VA Home Loans

Service members, veterans, and surviving spouses that have not remarried who decide to buy a house are eligible for a home loan guarantee offered by the Department of Veterans Affairs.

A surviving spouse who remarries will regain eligibility for the program if the subsequent marriage ends. This program does not apply to property located outside the United States.

The VA does not make the loans. Rather, it guarantees the loans, which minimizes lender's risks and reduces their losses in the event of foreclosure. The money comes from private lenders who volunteer to participate in the VA program. Because of the guaranty, lenders are willing to offer mortgage loans larger than for what service members might otherwise qualify. A VA loan can be used to buy a house, townhouse or condominium, or one under construction; a mobile home, with some restrictions; or a mobile home lot and a farm but not farm-related items such as long as the loan has been paid in full.

Eligibility can be restored if the person buying the home is an eligible veterans who assumes the loan and substitutes his entitlement for that of the original veteran.

Funding fees - Recipients of VA home loans pay a funding fee similar to user fees or origination fees paid by civilian borrowers. Funding fees offset losses that occur when borrowers default on loans.

VA borrowers are not required to pay an up-front funding fee in order to secure a loan, but can include the fee as part of the loan amount. The funding fee for loans with a down payment of less than 5% is 2% or 2.75% for those qualifying based on service in the reserve or National Guard. It is lower for veterans making down payments of 5% percent or more. The VA also charges a funding fee to second-time users of the loan program. The so-called multiple-use fee is 3% percent of the loan amount unless the veteran makes at least a 5% percent down payment. In that case, the fee drops. Veterans who have a service-connected disability for which they receive compensation are exempt from any funding fee. Under the laws of some states, disabled veterans also may qualify for a waiver of property taxes. There is an additional option for those who already hold VA-approved home loans the Interest Rate Reduction Refinancing Loan. The funding fee is 0.5 percent.

Maximum loan - VA does not establish a maximum loan amount. However, lenders generally will lend to qualified veterans up to four times the basic maximum entitlement. This means a typical ceiling for a loan with no down payment is $144,000 (4 x $36,000). In certain cases for loans above $144,000, the maximum entitlement can be increased to $60,000. That would enable a person to borrow four times that amount, or $240,000, without a down payment.

Refinancing - A VA loan can be used to refinance an existing mortgage or to improve, repair or alter a dwelling owned and occupied by a veteran. On loans to refinance an existing VA loan to lower the interest rate, closing costs including up to two discount points can be included in the loan. [Source Military times Handbook for Military Life May 2002]

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