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VA loan guaranties are made to servicemembers, veterans, reservists and unremarried surviving spouses for the purchase of homes, condominiums and manufactured homes and for refinancing loans. VA guarantees part of the total loan, permitting the purchaser to obtain a mortgage with a competitive interest rate, even without a down payment if the lender agrees. VA requires that a down payment be made for the purchase of a manufactured home. VA also requires a down payment for a home or condominium if the purchase price exceeds the reasonable value of the property or the loan has a graduated payment feature. With a VA guaranty, the lender is protected against loss up to the amount of the guaranty if the borrower fails to repay the loan. A VA loan guaranty can be used to: 1. Buy a home. 2. Buy a residential condominium. 3. Build a home. 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. Purchase and improve a home simultaneously with energy-efficient improvements. 10. Refinance an existing VA loan to reduce the interest rate and make energy-efficient improvements. 11. Refinance a manufactured home loan to acquire a lot. Eligibility Applicants must have a good credit rating, have an income sufficient to support mortgage payments, and agree to live in the property. To obtain a VA Certificate of Eligibility, complete VA Form 26-1880, Request for a Certificate of Eligibility for VA Home Loan Benefits, and mail it to one of the two VA Eligibility Centers (Winston-Salem and Los Angeles). In general, those veterans living in the Western part of the country mail their applications to the Los Angeles Eligibility Center, while those living in the Eastern part of the country mail applications to Winston-Salem. 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 service unless discharged early for service-connected disability. Post-World War II: (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 unless discharged early for service-connected disability. Korean Conflict: (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 service-connected disability. Post-Korean Conflict: (1) active duty between Jan. 31, 1955, and Aug. 5, 1964; (2) discharge under conditions other than dishonorable; (3) 181 days continuous service, unless discharged early for service-connected disability. Vietnam: (1) Active duty after Aug. 4, 1964, and prior to May 8, 1975; (2) discharge under conditions other than dishonorable; and (3) 90 days total service, unless discharged early for service-connected disability. For veterans who served in the Republic of Vietnam, the beginning date is Feb. 28, 1961. Post-Vietnam: For veterans whose enlisted service began before Sept. 8, 1980, or whose service as an officer began before Oct. 17, 1981: (1) active duty for 181 continuous days, all of which occurred after May 7, 1975, and discharge under conditions other than dishonorable; or (2) early discharge for service-connected disability. For veterans separated from enlisted service between Sept. 8, 1980, and Aug. 1, 1990, or service as an officer between Oct. 17, 1981, andAug. 1, 1990: (1) completion of 24 months of continuous active duty or the full period — at least 181 days — for which the person was called or ordered to active duty, and discharge under conditions other than dishonorable; or (2) completion of at least 181 days of active duty with a hardship discharge or discharge for the convenience of the government, reduction-in-force or certain medical conditions; or (3) early discharge for service-connected disability. Gulf War: (1) completion of 24 months of continuous active duty or the full period — at least 90 days — for which the person was called to active duty, and discharge from active duty under conditions other than dishonorable; or (2) discharge after at least 90 days with a hardship discharge, discharge at the convenience of the government, reduction-in-force or certain medical conditions, or discharge for service-connected disability. Reservists and National Guard members are eligible if they were activated after Aug. 1, 1990, served at least 90 days, and were discharged honorably. Active Duty Personnel: Until the Gulf War era is ended by law or Presidential Proclamation, persons on active duty are eligible after serving on continuous active duty for 90 days. Members of the Selected Reserve: Individuals are eligible if they have completed at least six years in the reserves or National Guard or were discharged because of a service-connected disability. This eligibility expires September 30, 2007. Reservists who do not qualify for VA housing loan benefits may be eligible for loans on favorable terms insured by the Federal Housing Administration (FHA) of the Department of Housing and Urban Development (HUD). Others: Others eligible include unremarried spouses of veterans or reservists who died on active duty or as a result of service-connected causes; spouses of active-duty servicemembers who have been missing in action or a prisoner of war for at least 90 days; U.S. citizens who served in the armed forces of a U.S. ally in World War II; and members of organizations with recognized contributions to the U.S. World War II effort. Eligibility may be determined at the VA Eligibility Centers. Guaranty Amount The amount of the VA guaranty available to an eligible veteran is called the entitlement and may be considered the equivalent of a down payment by lenders. Up to $50,750 in entitlement may be available to veterans purchasing or constructing homes to be financed with a loan of more than $144,000 and to veterans who obtain an Interest Rate Reduction Refinancing Loan of more than $144,000. The amount of entitlement varies with the loan amount. VA does not establish a maximum loan amount. No loan for the acquisition of a home, however, may exceed the reasonable value of the property. A loan for the purpose of refinancing existing mortgage loans or other liens secured on a dwelling is generally limited to 90 percent of the appraised value of the dwelling. A loan to reduce the interest rate on an existing VA-guaranteed loan, however, can be made for an amount equal to the outstanding balance on the old loan plus closing costs, up to two discount points, and energy-efficient improvements. A loan for the purchase of a manufactured home or lot is limited to 95 percent of the amount that would be subject to finance charges. The VA funding fee and up to $6,000 in energy-efficient improvements also may be included in the loan. A veteran who previously obtained a VA loan can use the remaining entitlement for a second purchase. The amount of remaining entitlement is the difference between $36,000 ($50,750 for special loans) and the amount of entitlement used on prior loans. Veterans refinancing an existing VA loan with a new VA loan at a lower interest rate need not have any entitlement available for use. Required Occupancy Veterans must certify that they intend to live in the home they are buying or building with a VA guaranty. A veteran who wishes to refinance or improve a home with a VA guaranty also must certify to being in occupancy at the time of application. A spouse may certify occupancy if the buyer is on active duty. In refinancing a VA-guaranteed loan solely to reduce the interest rate, veterans need only certify to prior occupancy. Closing Costs Payment in cash is required on all home loan closing costs, including title search and recording, hazard insurance premiums, prepaid taxes and a 1 percent origination fee, which may be required by lenders in lieu of certain other costs. In the case of 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 Refinancing Loans may include closing costs and a maximum of 2 discount points. Loans, including refinancing loans, are charged a funding fee by VA, except for loans made to disabled veterans and unremarried surviving spouses of veterans who died as a result of service. The VA funding fee is based on the loan amount and, at the discretion of the veteran and the lender, may be included in the loan. Financing, Interest Rates and Terms Veterans obtain VA-guaranteed loans through the usual lending institutions, including banks, savings and loan associations, building and loan associations, and mortgage loan companies. Veterans may obtain a loan with a fixed interest rate, which may be negotiated with the lender. 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, except that a maximum of 2 points may be included in Interest Rate Reduction Refinancing Loans. The loan may be for as long as 30 years and 32 days. VA does not require that a down payment be made, except in the following instances: 1) a manufactured home or lot loan; 2) a loan with graduated payment features; and 3) to prevent the amount of a loan from exceeding VA’s determination of the property’s reasonable value. If the sale price exceeds the reasonable value, the veteran must certify that the difference is being paid in cash without supplementary borrowing. A cash down payment of 5 percent of the purchase price is required for manufactured home or lot loans. Release of Liability, Loan Assumption When a veteran sells a home financed through a VA guaranty to a purchaser who assumes the loan, the veteran may request release from liability to the federal government provided the loan is current, the purchaser has been obligated by contract to purchase the property and assume all of the veteran’s liabilities, and VA is satisfied that the purchaser is a good risk. A release of liability does not mean that a veteran’s guaranty entitlement is restored. If the new veteran-buyer agrees to substitute entitlement for that of the veteran-seller, entitlement may be restored to the veteran-seller. A VA loan for which a commitment was made on or after March 1, 1988, is not assumable without approval of VA or its authorized agent. The person who assumes a VA loan for which a commitment was made on or after March 1, 1988, must pay a fee to VA equal to 1/2 of 1 percent of the balance of the loan being assumed. If a person disposes of the property securing a VA-guaranteed loan for which a commitment was made after March 1, 1988, without first notifying the holder of the loan, the holder may demand immediate and full payment of the loan. Veterans whose loans were closed after December 31, 1989, have no liability to the government following a foreclosure, except in cases involving fraud, misrepresentation or bad faith. Loans for Native Americans VA direct home loans are available to eligible Native American veterans who wish to purchase, construct or improve a home on Native American trust land. These loans may be used to simultaneously purchase and improve a home. Direct loans also are available to reduce the interest rate on existing loans obtained under this program. VA direct loans may be limited to the cost of the home or $80,000, whichever is less. A funding fee must be paid to VA. The fee is 1.25 percent for loans to purchase, construct or improve a home. For loans to refinance an existing loan, the fee is 0.5 percent of the loan amount. Veterans receiving compensation for service-connected disability are not required to pay the funding fee. Veterans who qualify based on non-active duty service in the Reserves or National Guard are charged a funding fee of 2 percent of the loan amount. The funding fee may be paid in cash or included in the loan. The following may not be included in the loan: VA appraisal, credit report, loan processing fee, title search, title insurance, recording fees, transfer taxes, survey charges or hazard insurance. Repossessed Homes VA sells homes that have been acquired after foreclosure of a VA-guaranteed loan. These homes are available to both veterans and nonveterans. Contact local real estate agents for available listings. Safeguards for Veterans 1. Homes completed less than a year before purchase with VA financing and inspected during construction by either VA or HUD must meet VA requirements. 2. VA may suspend from the loan program those who take unfair advantage of veteran borrowers or decline to sell a new home or make a loan because of race, color, religion, sex, disability, family status or national origin. 3. The builder of a new home is required to give the purchasing veteran 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. 4. In cases of new construction completed under VA or HUD inspection, VA may pay or otherwise compensate the veteran borrower for correction of structural defects seriously affecting livability if assistance is requested within four years of a home-loan guaranty. 5. The borrower obtaining a loan may only be charged the fees and other charges prescribed by VA as allowable. 6. The borrower can prepay without penalty the entire loan or any part not less than the amount of one installment or $100. 7. VA encourages holders to extend forbearance if a borrower becomes temporarily unable to meet the terms of the loan.
For more information, contact: Tel:
1-252-728-8440
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