Many borrowers don't concern themselves with the ins-and-outs of their home loans beyond getting money to buy or refinance their homes. But, understanding the VA Loan Guaranty Program, where the money comes from and how to obtain a VA loan can save qualified borrowers money. What is a VA loan, and where does the money come from?

A VA home loan is a benefit to American veterans and active duty personnel to help them purchase and retain homes in recognition of their service to the Nation. Only eligible military personnel* or their surviving spouses** can get a VA home loan for the purchase of a home which is for their own personal occupancy.

A VA home loan might also be considered a VA guaranteed home loan, because a portion of the mortgage loan is guaranteed by the U.S. Department of Veterans Affairs. The VA Loan Guaranty Service is the organization, within the Veterans Benefits Administration, responsible for administering the home loan program. The funding does not come from any government entity; rather, a VA loan is made and funded by VA-approved private lenders such as banks, savings and loans or mortgage companies.

There can be many advantages to choosing a VA loan over a conventional loan. Many qualified borrowers find a VA home loan more attractive and accessible than a conventional loan. VA home loan requirements can be generally less stringent than those of conventional home loans. Credit and income standards are less strict than those of other programs, and no down payment is required in the VA loan guidelines. Many eligible veterans also save money each month because no private mortgage insurance (PMI) is required with their VA loans.

These are the VA home loan benefits outlined by U.S. Department of Veterans Affairs:

o Equal opportunity
o No money down (not applicable if purchase price exceeds appraised property value; lender down payment requirements may vary)
o Buyer informed of reasonable value
o Negotiable interest rate
o VA funding fee may be financed (funding fees may be reduced with a down payment, and veterans receiving VA disability compensation may be exempt from the fee)
o Closing costs are the same or lower compared to other loan programs
o No private mortgage insurance
o Mortgage is assumable
o Prepayment can be made without penalty
o For homes inspected by VA during construction, a builder warranty and assistance from VA to obtain cooperation of builder is available
o Veteran borrowers in loan default due to temporary financial difficulty can get VA assistance

The Veterans Benefits Improvement Act of 2008, signed into law October 10, 2008, increased the VA loan limit for which the VA loan guaranty is applied to $729,750. And, for military personnel qualifying for a VA loan, up to 100% of the appraised value of a home can now be refinanced.

The VA loan limit guidelines help lending institutions determine how much a veteran can borrow. Because a VA home loan is funded by a private lending institution, each lender establishes its requirements for making a loan. Lenders must comply with VA income and credit standards; however, lenders can establish more conservative lending policies.

With lenders who can provide VA loans, lending fees are often less than those of conventional loans. The Department of Veterans Affairs requires a funding fee when obtaining a VA loan. The fee varies from zero to 3.3% of the loan amount. The funding fee can be financed as part of the total loan amount, so the borrower is not required to pay anything out of pocket. The funding fee is what the VA Home Loan Guaranty Program considers "in lieu" of mortgage insurance.

Veterans who qualify as 10% disabled, or greater, as a result of active military service may have the funding fee waived. Those not exempt from the funding fee can lower the fee by opting for a down payment.

Before qualifying for a VA loan a potential veteran borrower must obtain a Certificate of Eligibility. An approved mortgage lender can help with what is called automated certificate of eligibility (ACE). Most lenders have access to the ACE system which is an Internet-based application that can establish a veteran's eligibility and issue a Certificate of Eligibility online in a matter of seconds. This can save time provided the applicant is in the system. Once a Certificate of Eligibility is obtained, a veteran may begin the VA loan application process.

Those interested in inquiring about or applying for a VA home loan can go to the online VA loan application.

* see our page on eligibility requirements

** Surviving spouse is defined as an unremarried spouse of a veteran who died while in service or from a service-connected disability, or is missing in action or is a prisoner of war
 

 

California VA Home Loans