What is a VA Guaranteed Home Loan?

Banks and other private mortgage companies make this special type of home loan to veterans of the US Armed Services. A portion of each loan is guaranteed by the VA (Veterans Administration), protecting the lender's investment if the borrower defaults.

The guaranteed amount is called an entitlement. The current maximum entitlement for loans up to $144,000 is $36,000, with the exact figure determined by your loan amount. The maximum entitlement for loans over that amount is $60,000.

The entitlement is not a cash payment to you or to the bank. It is the amount the VA promises will be paid to the lender if you default on your loan. Should that happen, the VA may pursue you to recover those funds.

Who Is Eligible for a VA Loan?

Wartime/Conflict 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 VA regional office for specific eligibility.
  
  Note: at press time, specific eligibility guidelines were not available for the current war in Afghanistan.

Peacetime service of at least 181 days of continuous active duty with no dishonorable discharge. If you were discharged earlier due to a service-connected disability, you should speak with the regional VA office to verify eligibility.

• 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 whose service began after October 16, 1981, must normally have served at least two years.

Reserves and National Guard

• Members who have completed six years of service and have been honorably discharged (or are still serving) may be eligible for a VA home loan. Contact your regional VA office for more details.

Other types of service that may make you eligible for a VA loan:

• Certain US citizens who served in the armed forces of a government allied with the United States during World War II.
  
  
• Surviving spouses of eligible persons who died as the result of service or service-connected injuries. The surviving spouse must not have remarried.
  
  
• The spouse of any member of the Armed Forces serving on active duty who has been listed as a prisoner of war or missing in action for more than 90 days.

Anyone with questions about eligibility should speak with their regional VA office.

What is a Certificate of Eligibility?

It is a document issued by the VA that lets lenders know you are eligible to apply for a VA loan. The certificate does not guarantee the bank will approve your credit application.

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 US or its territories, but you have many choices regarding the type of home you purchase.

• Existing single family home.
• Townhouse or condo in a VA-approved project.
• New construction residence.
• A manufactured home and/or lot.
• Home refinances. Certain types of home improvements.

What's the Maximum Loan Amount?

There is no set maximum for a VA loan, but lenders usually limit it to an amount that can be sold on the secondary market.

What is the Funding Fee?

A fee of two percent of the loan amount (2.75 percent for Reservists) is payable when the VA loan closes. It may be included in the loan. The fee is reduced if the veteran makes a downpayment of at least 5 percent.

Can I Get a Second VA Loan?

Yes. If your previous loan was made under previous entitlement guidelines, you may be eligible for an additional amount based on today's increased figures, even if the loan has not been paid in full.

Or, your entire entitlement may be restored to purchase another home:

• If the property has been sold and the loan paid in full, or if you have repaid the prior loan and still own the property.
  
  
• If a qualified veteran assumes your loan and agrees to substitute his or her entitlement for yours.

What Are the Benefits of a VA Loan?

• 100% financing, no down payment loans are common.
• No Private Mortgage Insurance (PMI).
• No penalties if you prepay the loan.
• Competitive interest rates.
• Loan qualification is sometimes easier than if you were applying for a conventional loan.
• Sellers can pay all closing costs.

What Are the Negatives?

• VA loans made prior to March 1, 1988, can be assumed with no qualifying of the new buyer. If a buyer of such a property defaults, the veteran homeowner may be liable for funds.
  
  
• Some sellers may be hesitant to work with someone who is acquiring a VA loan because of their past reputation of taking longer to process than conventional loans. While the time may still be a little longer, getting a VA loan is not the lengthy ordeal it once was.
  
  
• Sellers are often asked to pay a portion of closing costs, so they may not be eager to negotiate the sales price of the home.

The Veterans Administration Web site is an excellent resource for detailed information about VA guaranteed home loans. If you cannot find the answers to all of your questions there, be sure to contact your local or regional VA office.