What is a VA Loan?

A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). The loan may be issued by qualified VA lenders.

Congress created the VA Loan Guaranty Program in 1944 to help returning service members achieve the dream of home ownership. Since then, the Department of Veterans Affairs has helped more than 17.6 million military members purchase and homes in the United States.. The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and to help veterans purchase properties with no down payment. Eligible areas are designated by the VA as housing credit shortage areas and are generally rural areas and small cities and towns not near metropolitan or commuting areas of large cities.


With more than 26.3 million veterans and service personnel eligible for VA financing, this loan has many advantages. There is a two-year requirement if the veteran enlisted and began service after September 7, 1980 or was an officer and began service after October 16, 1981. There is a six-year requirement for National guards and reservists with certain criteria and there are specific rules concerning the eligibility of surviving spouses. Eligibility for the VA loan is defined as Veterans who served on active duty and have a discharge other than dishonorable after a minimum of 90 days of service during wartime or a minimum of 181 continuous days during peacetime.

The VA loan allows veterans 103.15 percent financing without private mortgage insurance or a 20 per cent second mortgage and up to $6,000 for energy efficient improvements. VA will guarantee a maximum of 25 percent of a home loan amount up to $104,250, which limits the maximum loan amount to $417,000. Generally, the reasonable value of the property or the purchase price, whichever is less, plus the funding fee may be borrowed. All veterans must qualify, for they are not automatically eligible for the program.

VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.

VA loans allow veterans to qualify for loans amounts larger than traditional Fannie Mae / conforming loans. 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.

A VA loan is perhaps the most powerful and flexible lending option on the market today. Rather than issue loans, the VA instead pledges to repay about a quarter of every loan it guarantees in the unlikely event the borrower defaults.The maximum VA loan guarantee varies by county.

 

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