed housing loans. This 1970 amendment also provided for VA-guaranteed loans on mobile homes.
More recently, the Veterans Housing Benefits Improvement Act of 1978 expanded and increased the benefits for millions of American veterans.
Until 1992, the VA loan guarantee program was available only to veterans who served on active duty during specified periods. However, with the enactment of the Veterans Home Loan Program Amendments of 1992 (Public Law 102-547, approved 28 October 1992), program eligibility was expanded to include Reservists and National Guard personnel who served honorably for at least six years without otherwise qualifying under the previous active duty provisions. Such personnel are required to pay a slightly higher funding fee when obtaining a VA home loan.
Despite a great deal of confusion and misunderstanding, the federal government generally does not make direct loans under the act. The government simply guarantees loans made by ordinary mortgage lenders (descriptions of which appear in subsequent sections) after veterans make their own arrangements for the loans through normal financial circles. The Veterans Administration then appraises the property in question and, if satisfied with the risk involved, guarantees the lender against loss of principal if the buyer defaults.
In association with the VA’s program, the Servicemembers’ Civil Relief Act protects service members from financial woes on their home loan that may occur as a result of active duty commitments, freezing their interest rates at 6%.
On October 26, 2012, the Department of Veterans Affairs announced it has guaranteed 20 million home loans since its home loan program was established in 1944 as part of the original GI Bill of Rights for returning World War II Veterans. The 20 millionth loan was guaranteed for a home in Woodbridge, Va., purchased by the surviving spouse of an Iraq War Veteran who died in 2010. (www.va.gov)[better source needed]
A funding fee must be paid to VA unless the veteran is exempt from such a fee because he or she receives a minimum of 10% VA disability compensation. If a veteran is awarded disability compensation after paying a funding fee, he/she can apply for a refund of this funding fee, so long as the beginning date of the disability is prior to the closing date of the home mortgage.
In August 2012, Congress passed a bill that allows a Veteran to receive the benefits of having Veteran Disability while it is still pending. The amount paid for the funding fee can be refunded back to the Veteran when a determination is made and the paperwork is received.
The VA Funding fee may be paid in cash or included in the loan amount. Closing costs such as VA appraisal, credit report, loan processing fee, title search, title insurance, recording fees, transfer taxes, survey charges, or hazard insurance may not be included in the loan. However, the seller may pay these on behalf of the VA borrower.
Purchase and construction loans
Note: The funding fee for regular military first time use from 1/1/04 to 9/30/04 was 2.2 percent. This figure dropped to 2.15 percent on 10/1/04. If you have a service connected disability that you are compensated for by the VA or if you are a surviving spouse of veteran who died in service or from service connected disabilities, the funding fee is waived.
|Type of Veteran||Down Payment||First Time Use||Subsequent Use for loans from 1/1/04 to 9/30/2011|
10% or more
10% or more
The VA funding fee can be financed directly into the maximum loan amount for the county in which the home is located. If the sales price and the financed VA funding fee total more than maximum loan amount for that county, the borrower or seller must pay for the fee out of pocket. All VA loans require an impound account for property taxes and homeowners insurance which makes the monthly payment of VA loans calculated as a PITI payment.**
Cash-out refinancing loans
|Type of Veterans||Percentage for First Time Use||Percentage for Subsequent Use|
- The higher subsequent use fee does not apply to these types of loans if the veteran’s only
prior use of entitlement was for a manufactured home loan.
Other types of loans
|Type of Loan||Percentage for Either Type of Veteran
Whether First Time or Subsequent Use
|Interest Rate Reduction
|Manufactured Home Loans||1.00%|
- Veterans who previously lived in a home they had to then rent out will typically qualify for a no appraisal Interest Rate Reduction Refinance. The Veteran’s Administration also allows Veteran Homeowners to refinance from a Conventional loan to a VA mortgage Loan. This process, however, does require an appraisal.
Equivalents of VA loans
Private mortgage insurance
Main article: Private mortgage insurance
Private mortgage insurance (PMI) guarantees conventional home mortgage loans – those that are not guaranteed by the government. This loan program is a private sector equivalent to the Federal Housing Administration (FHA) and VA loan programs.
The PMI company insures a percentage of the consumer’s loan to reduce the lender’s risk; this percentage is paid to the lender if the consumer does not pay and the lender forecloses the loan.
Lenders decide if they need and want private mortgage insurance. If they so decide, it becomes a requirement of the loan. PMI companies charge a fee to insure a mortgage loan; the VA insures a loan at no cost to a veteran buyer (other than the VA funding fee); the FHA charges a monthly fee to guarantee the loan.
VA Loan application
The VA loan application is a standardized loan application form 1003 issued by Fannie Mae also known as Freddie Mac Form 65. It is a Federal crime punishable by fine or imprisonment, or both, to knowingly make any false statements on a VA loan application under the provisions of Title 18, United States Code, Section 1001, et seq.
You will need the following paperwork to apply:
- Copies of your W2 statements for the past two years, so your gross household income can be confirmed,
- Copies of your previous two pay stubs,
- Documentation of other assets (checking accounts, savings accounts, financial investments, trust funds, etc.),
- If self-employed, two years of consecutive tax returns will be required.
- The Veteran also needs to supply their DD 214 and Certificate of Eligibility (COE)
Qualifying for Veteran Home Loans
The Veteran Loan program is designed for veterans who meet the minimum number of days of completed service. Some of the other eligibility requirement for the VA loan program and some specific home loan benefits include the length of service or service commitment, duty status and character of service. The program does allow for benefits to Surviving Spouses.
The VA does not have a minimum credit score used for pre-qualifying for a mortgage loan, however, most Lenders require a minimum credit score of at least 620.
A Veteran who has used their entitlement to previously purchase a home, may have entitlement left to purchase another one. If you previously purchased a home using your VA Benefits then you might still have some of that “Entitlement” available to you for the purchase a new home. To Calculate Maximum Entitlement available, consider the following:
- If your previous home was purchased using a VA Loan, and that loan was paid off by the new owners, the full entitlement may have been restored.
- If you sold your home to someone, and allowed them to assume your VA Loan, then you might have the full entitlement restored, if one or more of the purchasers were also Veterans.
- If you still own the home, and you are renting it out – you might be able to purchase a new home using your partial entitlement, but there are several restrictions.
Allowable Income Sources used to qualify for a VA Loan include: Retirement Income, Social Security Income, Child Support, Alimony and Separate Maintenance, BAH, BAS and Disability Income. Dependency and Indemnity Compensation (DIC) for a Surviving Spouse can also be included. In addition, stable, documented income from employers remains the best income source for VA loans.
Homeless Veterans – The National Center on Homelessness Among Veterans (NCHAV)
The National Center on Homelessness Among Veterans (NCHAV) has planned to increase recovery-oriented care provided to homeless Veterans, or those soon to be, through the development and dissemination of evidence-based programs, policies as well as best practices. It was established in 2009 to support the execution of the U.S. Department of Veteran Affairs’ (VA’s) Five Year Plan to End Homelessness Among Veterans. This plan was born out of the goals and timeframes set forth by the legislators, governors, nonprofits, faith-based and community organizations, the U.S. Congress, the United States Interagency Council on Homelessness, business entities and philanthropic leaders to end homelessness in America and progress to make affordable and stable housing available to all its people.
Below are the four core activities of NCHAV’s integrated and organized work:
- Model Development & Implementation
- Research & methodology
- Education & Dissemination
- Policy Analysis
- ^ Jump up to:ab c Mishler, Lon; Cole, Robert E. (1995). Consumer and business credit management. Homewood, Ill: Irwin. pp. 220–121. ISBN 978-0-256-13948-8.
- ^“Eligibility Requirements”. U.S. Department of Veterans Affairs. U.S. Department of Veterans Affairs. Retrieved 2015-11-24.
- ^“VA.gov” (PDF).
- ^“Homeless Veterans”. U.S. Department of Veterans Affairs. Retrieved 19 December 2014.
- ^“Opening Doors – Federal Strategic Plan to Prevent and End Homelessness” (PDF). U.S. Department of Veterans Affairs. Retrieved 19 December 2014.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.