Veterans Administration Guranteed Loan
Created by the original G.I. Bill (Servicemen’s Readjustment Act of 1944); the VA-Guaranteed Home Loan program has helped generations of Veterans, Servicemembers, and their families enjoy the dream of homeownership and the opportunity to retain their homes in times of temporary financial hardship.
What is the VA Home Loan ‘Guaranty’?
The VA home loan guaranty is an agreement that VA will reimburse a lender (such as banks, credit unions, mortgage companies, etc.) in the event of loss due to foreclosure. This guaranty takes the place of your down payment.
Who is eligible for a VA Home Loan?
Active-duty servicemembers and Veterans with discharges other than dishonorable. National Guard and Reserve service members and Veterans with an honorable discharge. Certain eligible spouses, and other uniformed service personnel may be eligible for VA home loan guaranty benefits. The full listing is available online at: https://www.va.gov/housing-assistance/home-loans/eligibility/.
Is there a fee to use the VA Home Loan Guaranty?
Yes, but the funding fee can be waived; (ask how to waive). To keep the program viable, Congress instituted a program funding fee, which is a percentage of the total loan amount. This user fee varies based whether the loan is a first-time or subsequent (second, third, etc.) use of the benefit. The funding fee may be paid in cash or included in the loan at closing. The funding fee can also be paid by the seller, lender, or any other party on your behalf.
The following individuals do not pay the VA funding fee:
- Veterans receiving VA compensation for a service-connected disability.
- Veterans entitled to receive VA compensation for a service-connected disability, but receive retirement pay or active service pay.
- Unremarried surviving spouses of Veterans who died in active service or from a serviceconnected disability.
- Service member with a proposed or memorandum rating from VA, prior to loan closing, as eligible to receive compensation as a result of a pre-discharge claim.
- Service member on active duty who provides, on or before the date of loan closing, evidence of having been awarded the Purple Heart.
Is there a limit to the size of a VA-backed mortgage?
There are no loan limits if one has full home loan benefit or full entitlement. If you are a first-time homebuyer or have sold your previous VA-backed home and paid your loan in full; you can enjoy VA backing on a home loan regardless of home price and without the need for a down payment. Of course, you must be able to afford the home. And the property must appraise for at least the purchase price. Otherwise you may have to make a small down payment.
What if I want to buy a home while I still have another VA Home Loan?
While you can buy a home for any loan amount. You must either sell your previous home or understand VA rules on subsequent purchases and remaining entitlement. Those who purchase a subsequent home without selling their previous VA-guaranteed home will continue to follow their county conforming loan limit for the VA loan guaranty. This may mean a down payment on any amount above the loan limit.
Why choose VA?
- The VA Home Loan is often the best home loan product for Veterans. Some benefits include:
- No down payment as long as the sales price is at or below the home’s appraised value (the value set for the home after an expert review of the property).
- No loan limit with full entitlement if you can afford the loan, VA will back loans in all areas of the country, regardless of home price.
- Competitive terms and interest rates from private banks, mortgage lenders, or credit unions.
- No need for private mortgage insurance (PMI) or mortgage insurance premiums (MIP).
o PMI is a type of insurance that protects the lender if the borrower ends up not beingable to pay the mortgage. It’s usually required on conventional loans if the down
payment is less than 20% of the total mortgage amount.
o MIP is what the Federal Housing Administration (FHA) requires borrowers to pay to selfinsure an FHA loan against future loss.
o Not having to pay PMI could save a borrower on their monthly mortgage payment
- Fewer closing costs, which may be paid by the seller, lender, or any other party
- No penalty fee for paying off the loan early
- Access to VA loan staff who can answer questions by mail or phone (1-877-827-3702).
Before buying a home, you should consider the costs and benefits of homeownership. While renting a home can offer flexibility and limited responsibility for maintenance, rent can change over time, the owner can sell the property, and you may or may not receive your security deposit when you move. Homeownership, over the long-term can offer benefits such as relatively stable monthly mortgage payments and a way to build wealth for you and your family. VA highly recommends that you determine your priorities before buying a home, such as what you are willing to spend each month on a mortgage and what other expenses (vehicle, childcare, etc.) you will have to consider. Only you can determine what meets your housing and financial needs.