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VA Loan Uses / Eligibility / Guaranty Amount / VA Appraisal / Closing Costs / Funding Fees / Required Occupancy / Financing / Loan Assumption Requirements and Liability   Foreclosures / Loans for Native American Veterans / Safeguards for Veterans

VA home loan guaranties are issued to help eligible service members, veterans, reservists and unmarried surviving spouses obtain homes, condominiums, residential cooperative housing units, and manufactured homes, and to refinance loans. For additional information or to obtain VA loan guaranty forms, visit http://www.homeloans.va.gov/.

Loan Uses: A VA guaranty helps protect lenders from loss if the borrower fails to repay the loan. It can be used to obtain a loan to:

1. Buy or build a home.      

2. Buy a residential condominium.

3. Buy a residential cooperative housing unit.

4. Repair, alter or improve a home.

5. Refinance an existing home loan.

6. Buy a manufactured home with or without a lot.          

7. Buy and improve a manufactured home lot.   

8. Install a solar heating or cooling system or other weatherization improvements.

9. Buy a home and install energy-efficient improvements.

Eligibility

In addition to the periods of eligibility and conditions of service requirements, applicants must have a good credit rating, sufficient income, a valid Certificate of Eligibility (COE), and agree to live in the property in order to be approved by a lender for a VA home loan.

To obtain a COE, complete VA Form 26-1880 -- “Request for a Certificate of Eligibility for VA Home Loan” -- and mail to: VA Loan Eligibility Center, P.O. Box 20729, Winston-Salem, NC  27120.

It is also possible to obtain a COE from your lender.  Most lenders have access to VA’s “WebLGY” system.  This Internet-based application can establish eligibility and issue an online COE in seconds.  Not all cases can currently be processed online – only those for which VA has sufficient data in its records.  However, veterans are encouraged to ask their lenders about this method of obtaining a certificate before sending an application to the Eligibility Center.  For more information, visit http://www.homeloans.va.gov/eligibility.htm.

Periods of Eligibility

World War II: (1) active duty service after Sept. 15, 1940, and prior to July 26, 1947; (2) discharge under other than dishonorable conditions; and (3) at least 90 days total service unless discharged early for a service-connected disability.

Post-World War II period: (1) active duty service after July 25, 1947, and prior to June 27, 1950; (2) discharge under other than dishonorable conditions; and (3) 181 days continuous active duty service unless discharged early for a service-connected disability.

Korean War: (1) active duty after June 26, 1950, and prior to Feb. 1, 1955; (2) discharge under other than dishonorable conditions; and (3) at least 90 days total service, unless discharged early for a service-connected disability.

Post-Korean War period: (1) active duty after Jan. 31, 1955, and prior to Aug. 5, 1964; (2) discharge under other than dishonorable conditions; (3) 181 days continuous service, unless discharged early for a service-connected disability.

Vietnam War: (1) active duty after Aug. 4, 1964, and prior to May 8, 1975; (2) discharge under other than dishonorable conditions; and (3) 90 days total service, unless discharged early for a service-connected disability. For veterans who served in the Republic of Vietnam, the beginning date is Feb. 28, 1961.

Post-Vietnam period: (1) active duty after May 7, 1975, and prior to Aug. 2, 1990; (2) active duty for 181 continuous days, all of which occurred after May 7, 1975; and (3) discharge under conditions other than dishonorable or early discharge for service-connected disability.

24-Month Rule: If service was between Sept. 8, 1980, (Oct. 16, 1981, for officers) and Aug. 1, 1990, veterans must generally complete 24 months of continuous active duty service or the full period (at least 181 days) for which they were called or ordered to active duty, and be discharged under conditions other than dishonorable.

Exceptions are allowed if the veteran completed at least 181 days of active duty service but was discharged earlier than 24 months for (1) hardship, (2) the convenience of the government, (3) reduction-in-force, (4) certain medical conditions, or (5) service-connected disability.

Gulf War: Veterans of the Gulf War era -- Aug. 2, 1990, to a date to be determined -- must generally complete 24 months of continuous active duty service or the full period (at least 90 days) for which they were called to active duty, and be discharged under other than dishonorable conditions.

Exceptions are allowed if the veteran completed at least 90 days of active duty but was discharged earlier than 24 months for (1) hardship, (2) the convenience of the government, (3) reduction-in-force, (4) certain medical conditions, or (5) service-connected disability. Reservists and National Guard members are eligible if they were activated after Aug. 1, 1990, served at least 90 days, and received an honorable discharge.

Active Duty Personnel: Until the Gulf War era is ended, persons on active duty are eligible after serving 90 continuous days.

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VA Guaranty Varies with Size and Type of Loan

The VA guaranty varies with the size of the loan, and is issued to protect lenders so they may make loans to eligible borrowers. Because the lenders are able to obtain this guaranty from VA, borrowers do not need to make a down payment, provided they have enough home loan entitlement.

The maximum guaranty amount is equal to 25 percent of the Freddie Mac conforming loan limit for a single family home. This limit changes yearly, but is set at $417,000 for calendar year 2008 ($625,500 for Hawaii, Alaska, Guam and the U.S. Virgin Islands).

2008 VA Home Loan Guaranty

*  IRRRL (Interest Rate Reduction Refinancing Loan).  The new IRRRL loan amount may be equal to, greater than, or less than the original amount of the loan being refinanced.  This may impact the amount of the guaranty on the new loan, but not the veteran’s use of entitlement.

The total loan amount may include the Funding Fee, as well as up to $6,000 of home improvements to make the home more energy efficient.

An eligible borrower who wishes to use a VA-guaranteed loan to refinance an existing mortgage generally can borrow up to 90 percent of the home’s appraised value. However, a loan to reduce the interest rate on an existing VA-guaranteed loan may include the entire outstanding balance of the prior loan, the costs of energy-efficient improvements, as well as closing costs, including up to two discount points. An eligible borrower who wishes to obtain a VA-guaranteed loan to purchase a manufactured home or lot can borrow up to 95 percent of the home’s purchase price.

VA Appraisals

No loan can be guaranteed by VA without first being appraised by a VA-assigned fee appraiser. A buyer, seller, real estate agent or lender can request a VA appraisal by completing VA Form 26-1805, “Request for Determination of Reasonable Value.” The requester pays for the appraisal upon completion, according to a fee schedule approved by VA. This VA appraisal estimates the value of the property. It is not an inspection and does not guarantee the house is free of defects. VA guarantees the loan, not the condition of the property.

Closing Costs

For purchase home loans, payment in cash is required on all closing costs, including title search and recording fees, hazard insurance premiums and prepaid taxes. For refinancing loans, all such costs may be included in the loan, as long as the total loan does not exceed 90 percent of the reasonable value of the property. Interest rate reduction loans may include closing costs, including a maximum of two discount points.

All veterans, except those receiving VA disability compensation and unmarried surviving spouses of veterans who died in service or as a result of a service-connected disability, are charged a VA funding fee. For all types of loans, the loan amount may include this funding fee.

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2008 Funding Fees

Required Occupancy

To qualify for a VA purchase home loan, a veteran or the spouse of a service member must certify that he or she intends to occupy the home. When refinancing a VA-guaranteed loan solely to reduce the interest rate, a veteran need only certify to prior occupancy.

Financing, Interest Rates and Terms

Veterans obtain VA-guaranteed loans through the usual lending institutions, including banks, savings and loan associations and mortgage brokers. VA-guaranteed loans can have either a fixed interest rate or an adjustable rate, where the interest rate may adjust up to one percent annually and up to five percent over the life of the loan.  VA does not set the interest rate.  Interest rates are negotiable between the lender and borrower on all loan types.

Veterans may also choose a different type of adjustable rate mortgage called a hybrid ARM, where the initial interest rate remains fixed for three to 10 years. If the rate remains fixed for less than five years, the rate adjustment cannot be more than one percent annually and five percent over the life of the loan. For a hybrid ARM with an initial fixed period of five years or more, the initial adjustment may be up to two percent. The Secretary has the authority to determine annual adjustments thereafter.  Currently annual adjustments may be up to two percentage points and six percent over the life of the loan.

If the lender charges discount points on the loan, the veteran may negotiate with the seller as to who will pay points or if they will be split between buyer and seller. Points paid by the veteran may not be included in the loan (with the exception that up to two points may be included in interest rate reduction loans). The term of the loan may be for as long as 30 years and 32 days.

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Loan Assumption Requirements and Liability

VA loans made on or after March 1, 1988, are not assumable without the prior approval of VA or its authorized agent (usually the lender collecting the monthly payments). To approve the assumption, the lender must ensure that the assumer is a satisfactory credit risk and will assume all of the veteran’s liabilities on the loan. If approved, the assumer will have to pay a funding fee that the lender sends to VA, and the veteran will be released from liability to the federal government.  A release of liability does not mean that a veteran’s guaranty entitlement is restored. That occurs only if the assumer is an eligible veteran who agrees to substitute his or her entitlement for that of the seller. If a veteran allows assumption of a loan without prior approval, then the lender may demand immediate and full payment of the loan, and the veteran may be liable if the loan is foreclosed and VA has to pay a claim under the loan guaranty.

Loans made prior to March 1, 1988, are generally freely assumable, but veterans should still request VA’s approval in order to be released of liability. Veterans whose loans were closed after Dec. 31, 1989, usually have no liability to the government following a foreclosure, except in cases involving fraud, misrepresentation, or bad faith, such as allowing an unapproved assumption.  However, for the entitlement to be restored, any loss suffered by VA must be paid in full.

VA Acquires Property Foreclosures
VA acquires properties as a result of foreclosures. Ocwen Loan Servicing, LLC, under contract with VA, is currently marketing the properties through listing agents using local Multiple Listing Services. A listing of “VA Properties for Sale” may be found at http://www.ocwen.com/reo/home.cfm.  Contact a real estate agent for information on purchasing a VA acquired property.

Loans for Native American Veterans

Eligible Native American veterans can obtain a loan from VA to purchase, construct or improve a home on Federal Trust land, or to reduce the interest rate on such a VA loan. The maximum loan amount is equal to the Freddie Mac conforming loan limit for a single-family home.  This limit changes yearly.  In 2008, the limit is $417,000 for the continental United States and $625,500 for Hawaii, Alaska, Guam, and the U.S. Virgin Islands.

Veterans who are not Native American, but who are married to Native American non-veterans, may be eligible for a direct loan under this program.  To be eligible for such a loan, the qualified non-Native American veteran and the Native American spouse must reside on Federal Trust land, and both the veteran and spouse must have a meaningful interest in the dwelling or lot.

A funding fee must be paid to VA unless the veteran is exempt from such a fee because he or she receives VA disability compensation. The fee, which is 1.25 percent for loans to purchase, construct or improve a home, and 0.5 percent to refinance an existing VA loan, may be paid in cash or included in the loan. Closing costs such as VA appraisal, credit report, loan processing fee, title search, title insurance, recording fees, transfer taxes, survey charges or hazard insurance may not be included in the loan.

Safeguards Established to Protect Veterans

The following safeguards have been established to protect veterans:

1. VA may suspend from the loan program those who take unfair advantage of veterans or discriminate because of race, color, religion, sex, disability, family status or national origin.

2. The builder of a new home (or manufactured home) is required to give the purchasing veteran either a one-year warranty or a 10-year insurance-backed protection plan.

3. The borrower obtaining a loan may only be charged closing costs prescribed by VA as allowable.    

4. The borrower can prepay without penalty the entire loan or any part not less than one installment or $100.  

5. VA encourages holders to extend forbearance if a borrower becomes temporarily unable to meet the terms of the loan.

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