VA Loans 

What is a VA Loan?

In 1944 President Franklin D. Roosevelt signed into law the Servicemen's Readjustment Act, also known as the GI Bill. Realizing that most Veterans had little to no savings with which to make a down payment, part of the act created what we commonly refer to today as the Veterans’ Administration Loan (VA loan). Just as it insures part of each FHA loan, the government guarantees every VA loan. The result is a loan program in which eligible Veterans are not required to make any down payment when purchasing an eligible property, and provides a streamlined process when refinancing existing VA loans. Like FHA loans, the government does not set interest rates or directly lend money for VA loans. VA loans are made to eligible Veterans by lenders. The Veterans’ Administration guarantees the loan in case the homeowner defaults, reducing the lender's risk of financial loss if the loan goes into foreclosure or short sale. Lenders pass on the reduced risk of the guaranteed VA loans in the form of more flexible underwriting guidelines and requirements as compared to a conventional loan.

The VA funds its mortgage guarantee program through a one-time charge called the VA Funding Fee. The VA Funding Fee is financed into the loan. The amount of the funding fee can range from 0.5% to 3.3% of the loan amount, depending on factors such as the type of loan, the Veteran's service (active duty, reserves, National Guard, etc.), how much the Veteran puts down on the home, and whether the Veteran has previously used his or her VA loan eligibiilty. In certain circumstances, Veterans with service-connected disabilities (and eligible surviving spouses) may be exempt from the VA Funding Fee.

Unlike FHA loans, Veterans pay NO MONTHLY MORTGAGE INSURANCE.  VA home loans are available in all 50 states and on most types of properties.

The result of this is that Veterans who might otherwise be excluded from the mortgage loan market can realize the dream of homeownership under terms that recognize the incalculable contributions and sacrifices made by Veterans and their families. 

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What Type of Home Can I Buy with a VA Loan?

A VA home loan must be used to finance your personal residence within the United States and its territories. You have choices for the type of home you purchase:

  • Existing Single-Family Home
  • Townhouse or Condominium in a VA-Approved Project
  • New Construction Residence
  • Manufactured Home or Lot
  • Home Refinances (including Energy-efficent Mortgages [see below]) 

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Who is Eligible for a VA Loan?

Persons interested in a VA loan should contact their Regional VA Office for eligibility verification and to receive guidance on obtaining a Certificate of Eligibility.

Wartime/Conflict Veterans

  • Veterans who were NOT Dishonorably Discharged, and served at least 90 days
  • World War II – September 16, 1940 to July 25, 1947
  • Korean Conflict – June 27, 1950 to January 31, 1955
  • Vietnam Era – August 5, 1964 to May 7, 1975
  • Persian Gulf War - Check with the Veterans’ Administration Office
  • Afghanistan & Iraq – Check with the Veterans’ Administration Office

Peacetime Service

  • At least 181 days of continuous active duty with no dishonorable discharge. If you were discharged earlier due to a service-related disability you should contact your Regional VA Office for eligibility verification.
  • July 26, 1947 to June 26, 1950
  • February 1, 1955 to August 4, 1964, or May 8, 1975 to September 7, 1980 (Enlisted), or to October 16, 1981 (Officer)
  • Enlisted Veterans whose service began after September 7, 1980, or officers who service began after October 16, 1981, must have completed 24-months of continuous active duty and been honorably discharged

Reserves and National Guard

  • Certain U.S. Citizens who served in the Armed Forces of a government allied with the United States during World War II
  • Surviving spouse of an eligible Veteran who died resulting from service, and has not remarried
  • The spouse of an Armed Forces member who served Active Duty, and was listed as a POW or MIA for more than 90-days 

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What are the Benefits of a VA Loan?

  • Purchase or Refinance
  • Credit scores as low as 580
  • Option for no down payment
  • Underwriting guidelines are easier than a conventional loan
  • Competitive rates and no mortgage insurance premiums could mean lower monthly payments than conventional loans.
  • Cash-out refinances to 100% LTV
  • Low to no reserve requirements
  • VA Jumbo with loan amounts as high as $1.5 million
  • Variety of fixed- and adjustable-rate loan options
  • No prepayment penalties
  • Seller or lender may contribute to Veteran's closing costs
  • Take up to an additional $6,000 for improving the energy efficiency of the home at time of purchase or when doing a streamline refinance (see below).
  • Can be combined with additional down payment assistance to reduce closing costs 

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VA Home Refinance Loans

The benefits that Veterans enjoy when purchasing a home (see above) also apply when refinancing. Veterans can take tap the equity in their homes through a VA Cash-out Refinance. Those Veterans looking to simply take advantage of lower interest rates might best be served through the VA Streamline Refinance program (also called an Interest Rate Reduction Refinance Loan, or "IRRRL" [pronounced "Earl"]). The IRRRL allows Veterans to refinance a home loan with minimal documentation and no appraisal.

The VA IRRRL EEM (Energy-Efficient Mortgage) program has the same streamlined process and allows Veterans to add up to an additional $6,0001 to the loan to increase the comfort, safety, and value of their homes by investing in upgrades and improvements that increase the energy efficiency of the home, including some of the most cutting-edge energy efficiency technology.

The Streamline Refinance (IRRRL) does require that the mortgage be current, with no more than one 30-day late mortgage payment during the previous 12 months.

1 In some cases, it is possible to utilize more than $6,000 for energy improvement-related costs. Consult an experienced mortgage professional for more information.

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What Are the Disadvantages of a VA Loan?

VA LOANS MADE PRIOR TO MARCH 1, 1988 can be assumed with no qualifying of the new buyer. If the person who assumed the loan defaults (doesn’t pay), the Veteran homeowner could be responsible for repayment of the loan. Any VA loan made on or after March 1, 1988 requires approval by the lender and the VA of the person assuming the loan, so this is not an issue for newer VA loans.

Some sellers are hesitant to work with someone obtaining a VA loan because of a common misconception that it takes longer than a conventional loan to process. It is true that, in years past, it did take longer to process a VA loan application. However, advances in technology mean that an experienced mortgage professional can process today's VA loan applications in the same amount of time as a conventional with similar characteristics.

Sellers are often asked to pay a portion of closing costs, and might therefore be less likely to negotiate the sales price of the home.

No down payment at time of purchase can result in very little to no equity in the property in the early years following origination of the loan. Because there can be substantial costs to a home seller, having little to no equity could make selling the home difficult.

VA loans can only be used to acquire a property that will be occupied by the Veteran (and, of course, his or her family). VA loans may NOT be used to purchase rental, rehab, or other investment properties. 

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How Do I Apply for a VA Loan?

You can apply for a VA Loan with any mortgage lender that participates in the program. In addition to the application requirements from your lender, you will need the following at application time:

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I Currently Have a VA Loan. Can I Get Another One?

Your eligibility is reusable depending on the circumstance. If you have paid-off your prior VA Loan, and disposed of (sold) the property, you can have your eligibility restored for use again. Also, on a one-time basis, you may have your eligibility restored if your prior VA Loan has been paid-off but you still own the property. Either way, the Veteran must send a completed VA Form 16-1880 the Veterans Administration’s VA Eligibility Center. To prevent delays in processing, it's advisable to include evidence that the prior loan has been fully paid, and, if applicable, that the property was disposed of (sold). A paid-in-full statement from the former lender or a copy of the HUD-1 settlement statement must also be submitted. 

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