What Is a VA Guaranteed Home Loan?

What is pre-purchase counseling and why is it helpful?

Pre-purchase counseling gives a person information on (1) the process of buying a home, (2) the key players in the home buying process, and (3) debt management. The goal is to create a more well informed homebuyer. While VA does not require such counseling, we strongly recommend it. There is usually no charge for the housing counseling.

To locate a housing counseling office call (800)217-6970 or visit HUDs website at www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm. The Department of Housing and Urban Development (HUD) maintains both the phone number and website.

Does my entitlement guarantee that I will get a home loan?

How much is my entitlement?

Is there a maximum loan limit?

How do I get a Certificate of Eligibility?

How do I obtain a VA Home Loan?

1. 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.
2. Select a lender, present them with your Certificate of Eligibility and complete a loan application.
3. 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.
3. 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.
4. You (and 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.
5. The loan is sent to VA for guaranty. Your Certificate of Eligibility is annotated to reflect the use of entitlement and returned to you.

What are the benefits of a VA home loan?

• Equal opportunity.
• No downpayment (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 downpayment 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.

Is a guaranteed loan a gift?

No, it must be repaid, just as you must repay any money you borrow. If you fail to make the payments you agreed to make, you may lose your home through foreclosure.

Can I get a loan for a home outside of the United States?

Unfortunately, the law only allows VA to guarantee loans on property in the United States, its territories, or possessions.

Can I get a VA loan if I have had a bankruptcy in the last few years?

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 and/or your spouses control (such as unemployment, medical bills, etc.)
• If the bankruptcy was discharged within the past 12 months, it will not generally be possible to determine that you and/or your spouse are satisfactory credit risks.

Why do I have to pay a fee for a VA home loan? Since I paid a fee for my first loan, why is there a larger fee for my second loan?

The VA funding fee is required by law. The fee, currently 2 percent on no downpayment loans, is intended to enable the veteran who obtains a VA home loan to contribute toward the cost of this benefit, and thereby reduce the cost to taxpayers. The funding fee for second time users who do not make a downpayment is 3 percent. The idea of a higher fee for second time use is based on the fact that these veterans have already had a chance to use the benefit once, and also that prior users have had time to accumulate equity or save money towards a downpayment. Second time users who make a downpayment of at least 5 percent pay a reduced funding fee of 1.5 percent, the same as first time users making the same downpayment. For a 10 percent downpayment, the fee drops to 1.25 percent. The effect of the funding fee on a veteran's financial situation is minimized since the fee may be financed in the loan.

I want to buy a house with a VA loan. Do I need to occupy the property?

The law requires that you certify that you intend to occupy the property as your home. This requirement is considered satisfied if you actually intend to occupy the property as your home and in fact so 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. My friends who are married can do this with their spouses occupying the property in their place, but VA says I can't do this with my parents or other relatives occupying on my behalf. Isn't this discrimination against single veterans?

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.

May a veteran join with a non veteran who is not his or her spouse in obtaining a VA loan?

Yes, but the guaranty is based only on the veteran's portion of the loan. The guaranty cannot cover the nonveteran's part of the loan. Consult lenders to determine whether they would be willing to accept applications for joint loans of this type. Lenders that are willing to make these types of loans will likely require a downpayment to cover risk on the unguaranteed, nonveteran's portion of the loan. Unlike other loans, the lender must submit joint loans to VA for approval before they are made.

Both incomes can be used to qualify for the loan. However, the veteran's income must be sufficient to repay at least that portion of the loan related to the veteran's interest in (portion of) the property and the nonveteran's income must be adequate to cover the rest.

If a veteran dies before the loan is paid off, will the VA guaranty pay off the balance of the loan?

No. The 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.