VA Home Loan Guarantee Program
Why a VA Home Loan Guarantee?
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 loan can also be used to build a home, simultaneously purchase and improve a home, refinance an existing home loan up to 90 percent of the VA-established reasonable value, or buy a manufactured home and/or lot.
To get a loan, you must apply to a lender. If the loan is approved, VA will guarantee a portion of it to the lender. This guaranty protects the lender against loss up to the amount guaranteed and allows a veteran to obtain favorable financing terms.
There is no maximum VA loan but lenders will generally limit VA loans to $417,000. This is because lenders sell VA loans in the secondary market, which currently places a $417,000 limit on most loans. The Veterans Benefits Act of 2004 made major changes in the VA guaranty structure. The VA loan guaranty of $104,250 which allows a maximum home value $417,000 now has exceptions for high cost of living counties. For a current list, see the VA County Loan Limits document.
VA backed loans offer the following features:
- Equal opportunity for all qualified veterans to obtain a VA loan
- No down payment (unless required by the lender or the purchase price is more than the reasonable value of the property)
- Buyer informed of reasonable value
- Negotiable interest rate and a variety of loan options
- Ability to finance the VA funding fee (plus reduced funding fees with a down payment of at least 5% and exemption for veterans receiving VA compensation)
- Closing costs are comparable with other financing types (and may be lower)
- No mortgage insurance premiums
- An assumable mortgage
- Right to prepay without penalty
How Does a Veteran Obtain a VA Guaranteed Loan?
- Apply for Your Certificate of Eligibility - If you don't have yours already, download the application form, complete it, and mail it along with a Statement of Active Service from your admin office (if still on active duty) or a copy of your DD214 to the nearest VA Regional Office.
- Contract to purchase - Select a home and discuss purchase with seller or selling agent and sign purchase contract conditioned on approval of a VA guaranteed loan.
- Loan application - Select a lender, present your Certificate of Eligibility, and complete the loan application. The lender will develop all credit information and request the VA to assign a licensed appraiser to determine the reasonable value for the property. You will pay for a credit report and the appraisal unless the seller agrees to pay. Either the VA or the lender will issue a value for the property for loan purposes, based on the appraisal.
- Loan decision - If the established value is acceptable to all parties and the lender determines that you are credit and income qualified, the loan may be approved. Most lenders are authorized to make this decision.
- Loan closing - You (and your spouse) attend the loan closing and sign the note, mortgage, and other related papers. The lender or closing attorney will explain the loan terms and requirements, as well as where and how to make the monthly payments. When the loan is reported to VA, the Certificate of Eligibility is annotated to reflect the use of entitlement and returned to the applicant. (The loan closing procedure may vary in some states.)