VA HOME LOANS
A QUICK GUIDE FOR HOMEBUYERS & REAL ESTATE
WHY A VA LOAN?
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
FIVE EASY STEPS TO A VA LOAN
- 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 buy 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.
VA FINANCING - A GOOD DEAL FOR VETERANS
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
1. Most important consideration, no down payment is required in most cases.
2. Loan maximum may be up to 100 percent of the VA-established reasonable value of
the property. Due to secondary market requirements, however, loans generally may not
3. Flexibility of negotiating interest rates with the lender.
4. No monthly mortgage insurance premium to pay.
5. Limitation on buyer's closing costs.
6. An appraisal which informs the buyer of property value.
7. Thirty year loans with a choice of repayment plans:
a. Traditional fixed payment (constant principal and interest; increases or decreases may
be expected in property taxes and homeowner's insurance coverage);
b. Adjustable Rate Mortgage-ARM (lower initial interest rate may allow qualification for
a higher loan amount. Annual interest rate adjustment is limited to 1 percent and maximum
increase in the interest rate over the life of the loan is capped at 5 percent) .
c. Graduated Payment Mortgage--GPM (low initial payments which gradually rise to a
level payment starting in the sixth year); and
d. 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).
8. For most loans for new houses, construction is 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.
9. An assumable mortgage, subject to VA approval of the assumer's credit.
10. Right to prepay loan without penalty.
11. VA performs personal loan servicing and offers financial counseling to help veterans
avoid losing their homes during temporary financial difficulties.
WHAT IS A VA-GUARANTEED LOAN?
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
used some entitlement previously. 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.
WHAT CAN A VA LOAN BE USED FOR?
- To buy a home, including townhouse or condominium unit in a VA-approved
- To build a home.
- To simultaneously purchase and improve a home.
- 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.
- 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.
- To buy a manufactured home and/or lot.
WHO IS ELIGIBLE?
Veterans with active duty service, that was not dishonorable, during World War II and
later periods are eligible for VA loan benefits. 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. 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.
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.
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").
HAD A VA LOAN BEFORE?
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:
- The property purchased with the prior VA loan has been sold and the loan paid in
- 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.
- 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.
HOW TO GET A VA LOAN
VA Appraisal- Certificate of Reasonable Value
The CRV (certificate of reasonable value) is based on an appraiser's estimate of the value
of the property to be purchased. Because the loan amount may not exceed the CRV, the
first step in getting a VA loan is usually to request an appraisal. Anyone (buyer, seller, real
estate personnel or lender) can request a VA appraisal by completing VA Form 26-1805,
Request for Determination of Reasonable Value. After completing the form, it can either
be mailed to the Loan Guaranty Division at the nearest VA office for processing or an
appraisal can be requested by telephoning the Loan Guaranty Division for assignment of
an appraiser. The local VA office may be contacted for information concerning its
assignment procedures. The appraiser will send a bill for his or her services to the
requester according to a fee schedule approved by VA. To simplify things, VA and
HUD/FHA (Department of Housing and Urban Development/Federal Housing
Administration) use the same appraisal forms. Also, if the property was recently appraised
under the HUD procedure, under certain limited circumstances, the HUD conditional
commitment can be converted to a VA CRV. The local VA office can explain how this is
It is important to recognize that while the VA appraisal estimates the value of the
property, it is not an inspection and does not guarantee that the house is free of defects.
Homebuyers should be encouraged to carefully inspect the property themselves, or to hire
a reputable inspection firm to help in this area. VA guarantees the loan, not the condition
of the property.
The application process for VA financing is no different from any other type of loan. In
fact, the VA application form is the same as that used for HUD/FHA and conventional
loans. The mortgage lender verifies the applicant's income and assets, and obtains a credit
report to see that other obligations are being paid on time. If all is well and the appraised
value of the property is enough to cover the loan needed, the lender, in most instances,
can then close the loan under VA's automatic procedure. Only about 10 percent of VA
loan applications have to be submitted to a VA office for approval before closing.
REQUIREMENTS FOR LOAN APPROVAL
To obtain a VA loan, the law requires that:
- The applicant must be an eligible veteran who has available entitlement.
- The loan must be for an eligible purpose.
- The veteran must occupy or intend to occupy the property as a home within a
reasonable period of time after closing the loan.
- The veteran must be a satisfactory credit risk.
- The income of the veteran and spouse, if any, must be shown to be stable and
sufficient to meet the mortgage payments, cover the costs of owning a home, take care of
other obligations and expenses, and have enough left over for family support.
An experienced mortgage lender will be able to discuss specific income and other
COSTS OF OBTAINING A VA LOAN
A basic funding fee of 2.0 percent 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.
- VA appraisal
- Credit report
- Loan origination fee (usually 1 percent of the loan)
- Discount points
- Title search and title insurance
- Recording fees
- State and/or local transfer taxes, if applicable
No commissions, brokerage fees or "buyer broker" fees may be charged to the veteran
NEED MORE INFORMATION?
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.