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Home Loan Guaranty and Mortgage Protection

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					Family and Housing


Home Loan Guaranty and Mortgage Protection


Abstract
The Department of Veterans Affairs (VA) Home Loan Guaranty Program offers loans from private
lenders such as banks, savings and loan associations, or mortgage companies to qualified persons.


The Basics
A VA guaranteed loan is a loan offered by private lenders (such as banks, savings & loans, or mortgage
companies) to certain eligible people. If you want to purchase a home, condominium, or manufactured
home, the VA can guarantee up to $417,000<parameter: new: HLGP-max-guarantee > of the total loan,
which is much more than you can get with most conventional home loans. If you are considering
refinancing an existing loan, VA offers you two options. You can either refinance to reduce your current
interest rate or you can take equity <glossary> out (cash-out). The "cash-out" option is limited to
$144,000<parameter: new: HLGP-cash-out-max >.

The VA's guaranty on the loan protects the lender against loss if the payments are not made, and is
intended to encourage lenders to offer you loans with more favorable terms. The amount of guaranty
on the loan depends on your loan amount and whether you have previously used some entitlement.
With the current maximum guaranty, if you have not previously used the benefit, you may be able to
obtain a VA loan of up to $417,000<parameter: new: HLGP-max-guarantee > ($625,500<parameter:
new: HLGP-max-guarantee-for-Hawaii-Alaska-Guam-Virgin-Islands > for loans in Hawaii, Alaska, Guam
and U.S. Virgin Islands), depending on your income level and the appraised value of the property.


Eligibility
You are eligible for VA financing if your service falls within any of the following categories:

Wartime Service
    •   WWII: 9/16/1940 to 7/25/1947
    •   Korea: 6/27/1950 to 1/31/1955
    •   Vietnam: 8/5/1964 to 5/7/1975

You must have served at least 90 days of continuous active duty and been discharged under other than
dishonorable conditions. If you served less than 90 days, you may be eligible if discharged for a service-
connected disability.
Peacetime Service
    •   7/26/1947 to 6/26/1950
    •   2/1/1955 to 8/4/1964
    •   5/8/1975 to 9/7/1980 (Enlisted)
    •   5/8/1975 to 10/16/1981 (Officer)

You must have served at least 181 days of continuous active duty and been discharged under other than
dishonorable conditions. If you served less than 181 days, you may be eligible if discharged for a
service-connected disability.

Service after 9/7/1980 (enlisted) or 10/16/1981 (officer)
If you were separated from service which began after these dates, you must have:

    •   Completed 24 months of continuous active duty or the full period (at least 181 days) for which
        you were ordered or called to active duty and been discharged under conditions other than
        dishonorable
    •   Completed at least 181 days of active duty and been discharged under the specific authority of
        10 USC 1173 (Hardship), or 10 USC 1171 (Early Out), or have been determined to have a
        compensable service-connected disability
    •   Been discharged with less than 181 days of service for a service-connected disability. You may
        also be eligible if you were released from active duty due to an involuntary reduction in force,
        certain medical conditions, or, in some instances, for the convenience of the Government

Gulf War - Service during period 8/2/1990 to date yet to be determined
If you served on active duty during the Gulf War, you must have:

    •   Completed 24 months of continuous active duty or the full period (at least 90 days) for which
        you were called or ordered to active duty, and been discharged under conditions other than
        dishonorable
    •   Completed at least 90 days of active duty and been discharged under the specific authority of 10
        USC 1173 (Hardship), or 10 USC 1173 (Early Out), or have been determined to have a
        compensable service-connected disability
    •   Been discharged with less than 90 days of service for a service-connected disability. You may
        also be eligible if you were released from active duty due to an involuntary reduction in force,
        certain medical conditions, or, in some instances, for the convenience of the Government

Active Duty Service Personnel
If you are now on regular duty (not active duty for training), you are eligible after having served 181 days
(90 days during the Gulf War) unless discharged or separated from a previous qualifying period of active
duty service.
Selected Reserves or National Guard
If you are not otherwise eligible and you have completed a total of 6 years in the Selected Reserves or
National Guard (and you were a member of an active unit, attended required weekend drills and 2-week
active duty for training) and:

    •   Were discharged with an honorable discharge
    •   Were placed on the retired list
    •   Were transferred to the Standby Reserve or an element of the Ready Reserve other than the
        Selected Reserve after service characterized as honorable service
    •   Continue to serve in the Selected Reserves
    •   You have less than 6 years, but were discharged for a service-connected disability

Unremarried Surviving Spouses/Spouses of POW or MIA Serviceperson:
    •   If you’re an unremarried spouse of a veteran who died while in service or from a service-
        connected disability
    •   If you’re a spouse of a serviceperson missing in action or a prisoner of war.

Note: Also, a surviving spouse who remarries on or after attaining age 57 and on or after December 16,
2003, may be eligible for the home loan benefit.

Eligibility may also be established for:

    •   Certain United States citizens who served in the armed forces of a government allied with the
        United States in WW II
    •   Individuals with service as members in certain organizations, to include Public Health Service
        officers, cadets at the United States Military, Air Force, or Coast Guard Academy, midshipmen at
        the United States Naval Academy, officers of the National Oceanic & Atmospheric
        Administration, merchant seaman with WW II service, and others

For more information on service-connected disability read VB101’s articles on VA Disability
Compensation <link to: VB101: VA Disability Compensation: Basics> and VA Additional Monthly
Compensation <link to: VB101: VA Additional Monthly Compensation: Basics>.


Benefits and Services
VA Loans Advantages:
    •   No down payment required, thus reducing the origination cost of the loan
    •   The loan maximum may be up to 100 percent of the VA established reasonable value of the
        property
    •   You have flexibility in negotiating interest rates with the lender
    •   There is no monthly mortgage insurance premium (private mortgage insurance <glossary>, or
        PMI)
    •   There is a limit on the buyer's closing costs
    •   The buyer receives an appraisal <glossary> that shows the property value
    •   30-year loans have a choice of repayment plans to include:
        o Traditional fixed-payments: constant principal and interest; increases or decreases may be
            expected in property taxes and homeowner's insurance coverage
        o Graduated-payment mortgage (GPM): low initial payments that gradually rise to a level
            payment starting in the sixth year
        o Growing equity mortgage (GEM): have gradually increasing payments with all of the
            increases applied to the principal, resulting in an early payoff of the loan
    •   For most new home loans, construction is inspected at appropriate stages to ensure compliance
        with the approved plans, and a one-year warranty is required from the builder that the house is
        built in conformity with the approved plans and specifications. In those cases where the builder
        provides an acceptable 10-year warranty plan, only a final inspection may be required
    •   The mortgage is assumable, subject to VA approval of the assumer's credit
    •   No pre-payment penalty, and
    •   The VA performs personal loan servicing and offers financial counseling to help veterans avoid
        losing their homes during temporary financial difficulties.

Eligible Loan Purposes
You may use Department of Veterans Affairs (VA) guaranteed loans:

    •   To buy a home
    •   To buy a townhouse or condominium unit in a project that has been approved by VA
    •   To build a home
    •   To repair, alter, or improve a home
    •   To simultaneously purchase and improve a home
    •   To improve a home through installment of a solar heating and/or cooling system or other
        energy efficient improvements
    •   To buy a manufactured (mobile) home or lot
    •   To buy and improve a lot on which to place a manufactured home which you already own and
        occupy
    •   To refinance a manufactured home loan in order to acquire a lot

Requirements for a VA Loan Approval
To get a VA loan the law requires that:

    •   You must be an eligible veteran who has available home loan entitlement (except in the case of
        an interest rate reduction refinancing loan)
   •   The loan must be for an eligible purpose. The purchase price should not exceed the appraised
       value. Otherwise, you will have to pay the difference from your own resources
   •   You must occupy or intend to occupy the property as your home within a reasonable period of
       time after closing the loan
   •   You must have enough income to meet the new mortgage payments on the loan, cover the
       costs of owning a home, take care of other obligations and expenses, and still have enough
       income left over for family support, and
   •   You must have a good credit record.

Repayment Plans
VA will guarantee loans to purchase homes made with the following repayment plans:

   •   Traditional Fixed-Payment Mortgage: This type of mortgage loan calls for equal monthly
       payments for the life or term of the loan. Each monthly payment reduces a certain portion of
       the principal owed on the loan and pays interest accrued to date.
   •   GPM (Graduated Payment Mortgage): This repayment plan provides for smaller-than-normal
       monthly payments for the first few years (usually 5 years), which gradually increase each year,
       and then level off after the end of the "graduation period" to larger-than-normal payments for
       the remaining term of the loan. The reduction in the monthly payment in the early years of the
       loan is accomplished by delaying a portion of the interest due on the loan each month and by
       adding that interest to the principal balance.
   •   Buydowns: The builder of a new home or seller of an existing home may "buy down" the
       veteran's mortgage payments by making a large lump-sum payment up front at closing that will
       be used to supplement the monthly payments for a certain period, usually 1 to 3 years.
   •   GEM (Growing Equity Mortgage): This repayment plan provides for a gradual annual increase in
       the monthly payments with all of the increase applied to the principal balance. The annual
       increases in the monthly payment may be fixed (for example, 3 percent per year) or tied to an
       appropriate index. The increases to the monthly payment result in an early payoff of the loan in
       about 11 to 16 years for a typical 30 year mortgage.
   •   ARM (Adjustable Rate Mortgages): ARM loans are typically made at an initial interest rate lower
       than market rate; however the interest rate can be adjusted – up or down – during the life of
       the loan. A one year ARM allows for annual adjustments of no more than one percent and a
       lifetime cap of five percent. Hybrid ARM loans allow for an initial fixed rate for a period of at
       least 3 years, followed by annual adjustments. Depending on the length of the fixed rate period,
       the initial adjustment can be up to 2 percent and the lifetime cap is either 5 percent or 6
       percent.

Down Payment Requirements
Traditional Fixed-Payment Mortgage, Buydown Loans, and Growing Equity Mortgage
The Department of Veterans Affairs (VA) does not require a down payment if the purchase price or cost
is not more than the reasonable value of the property as determined by VA, but the lender may require
one. If the purchase price or cost is more than the reasonable value, the difference must be paid in cash
from your own resources.


Graduated Payment Mortgage

The maximum loan amount may not be for more than the reasonable value of the property or the
purchase price, whichever is less. Because the loan balance will be increasing during the first years of
the loan, a down payment is required to keep the loan balance from going over the reasonable value or
the purchase price.

Interest Rates
The interest rate on Department of Veterans Affairs (VA) loans can be negotiated based on prevailing
rates in the mortgage market. Once a loan is made, the interest rate set in the note will stay the same
for the life of the loan. However, if interest rates go down, and you still own and occupy (or previously
occupied) the property securing a VA loan, you may apply for a new VA loan to refinance the previous
loan at a lower interest rate without using any additional entitlement.

Closing Costs
Department of Veterans Affairs (VA) regulates those closing costs you may be charged in connection
with closing a VA loan. No commission or brokerage fees may be charged to you for obtaining a VA loan.
However, you may pay reasonable closing costs to the lender in connection with a VA guaranteed loan.

Although some additional costs are unique to certain localities, the closing costs generally include VA
appraisal, credit report, survey, title evidence, recording fees, a 1% loan origination fee, and discount
points <glossary>. The closing costs and origination charge may not be included in the loan, except in VA
refinancing loans.

In addition to negotiating the interest rate with the lender, you may negotiate the payment of discount
points and other closing costs with the seller. Often, sellers will consider paying some or all of the
discount points required by the lender in order to complete the sale. This can have a big impact on the
amount of cash you must pay out of pocket in order to complete the purchase. If the seller will not
consider paying points, you may be able to negotiate an interest rate with the lender which is sufficient
to avoid the need to include any discount points in the transaction.

Funding Fee
You must also pay a Department of Veterans Affairs (VA) funding fee at the time of your loan closing.
The fee may be included in the loan and paid from loan proceeds. The fee is not required if you are in
receipt of service-connected compensation, or would be but are receiving military retired pay instead. It
is also not required from surviving spouses of veterans who died in service or from service-connected
causes.
Restoration of Entitlement
You can have previously-used entitlement "restored" to purchase another home with a VA loan if:

    •   The property purchased with the prior Department of Veterans Affairs (VA) loan has been sold
        and the loan paid in full
    •   A qualified veteran transferee (buyer) agrees to assume the VA loan and substitute his or her
        entitlement for the same amount of entitlement originally used by you, the veteran seller. The
        entitlement may also be restored one time only if you have repaid the prior VA loan in full, but
        have not disposed of the property purchased with the prior VA loan. Remaining entitlement and
        restoration of entitlement can be requested through the VA Eligibility Center by completing VA
        Form 26-1880, found here<link to: http://www.vba.va.gov/pubs/forms/26-1880%283-
        11%29.pdf >

VA Home Loan Safeguards
    •   The Department of Veterans Affairs (VA) may suspend from the loan program lenders who take
        unfair advantage of you, the borrower, or decline to sell a new home or make a loan to you
        because of race, color, religion, sex, disability, family status or national origin
    •   The builder of a new home is required to give you a one year warranty that the home has been
        constructed to VA approved plans and specifications. A similar warranty must be given for new
        manufactured homes
    •   In cases of new construction completed under VA or Housing and Urban Development (HUD)
        inspection, the VA may pay or otherwise compensate you for correction of structural defects
        seriously affecting livability if assistance is requested within four years of a home loan guaranty
    •   You may only be charged the fees and other charges prescribed by VA as allowable
    •   You can prepay without penalty the entire loan or any part not less than the amount of one
        installment or $100<parameter: new: HLGP-minimum-prepayment-amount >
    •   The VA encourages holders to extend forbearance if you become temporarily unable to meet
        the terms of the loan


Getting Benefits and Services

Certificate of Eligibility
In order to obtain a Department of Veterans Affairs (VA) home loan, you must first obtain your
Certificate of Eligibility. This certificate is issued only through the Veterans Administration, and is the
first step towards applying for your loan. Veterans, active duty, guard or reserve, and military spouses
potentially qualify for this certificate. Keep in mind that the Certificate of Eligibility, while necessary,
only allows you to apply for a home loan; it does not guarantee a loan approval.

ACE (automated certificate of eligibility): In some cases you can obtain the Certificate of Eligibility from a
lender. Most lenders have access to the ACE system. This internet-based application can establish your
eligibility and issue an online Certificate of Eligibility in seconds. Not all cases can be processed through
ACE – only those for which VA has sufficient data in their records. However, you are encouraged to ask
your lender about this method of obtaining a certificate.

If the certificate cannot be issued by ACE, you can request it from VA by completing VA Form 26-1880,
found here<link to: http://www.vba.va.gov/pubs/forms/26-1880%283-11%29.pdf >, “Request for A
Certificate of Eligibility.” The form should be submitted along with either the originals or legible copies
of your most recent discharge or separation papers covering active military duty since September 16,
1940, which show active duty dates and type of discharge. You may use Standard Form 180, found here,
<link to: http://www.archives.gov/research/order/standard-form-180.pdf > to obtain these documents.
If you were separated after January 1, 1950, you must submit a DD Form 214, Certificate of Release or
Discharge from Active Duty.

If you are now on active duty and have not been previously discharged from active duty service, you
must submit a statement of service which includes the name of the issuing authority (base or
command), and is signed by or at the direction of an appropriate official. The statement must include
your date of entry on active duty and the duration of any time lost.

Since there is no uniform document similar to the DD214 for proof of service in the Selected Reserve, a
number of different forms may be accepted as documentation of your service in the Selected Reserve. If
you served in the Army or Air National Guard and were discharged after at least 6 years of such service,
NGB Form 22 may be sufficient. If you served in the Reserves of the Army, Navy, Air Force, Marine
Corps, or Coast Guard, you may need to rely on any of a variety of forms that document at least 6 years
of honorable service. Often, it will be necessary to submit a combination of documents such as an
Honorable Discharge certificate together with a retirement points statement. It is your responsibility to
obtain and submit documentation of 6 years of honorable service.

The Request for Certificate of Eligibility, VA Form 26-1880, found here<link to:
http://www.vba.va.gov/pubs/forms/26-1880%283-11%29.pdf >, should be mailed to the Winston-Salem
Eligibility Center, P.O. Box 20729, Winston-Salem, NC 27120. The Eligibility Center also has a toll free
number (888-244-6711).

VA Appraisal
Because the loan amount may not exceed the Department of Veterans Affairs’ (VA) estimate of the
value of the property, the first step in getting a VA loan is usually to request an appraisal. Although
anyone (buyer, seller, real estate personnel or lender) can request a VA appraisal, usually this is done by
the lender.

It is important to recognize that while the VA appraisal estimates the value of the property, it is not an
inspection and does not guarantee that the house is free of defects. You are encouraged to carefully
inspect the property or to hire a reputable inspection firm to help in this area. VA guarantees the loan,
not the condition of the property.
Application
The application process for Department of Veterans Affairs (VA) financing is no different from any other
type of loan. In fact, the VA application form is the same as that used for Housing and Urban
Development/Federal Housing Administration (HUD/FHA) and conventional loans. The mortgage lender
verifies your income and assets and obtains a credit report to see that other obligations are being paid
on time. If all is well and the appraised value of the property is enough to cover the loan needed, the
lender, in most instances, can then close the loan under VA's automatic procedure.

Occupancy Requirements and Military Retirement
VA rules for occupancy require you to move into the property within 60 days of closing the deal on the
home. Some veterans close to retirement may want to purchase a home, but can’t move in within 60
days because their military retirement date is several months away. In these cases, VA agrees to
examine special needs requests on a case-by-case basis.

If you have a spouse that can move into the property within 60 days, there is no need for additional
action on the loan beyond what’s required to establish your spouse’s occupancy and get VA
acknowledgment and/or approval for the arrangement.

If you do not have a spouse, the VA allows you to submit your situation in writing for a possible
exception to the 60 day rule. You must explain the delay in moving in after the 60 day mark and request
an exception.

The VA may accept a later move in date, but generally nothing longer than 12 months past the closing
date of the loan is accepted. The VA is fairly strict about this, requiring you to submit proof of a
retirement date and to submit, in writing, intent to take possession of the home in a specific date range.

The VA makes exceptions in cases where there are specific dates involved – the retirement date cannot
be “soon” or “within a few years.” In addition to the required letter of explanation, the VA may also
require you to show you can afford to maintain the costs of a current residence plus the VA mortgage
payments in the time period between the closing of the loan and moving into the new home.


Home Loan Guaranty and Mortgage Protection & Work
There are no work incentives or obstacles associated with the VA Home Loan Guaranty and Mortgage
Protection benefit. Your income can affect the amount of the loan for which you can be approved.


FAQs
What is a VA Guaranteed Home Loan?
Department of Veterans Affairs guaranteed loans are made by private lenders, such as banks, savings &
loans, or mortgage companies, to eligible persons for the purchase of a home which must be for your
own occupancy. The guaranty means the lender is protected against loss if you fail 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.
Does my entitlement guarantee that I will get a home loan?
No. VA cannot compel a lender to make a loan that would violate their lender policies. Lenders must
also comply with VA income and credit standards. If a lender is unwilling to make a loan to you, we can
only suggest that you try other lenders.

How do I obtain a VA Home Loan?
Here are the steps:
   • Select a home and discuss the purchase with the seller or selling agent. Sign a purchase contract
       conditioned on approval of your VA home loan.
   • Select a lender, present them with your Certificate of Eligibility if available, and complete a loan
       application. The lender can also obtain a Certificate of Eligibility on your behalf.
   • The lender will develop all credit and income information. They will also request VA to assign a
       licensed appraiser to determine the reasonable value for the property. A Certificate of
       Reasonable Value will be issued. Note: You may be required to pay for the credit report and
       appraisal unless the seller agrees to pay.
   • The lender will let you know the decision on the loan. You should be approved if the established
       value and your credit and income are acceptable.
   • You (and your spouse) attend the loan closing. The lender or closing attorney will explain the
       loan terms and requirements as well as where and how to make the monthly payments. Sign the
       note, mortgage, and other related papers.

What are the benefits of a VA home loan?
There are many benefits of a VA home loan:
   • Equal opportunity
   • 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
   • 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
   • For homes inspected by VA during construction, a warranty from builder and assistance from VA
        to obtain cooperation of builder
   • VA assistance to veteran borrowers in default due to temporary financial difficulty

What can VA not do?
    •   Guarantee that a home is free of defects. VA guarantees only the loan. It is your responsibility to
        assure that you are satisfied with the property being purchased. The VA appraisal is not
        intended to be an "inspection" of the property. You should seek expert advice (a qualified
        residential inspection service), as necessary, BEFORE legally committing to a purchase
        agreement.
    •   If you have a home built, VA cannot compel the builder to correct construction defects although
        VA does have the authority to suspend a builder from further participation in the home loan
        program.
    •   VA cannot guarantee that you are making a good investment. VA cannot provide you with legal
        services.

Can I get a loan for a home outside of the United States?
No. The law only allows VA to guarantee loans on property in the United States and its territories and
possessions.

Can I get a VA loan if I have had a bankruptcy in the last few years?
Yes. The fact you and/or your spouse have been adjudicated bankrupt does not in itself disqualify you
for a VA home loan. The following rules apply:
    • If the bankruptcy was discharged more than 2 years ago, it may be disregarded
    • If the bankruptcy was discharged within the last 1 to 2 years, it is probably not possible to
        determine that you and/or your spouse are a satisfactory credit risk unless both of the following
        requirements are met:
             • You and/or your spouse have reestablished satisfactory credit, and
             • The bankruptcy was caused by circumstances beyond your or your spouse’s control
                 (such as unemployment or medical bills).

I want to buy a house with a VA loan. Do I need to occupy the property?
Yes. The law requires that you certify that you intend to occupy the property as your home. This
requirement is considered satisfied if you occupy it when the loan is closed or within a reasonable time
afterward.

I am a single veteran stationed overseas and want to buy a home in my home town in the United States.
My friends who are married can do this by having their spouses occupying the property in their place,
but VA says I can't have my parents or other relatives occupy on my behalf. Isn't this discrimination
against single veterans?
Yes. The law specifically provides that occupancy by the veteran's spouse satisfies the personal
occupancy requirement. The law makes no provision for occupancy by any other relatives as a substitute
for personal occupancy by the veteran or the veteran’s spouse.

If I die before the loan is paid off, will the VA guaranty pay off the balance of the loan?
No. Your surviving spouse or other co-borrower must continue to make the payments. If there is no co-
borrower, the loan becomes the obligation of the veteran's estate. Mortgage life insurance is available
but must be purchased from private insurance sources.

How can I obtain proof of military service?
Standard Form 180, found here,<link to: http://www.archives.gov/research/order/standard-form-
180.pdf >, Request Pertaining to Military Records, is used to apply for proof of military service regardless
of whether you served on regular active duty or in the selected reserves. This request form is NOT
processed by VA. Rather, Standard Form 180, found here, <link to:
http://www.archives.gov/research/order/standard-form-180.pdf > is completed and mailed to the
appropriate custodian of military service records. Instructions are provided on the form to assist in
determining the correct forwarding address.

I have already obtained one VA loan. Can I get another one?
Yes. Your eligibility is reusable depending on the circumstances. Normally, if you have paid off your
prior VA loan and disposed of the property, you can have your used eligibility restored for additional
use. Also, on a one-time-only basis, you may have your eligibility restored if your prior VA loan has been
paid in full but you still own the property. In either case, to obtain restoration of eligibility, the veteran
must send a completed VA Form 26-1880, found here, <link to: http://www.vba.va.gov/pubs/forms/26-
1880%283-11%29.pdf > to the Winston-Salem Eligibility Center.

Is the surviving spouse of a deceased veteran eligible for the home loan benefit?
The unmarried surviving spouse of a veteran who died on active duty or as the result of a service-
connected disability is eligible for the home loan benefit. If you wish to make application for the home
loan benefit as a surviving spouse, contact the Winston-Salem Eligibility Center. In addition, a surviving
spouse who obtained a VA home loan with the veteran prior to their death (regardless of the cause of
death), may obtain a VA guaranteed interest rate reduction refinance loan.

Are the children of a living or deceased veteran eligible for the home loan benefit?
No.

How much is the guaranty?
VA will guarantee up to 50 percent of a home loan up to $45,000<parameter: new: HLGP-loan-limit-for-
up-to-50%-guarantee >. For loans between $45,000<parameter: new: HLGP-loan-limit-minimum-for-
minimum-guaranty-of-22500 > and $144,000<parameter: new: HLGP-loan-limit-maximum-for-
minimum-guaranty-of-22500 >, the minimum guaranty amount is $22,500<parameter: new: HLGP-min-
guaranty-amount-for-loans-45000-to-144000 >, with a maximum guaranty of up to 40 percent of the
loan, up to $36,000<parameter: new: HLGP-max-guaranty-amount-for-loans-45000-to-144000 >, subject
to the amount of entitlement a veteran has available. For loans of more than $144,000<parameter: new:
HLGP-max-for-guaranty-of-lesser-of-25%-or-104250 > made for the purchase or construction of a home
or to purchase a residential unit in a condominium or to refinance an existing VA guaranteed loan for
interest rate reduction, the maximum guaranty is the lesser of 25% or $104,250,<parameter: new:
HLGP-max-guaranty-for-loans-of-more-than-144000 > which is 25% of the Freddie Mac conforming loan
limit for a single family residence. This figure will change yearly.

Is $36,000 the biggest loan a veteran can get?
No. You may generally borrow up to the reasonable value of the property or the purchase price,
whichever is less, plus the funding fee, if required. For certain refinancing loans, the maximum loan is
limited to 90 percent of the value of the property, plus the funding fee, if required. To determine the
reasonable value, VA requires an appraisal of the property.

What is the maximum VA loan?
There is no maximum VA loan, except that the loan cannot exceed the lesser of the appraised value or
purchase price, plus VA funding fee and energy efficient improvements, if applicable. However, lenders
usually won’t make a no-down payment loan larger than $417,000<parameter: new: HLGP-max-
guarantee > ($625,500<parameter: new: HLGP-max-guarantee-for-Hawaii-Alaska-Guam-Virgin-Islands >
in Alaska, Hawaii, Guam, and the U.S. Virgin Islands) due to secondary market limitations.

Does active duty for training in the Guard and Reserves qualify a person for home loan benefits?
No. Active duty for training in the Guard and Reserves does not qualify a person for home
loan benefits, unless the person completes a total of 6 years in the Guard or Reserves and
serves under title 10, U.S.C.

Does VA home loan entitlement provide cash to the veteran?
No. The amount of entitlement refers only to the amount VA will guarantee the lender against loss.

Can a veteran or active duty servicemember who is eligible for a Specially Adapted Housing (SAH) grant
apply for a VA home loan from a private lender to cover the difference between the total cost of the
house and the SAH grant?
Yes. If you are eligible for a Specially Adapted Housing (SAH) grant you can apply for a VA home loan
from a private lender to cover the difference between the total cost of the house and the SAH grant.
SAH program eligibility requirements and points of contact information are available here<link to:
http://www.benefits.va.gov/homeloans/sah.asp >.

If private financing is not available, can VA make a direct loan to the veteran or active duty
servicemember to cover the difference between the total cost of the house and a Specially Adapted
Housing (SAH) grant?
Yes. This can be done if the veteran or active duty servicemember has GI home loan entitlement and
qualifies from a credit standpoint. The maximum direct loan is $33,000<parameter: new: HLGP-max-
direct-loan >.

Can I get a VA loan to pay off the mortgage or other liens of record on my home?
Yes. The following refinancing loans are available under the VA-guaranteed home loan program:
    •   To pay off the mortgage and/or other liens of record on the home. In most cases, the loan may
        not exceed 90 percent of the reasonable value of the property as determined by an appraisal,
        plus the funding fee, if required. The loan may include funds for any purpose which is acceptable
        to the lender, plus closing costs, including a reasonable number of discount points. You must
        have available home loan entitlement. An existing loan on a manufactured home (except as
        noted below) may not be refinanced with a VA-guaranteed loan.
    •   To refinance an existing VA loan to obtain a lower interest rate. Use of additional loan
        entitlement is not required. The loan amount is limited to the balance of the old loan plus the
        closing costs, discount points, funding fee, and up to $6,000<parameter: new: HLGP-max-
        energy-efficient-improvements > in energy efficient improvements. An existing VA loan on a
        manufactured home may be refinanced to obtain a lower interest rate.

Can I get a VA loan to buy or construct a residential property containing more than one family unit?
Yes. The total number of separate units cannot be more than four if one veteran is buying. If more than
one veteran is buying, then one additional family unit may be added to the basic four for each veteran
participating. Thus, one veteran could buy four units; two veterans, six units; three veterans, seven
units, etc.

In addition, if the veteran must depend on rental income from the property to qualify for the loan, the
veteran must (a) show that he or she has the background or qualifications to be successful as a landlord,
and (b) have enough cash reserves to make the loan payments for at least 6 months without help from
the rental income.

Can a veteran get a VA loan to purchase a cooperatively-owned apartment?
Yes. VA is authorized to approve loans made to purchase a unit in a cooperative (co-op). However, only
a limited number of lenders have shown an interest in this type of loan.

Can I obtain a loan from a private lender in one State for the purchase of property in another State?
Yes. However, many lenders limit their lending operations to certain areas.

May a lender require security from me in addition to the property being purchased?
Yes.

How are VA loans processed?
There are two ways a lender may process VA home loans: "prior approval" or "automatic."
When the loan is processed on a prior approval basis, the lender takes your application, requests that
VA appraise the property, and verifies your income and credit record. All this information is put together
in a loan package and sent to VA for review. If VA approves the loan, a commitment by VA to guarantee
the loan is sent to the lender. The lender then closes the loan and sends a report of the closing to VA. If
the loan complies with VA requirements, VA issues the lender a certificate of guaranty.
In automatic processing, the lender still orders an appraisal from VA, but has the authority to make the
credit decision on the loan without VA's approval. The biggest difference between prior approval and
automatic processing is the time saved by avoiding the need to await VA's approval before loan closing.

All lenders do not have the authority to process loans on the automatic basis. Banks, savings and loan
associations, and certain other lenders, such as mortgage companies which are approved by VA, have
the privilege of processing VA-guaranteed loans using the automatic procedure.

Lenders approved to participate in VA's Lender Appraisal Processing Program (LAPP) are generally able
to expedite the processing of VA appraisals.

Does having a VA loan limit my right or ability to sell the property?
No. You may sell the property to a veteran or non-veteran at any time. However, if the loan was
approved on or after March 1, 1988, and it will be assumed, the qualifications of the assumer must be
reviewed and approved by the lender or VA.

When I sell the property to someone who will assume the existing VA loan, am I released automatically
from personal liability for repayment of the loan?
No. If the loan was approved on or after March 1, 1988, the lender or VA must be notified and
requested to approve the assumer and grant you release from liability. If the loan was approved prior to
March 1, 1988, the loan may be assumed without approval from VA or the lender. However, you are
strongly urged to request a release of liability from VA.


Pitfalls
Making major purchases
Once you have submitted your loan application, you should not alter your financial status, especially by
taking on new debt, as this may negatively affect your possible loan approval.

Not inspecting the property
The VA does not guarantee the condition of the property or associated systems such as wiring or
plumbing. You should hire a professional inspector to ensure the condition of the property prior to
purchase.


Next Steps
You should work with a professional real estate agent to assist you in making your home purchase.
Getting your documents is order prior to locating your desired home is a good idea. You can use
Standard Form 180, found here,<link to: http://www.archives.gov/research/order/standard-form-
180.pdf >, Request Pertaining to Military Records, to obtain your military service records, and VA Form
26-1880, found here,<link to: http://www.vba.va.gov/pubs/forms/26-1880%283-11%29.pdf >, The
Request for Certificate of Eligibility, which should be mailed to the Winston-Salem Eligibility Center, P.O.
Box 20729, Winston-Salem, NC 27120. The Eligibility Center also has a toll free number (888-244-6711).
Also on Veterans Benefits 101
VA Disability Compensation
VA Additional Monthly Compensation
Veterans Mortgage Life Insurance
Specially Adapted Housing and Special Housing Adaptation Grants
Home Improvements and Structural Alterations Grants
HUD-VASH Certificates

Sources
http://www.benefits.va.gov/homeloans/veteran.asp

www.military.com

http://www.benefits.gov

http://www.valoans.com


Glossary Terms
Appraisal: An opinion of a property's fair market value, based on an appraiser's knowledge, experience,
and analysis of the property.

Discount points: In the mortgage industry, this term is usually used in reference to government loans,
meaning FHA and VA loans. Discount points refer to any "points" paid in addition to the 1% loan
origination fee. A "point" is one percent of the loan amount.

Equity: A homeowner's financial interest in a property. Equity is the difference between the fair market
value of the property and the amount still owed on its mortgage and other liens.

Mortgage Insurance (MI): Insurance that covers the lender against some of the losses incurred as a
result of a default on a home loan. It is often mistakenly referred to as PMI, which is actually the name
of one of the larger mortgage insurers. Mortgage insurance is usually required in one form or another
on all loans that have a loan-to-value (LTV) higher than eighty percent. Mortgages above 80% LTV that
call themselves "No MI" are usually made at a higher interest rate. Instead of the borrower paying the
mortgage insurance premiums directly, they pay a higher interest rate to the lender, which then pays
the mortgage insurance themselves. Also, Federal Housing Administration (FHA) loans and certain first-
time homebuyer programs require mortgage insurance regardless of the LTV.

				
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