A VA loan is a mortgage lending loan guaranteed by the U.S. Department of Veterans Affairs.
- The VA does not offer loans - it guarantees them if eligibility restrictions are met.
- A VA-approved lender takes care of the actual loan process.
- VA loans provide long-term financing to Veterans or their surviving spouses.
- The VA direct home loan program is great for assisting Veterans (that are eligible) in areas where private financing is not usually available. Rural areas, smaller cities and towns not near metropolitan areas of large cities are examples of eligible housing credit shortage areas. This program may help the Vet purchase a property with zero down payment.
- There is no PMI on a VA loan, allowing Veterans to get larger loans, since even on a 100% loan, the entire payment applies to the loan amount. 20% second mortgages are eliminated for the same reason. 0% to 3.3% of the loan amount is paid to the VA as a funding fee. It too can be financed.
VA Strengths for Veterans
- Allows loans for up to 41% of gross monthly income versus conforming loans at 28%.
- May qualify for larger loan amounts than traditional Fannie Mae conforming loans.
- 100% loan - No down paymentThe benefits for Veterans was expanded and increased by the Veterans Housing Benefit Improvement Act of 1978.
VA programs may cause confusion and misunderstanding for both the borrower and the loan originator. The government does not actually make the loans to Veterans, they simply guarantee the loan. The Veteran must secure the loan through an approved VA lender. The VA does the appraisal and if they are satisfied that the Veteran qualifies for the loan, they will guarantee the lender against any loss should the borrower default on the loan.
If the Veteran is put into a financial bind because of active duty commitments, the interest rate is frozen at 6%.
- Q&A pertaining to VA Loan Eligibility and reuse of eligibility for another VA loan.
Q: How does a Veteran apply for a VA guaranteed loan?
The Veteran applies for a VA loan with a VA approved lender. The Veteran will need to produce a Certificate of Eligibility to the lender showing the lender that the Veteran is eligible for a VA loan.
Q: How does a Veteran get a Certificate of Eligibility?
To start the loan process, the Veteran needs to submit VA Form 26-1880 "Request for a Certificate of Eligibility". The form is then sent to the Eligibility Center along with the Veteran's proof of military service.
- Q: What is acceptable proof of a Veteran's military service?
If a Veteran is still on regular active duty the Veteran must produce from the personnel officer or his or her commander an original statement of service. This statement of service should include the Veteran's social security number. The statement must also include the date that the Veteran entered the armed services and if there has been any time lost and if so, the amount of time. For those Veterans who were discharged after January 1, 1950, they will need to produce a copy of their DD214, which is the "Certificate of Release or Discharge from Active Duty". The DD214 should be included with VA Form 26-1880. If the Veteran was discharged after October 1, 1979, copy 4 of the DD214 should be produced. The Veteran should produce photocopies of the DD214. Veterans should never give the loan originators the original.
If the borrower has been discharged from the National Guard or Selected Reserves, he or she must provide documentation that will show at least 6 years of honorable service. If the borrower was discharged from the Air Force National Guard or the Army, he or she may submit NGB Form 22, "report of separation and record of service, OR NGB Form 23, "retirement points accounting". If the borrower was discharged from the National Guard or the Selected Reserves, an original statement of service signed by his or her commander will suffice. The statement will need to show the length of time he or she was a member.
If a borrower needs to provide proof of military service, Standard form 180 "Request pertaining to Military Records" may be used. This form will be filled out by the custodian of military service records, not the VA.
All information (including the instructions) is located on the form.
Q: The Veteran already obtained one VA loan. Can the Veteran get another one?
Veterans can reuse their eligibility depending on a few circumstances. If Veterans have paid off their previous loan and the property has been sold, the eligibility can be restored. If Veterans have paid off their property, but still own the property, Veterans may have the eligibility restored on a one-time basis.
Veterans Administration, http://www.va.gov