A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs (VA). The program is for Americanveterans, military members currently serving in the U.S. military, reservists and select surviving spouses (provided they do not remarry) and can be used to purchase single-family homes, condominiums, multi-unit properties, manufactured homes and new construction. The VA does not originate loans, but sets the rules for who may qualify, issues minimum guidelines and requirements under which mortgages may be offered and financially guarantees loans that qualify under the program.
The basic intention of the VA home loan program is to supply home financing to eligible veterans and to help veterans purchase properties with no down payment. The loan may be issued by qualified lenders.
The VA loan allows veterans 103.6 percent financing without private mortgage insurance (PMI) or a 20 percent second mortgage and up to $6,000 for energy efficient improvements. A VA funding fee of 0 to 3.6% of the loan amount is paid to the VA; this fee may also be financed and some may qualify for an exemption. In a purchase, veterans may borrow up to 103.6% of the sales price or reasonable value of the home, whichever is less. Since there is no monthly PMI, more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment. In a refinance, where a new VA loan is created, veterans may borrow up to 100% of a property's reasonable value, where allowed by state laws. In a refinance where the loan is a VA loan refinancing to VA loan (IRRRL Refinance), the veteran may borrow up to 100.5% of the total loan amount. The additional .5% is the funding fee for a VA Interest Rate Reduction Refinance.
VA loans allow veterans to qualify for loan amounts larger than traditional Fannie Mae / conforming loans. Standard VA guidelines state that the VA will insure a mortgage where the monthly payment of the loan is up to 41% of the gross monthly income vs. 28% for a conforming loan assuming the veteran has no monthly bills, although there is no hard limit to the DTI for a VA home loan. Veterans have been known to be approved with a DTI of up to 80%, if there are other factors that strengthen their loan application. These factors include a low Loan-To-Value (LTV), sufficient residual income, additional income received but not used to qualify for the loan, good credit, etc...
History
The original Servicemen's Readjustment Act, passed by the United States Congress in 1944, extended a wide variety of benefits to eligible veterans. The VA loan guarantee program was especially important to veterans.[1] Under the law, as amended, the VA is authorized to guarantee or insure home, farm, and business loans made to veterans by lending institutions. As of 2020, over 25 million VA home loans have been insured by the government.[2] The VA can make direct loans in certain areas for the purpose of purchasing or constructing a home or farm residence, or for repair, alteration, or improvement of the dwelling. The terms and requirements of VA farm and business loans have not induced private lenders to make such loans in volume during recent years.
The Veterans Housing Act of 1970 removed all termination dates for applying for VA-guaranteed housing loans. This 1970 amendment also provided for VA-guaranteed loans on mobile homes.[3]
Until 1992, the VA loan guarantee program was available only to veterans who served on active duty during specified periods. However, with the enactment of the Veterans Home Loan Program Amendments of 1992 (Public Law 102-547, approved 28 October 1992[5]), program eligibility was expanded to include Reservists and National Guard personnel who served honorably for at least six years without otherwise qualifying under the previous active duty provisions. Such personnel are required to pay a slightly higher funding fee when obtaining a VA home loan.
Despite a great deal of confusion and misunderstanding, the federal government generally does not make direct loans under the act. The government simply guarantees loans made by ordinary mortgage lenders (descriptions of which appear in subsequent sections) after veterans make their own arrangements for the loans through normal financial circles. The Veterans Administration then appraises the property in question and, if satisfied with the risk involved, guarantees the lender against loss of principal if the buyer defaults.
In association with the VA's program, the Servicemembers' Civil Relief Act protects service members from financial woes on their home loan that may occur as a result of active duty commitments, freezing their interest rates at 6%.
On October 26, 2012, the Department of Veterans Affairs announced it has guaranteed 20 million home loans since its home loan program was established in 1944 as part of the original GI Bill of Rights for returning World War II Veterans. The 20 millionth loan was guaranteed for a home in Woodbridge, Va., purchased by the surviving spouse of an Iraq War Veteran who died in 2010.[6][7]
On June 22, 2019, the VA loan program celebrated its 75th anniversary since the passing of the original Servicemen's Readjustment Act, also known as the G.I. Bill. During the celebration, the Department of Veterans Affairs announced the program had guaranteed 24 million VA home loans since its inception.[8]
On June 25, 2019, the Blue Water Navy Vietnam Veterans Act of 2019 was signed into law temporarily increasing the VA funding fee for active duty service members and veterans starting January 1, 2020. The law removed VA county loan limits for homebuyers with full VA loan entitlement and made Purple Heart recipients exempt from paying the VA funding fee.[9] Several members of Congress were displeased after the passing of the act, writing an open letter to House SpeakerNancy Pelosi and Minority LeaderKevin McCarthy asking that future bills not be paid for by increasing VA loan fees.[10]
In June 2023, the House Armed Services Committee approved the Major Richard Star Act which would allow veterans who receive medical retirement before 20 years of service to receive both full military retirement pay and disability pay. The bill has broad bipartisan support but in order to become law, it requires full offsetting for its Congressional Budge Office estimated cost of $9.75 billion over the next ten years.[11][12]
On November 11, 2023, NPR published an investigation into thousands of veterans who lost income and took a COVID forbearance on their mortgage payments for six or twelve months, who then became at risk of losing their homes when the VA in October 2022 ended the Partial Claim Payment program, an affordable way to start paying their mortgages again.[13] Approximately 6,000 VA loan holders who took COVID forbearances were in the foreclosure process and 34,000 were delinquent. On November 15, US Senators Sherrod Brown, Jon Tester, Jack Reed, and Tim Kaine wrote an open letter to the VA to immediately pause the foreclosure process on all VA loans where borrowers would likely qualify for the VA’s new Veterans Assistance Servicing Purchase (VASP) program.[14] On November 17, the VA subsequently halted VA loan foreclosures for six months.[15]
Funding fees
VA loan recipients pay a funding fee to the VA to offset the cost of their loans requiring no down payment nor mortgage insurance. Veterans may be exempt from paying the funding fee, or receive a refund on funding fees paid, if they meet one of five criteria such as receiving VA disability compensation or receiving a Purple Heart.[16] It is a myth that the disability compensation must be some percentage, "such as minimum of 10%". Title 38 Veterans Benefits states "...38 U.S. Code § 3729.Loan fee (c) - (1) A fee may not be collected under this section from a veteran who is receiving compensation (or who, but for the receipt of retirement pay or active service pay, would be entitled to receive compensation) or from a surviving spouse of any veteran (including a person who died in the active military, naval, or air service) who died from a service-connected disability..."[17] If a veteran is awarded disability compensation after paying a funding fee, he/she can apply for a refund of this funding fee, so long as the beginning date of the disability is prior to the closing date of the home mortgage.
In August 2012, Congress passed a bill that allows a Veteran to receive the benefits of having Veteran Disability while it is still pending.[citation needed] The amount paid for the funding fee can be refunded back to the Veteran when a determination is made and the paperwork is received.
The VA Funding fee may be paid in cash or included in the loan amount. 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. However, the seller may pay these on behalf of the VA borrower.
Purchase and construction loans
Due to the Blue Water Navy Vietnam Veterans Act of 2019, the VA funding fee is equalized for all branches of service starting January 1, 2020. For active duty military members and veterans, this means an increase in VA funding fee costs for a period of 2 years. If you have a service-connected disability that you are compensated for by the VA or if you are a surviving spouse of veteran who died in service or from service-connected disabilities, the funding fee is waived.
Type of Veteran
Down Payment
First Time Use
Subsequent Use
Regular Military, Reserves/National Guard
None 5%-9.99% 10% or more
2.3% 1.65% 1.4%
3.6%* 1.65% 1.4%
The VA funding fee can be financed directly into the maximum loan amount for the county in which the home is located. For subsequent use VA loans, if the sales price and the financed VA funding fee total more than maximum loan amount for that county, the borrower or seller must pay for the fee out of pocket. All VA loans require an impound account for property taxes and homeowners insurance which makes the monthly payment of VA loans calculated as a PITI payment.**
Cash-out refinancing loans
Type of Veterans
Percentage for First Time Use
Percentage for Subsequent Use
Regular Military, Reserves/National Guard
2.3%
3.6%*
The higher subsequent use fee does not apply to these types of loans if the veteran’s only prior use of entitlement was for a manufactured home loan.
Other types of loans
Type of Loan
Percentage for Either Type of Veteran Whether First Time or Subsequent Use
Interest Rate Reduction Refinancing Loans
.50%
Manufactured Home Loans
1.00%
Loan Assumptions
.50%
Veterans who previously lived in a home they had to then rent out will typically qualify for a no appraisal Interest Rate Reduction Refinance. The Veteran's Administration also allows Veteran Homeowners to refinance from a Conventional loan to a VA mortgage Loan. This process, however, does require an appraisal.
Private mortgage insurance (PMI) guarantees conventional home mortgage loans - those that are not guaranteed by the government. This loan program is a private sector equivalent to the Federal Housing Administration (FHA) and VA loan programs.
The PMI company insures a percentage of the consumer's loan to reduce the lender's risk; this percentage is paid to the lender if the consumer does not pay and the lender forecloses the loan.
Lenders decide if they need and want private mortgage insurance. If they so decide, it becomes a requirement of the loan. PMI companies charge a fee to insure a mortgage loan; the VA insures a loan at no cost to a veteran buyer (other than the VA funding fee); the FHA charges a monthly fee to guarantee the loan.[1]
VA Loan application
The VA loan application is a standardized loan application form 1003 issued by Fannie Mae also known as Freddie Mac Form 65. It is a Federal crime punishable by fine or imprisonment, or both, to knowingly make any false statements on a VA loan application under the provisions of Title 18, United States Code, Section 1001, et seq.
You will need the following paperwork to apply:
Copies of your W2 statements for the past two years, so your gross household income can be confirmed,
Copies of your previous two pay stubs,
Documentation of other assets (checking accounts, savings accounts, financial investments, trust funds, etc.),
If self-employed, two years of consecutive tax returns will be required.
The Veteran also needs to supply their DD 214 and Certificate of Eligibility (COE)
Qualifying for Veteran Home Loans
The Veteran Loan program is designed for veterans who meet the minimum number of days of completed service. Some of the other eligibility requirements for the VA loan program[18] and some specific home loan benefits include the length of service or service commitment, duty status and character of service. The program does allow for benefits to Surviving Spouses.
The VA does not have a minimum credit score used for pre-qualifying for a mortgage loan, however, most Lenders require a minimum credit score of at least 620.[19]
A Veteran who has used their entitlement to previously purchase a home, may have entitlement left to purchase another one. If you previously purchased a home using your VA Benefits then you might still have some of that “Entitlement” available to you for the purchase of a new home. To calculate Maximum Entitlement available, consider the following:
If your previous home was purchased using a VA Loan, and that loan was paid off by the new owners, the full entitlement may have been restored.
If you sold your home to someone, and allowed them to assume your VA Loan, then you might have the full entitlement restored, if one or more of the purchasers were also Veterans.
If you still own the home, and you are renting it out – you might be able to purchase a new home using your partial entitlement, but there are several restrictions.
Allowable Income Sources used to qualify for a VA Loan include: Retirement Income, Social Security Income, Child Support, Alimony and Separate Maintenance, BAH, BAS and Disability Income. Dependency and Indemnity Compensation (DIC) for a Surviving Spouse can also be included. In addition, stable, documented income from employers remains the best income source for VA loans.
Homeless Veterans - The National Center on Homelessness Among Veterans (NCHAV)
The National Center on Homelessness Among Veterans (NCHAV) has planned to increase recovery-oriented care provided to homeless Veterans, or those soon to be, through the development and dissemination of evidence-based programs, policies as well as best practices. It was established in 2009 to support the execution of the U.S. Department of Veteran Affairs’ (VA’s) Five Year Plan to End Homelessness Among Veterans. This plan was born out of the goals and timeframes set forth by the legislators, governors, nonprofits, faith-based and community organizations, the U.S. Congress, the United States Interagency Council on Homelessness, business entities and philanthropic leaders to end homelessness in America and progress to make affordable and stable housing available to all its people.
NCHAV
Below are the four core activities of NCHAV’s integrated and organized work:
The United States Department of Veterans Affairs (VA) is a Cabinet-level executive branch department of the federal government charged with providing lifelong healthcare services to eligible military veterans at the 170 VA medical centers and outpatient clinics located throughout the country. Non-healthcare benefits include disability compensation, vocational rehabilitation, education assistance, home loans, and life insurance. The VA also provides burial and memorial benefits to eligible veterans and family members at 135 national cemeteries.
The Government National Mortgage Association (GNMA), or Ginnie Mae, is a government-owned corporation of the United States Federal Government within the Department of Housing and Urban Development (HUD). It was founded in 1968 and works to expand affordable housing by guaranteeing housing loans (mortgages) thereby lowering financing costs such as interest rates for those loans. It does that through guaranteeing to investors the on-time payment of mortgage-backed securities (MBS) even if homeowners default on the underlying mortgages and the homes are foreclosed upon.
A reverse mortgage is a mortgage loan, usually secured by a residential property, that enables the borrower to access the unencumbered value of the property. The loans are typically promoted to older homeowners and typically do not require monthly mortgage payments. Borrowers are still responsible for property taxes or homeowner's insurance. Reverse mortgages allow older people to immediately access the home equity they have built up in their homes, and defer payment of the loan until they die, sell, or move out of the home. Because there are no required mortgage payments on a reverse mortgage, the interest is added to the loan balance each month. The rising loan balance can eventually grow to exceed the value of the home, particularly in times of declining home values or if the borrower continues to live in the home for many years. However, the borrower is generally not required to repay any additional loan balance in excess of the value of the home.
Refinancing is the replacement of an existing debt obligation with another debt obligation under a different term and interest rate. The terms and conditions of refinancing may vary widely by country, province, or state, based on several economic factors such as inherent risk, projected risk, political stability of a nation, currency stability, banking regulations, borrower's credit worthiness, and credit rating of a nation. In many industrialized nations, common forms of refinancing include primary residence mortgages and car loans.
An FHA insured loan is a US Federal Housing Administration mortgage insurance backed mortgage loan that is provided by an FHA-approved lender. FHA mortgage insurance protects lenders against losses. They have historically allowed lower-income Americans to borrow money to purchase a home that they would not otherwise be able to afford. Because this type of loan is more geared towards new house owners than real estate investors, FHA loans are different from conventional loans in the sense that the house must be owner-occupant for at least a year. Since loans with lower down-payments usually involve more risk to the lender, the home-buyer must pay a two-part mortgage insurance that involves a one-time bulk payment and a monthly payment to compensate for the increased risk. Frequently, individuals "refinance" or replace their FHA loan to remove their monthly mortgage insurance premium. Removing mortgage insurance premium by paying down the loan has become more difficult with FHA loans as of 2013.
Lenders mortgage insurance (LMI), also known as private mortgage insurance (PMI) in the US, is a type of insurance payable to a lender or to a trustee for a pool of securities that may be required when taking out a mortgage loan. Its purpose is to offset losses in the case where a mortgagor is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property.
Bank of America Home Loans is the mortgage unit of Bank of America. In 2008, Bank of America purchased the failing Countrywide Financial for $4.1 billion. In 2006, Countrywide financed 20% of all mortgages in the United States, at a value of about 3.5% of the United States GDP, a proportion greater than any other single mortgage lender.
Canada Mortgage and Housing Corporation is Canada's federal crown corporation responsible for administering the National Housing Act, with the mandate to improve housing by living conditions in the country.
Second mortgages, commonly referred to as junior liens, are loans secured by a property in addition to the primary mortgage. Depending on the time at which the second mortgage is originated, the loan can be structured as either a standalone second mortgage or piggyback second mortgage. Whilst a standalone second mortgage is opened subsequent to the primary loan, those with a piggyback loan structure are originated simultaneously with the primary mortgage. With regard to the method in which funds are withdrawn, second mortgages can be arranged as home equity loans or home equity lines of credit. Home equity loans are granted for the full amount at the time of loan origination in contrast to home equity lines of credit which permit the homeowner access to a predetermined amount which is repaid during the repayment period.
The Veterans Benefits Administration (VBA) is an agency of the U.S. Department of Veterans Affairs. It is responsible for administering the department's programs that provide financial and other forms of assistance to veterans, their dependents, and survivors. Major benefits include Veterans' compensation, Veterans' pension, survivors' benefits, rehabilitation and employment assistance, education assistance, home loan guaranties, and life insurance coverage.
Down payment, is an initial up-front partial payment for the purchase of expensive items/services such as a car or a house. It is usually paid in cash or equivalent at the time of finalizing the transaction. A loan of some sort is then required to finance the remainder of the payment.
Discount points, also called mortgage points or simply points, are a form of pre-paid interest available in the United States when arranging a mortgage. One point equals one percent of the loan amount. By charging a borrower points, a lender effectively increases the yield on the loan above the amount of the stated interest rate. Borrowers can offer to pay a lender points as a method to reduce the interest rate on the loan, thus obtaining a lower monthly payment in exchange for this up-front payment. For each point purchased, the loan rate is typically reduced by anywhere from 1/8% (0.125%) to 1/4% (0.25%).
Mortgage insurance is an insurance policy which compensates lenders or investors in mortgage-backed securities for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer. The policy is also known as a mortgage indemnity guarantee (MIG), particularly in the UK.
Loan servicing is the process by which a company collects interest, principal, and escrow payments from a borrower. In the United States, the vast majority of mortgages are backed by the government or government-sponsored entities (GSEs) through purchase by Fannie Mae, Freddie Mac, or Ginnie Mae. Because GSEs and private loan investors typically do not service the mortgage loans that they purchase, the bank who sells the mortgage will generally retain the right to service the mortgage pursuant to a master servicing agreement.
A mortgage loan or simply mortgage, in civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. The loan is "secured" on the borrower's property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning "death pledge" and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. A mortgage can also be described as "a borrower giving consideration in the form of a collateral for a benefit (loan)".
Public housing policies in Canada includes rent controls, as well as subsidized interest rates and grants. Early public housing policy in Canada consisted of public-private lending schemes which focused on expanding home ownership among the middle class. The first major housing initiative in Canada was the Dominion Housing Act of 1935, which increased the amount of credit available for mortgage loans.
Loan modification is the systematic alteration of mortgage loan agreements that help those having problems making the payments by reducing interest rates, monthly payments or principal balances. Lending institutions could make one or more of these changes to relieve financial pressure on borrowers to prevent the condition of foreclosure. Loan modifications have been practiced in the United States since the 1930s. During the Great Depression, loan modification programs took place at the state level in an effort to reduce levels of loan foreclosures.
The Home Affordable Refinance Program (HARP) is a federal program of the United States, set up by the Federal Housing Finance Agency in March 2009, to help underwater and near-underwater homeowners refinance their mortgages. Unlike the Home Affordable Modification Program (HAMP), which assists homeowners who are in danger of foreclosure, this program benefits homeowners whose mortgage payments are current, but who cannot refinance due to dropping home prices in the wake of the U.S. housing market correction.
A USDA Home Loan from the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, is a mortgage loan offered to rural property owners by the United States Department of Agriculture, Rural Development.
Streamline refinancing is a mortgage refinancing process in the United States for Federal Housing Administration (FHA) mortgages that reuses the original loan's paperwork allowing quicker refinancing. The program was introduced by the FHA as a way to speed up the home refinancing process. By reusing the original loan's paperwork, the process to refinance a home was reduced from a few months to only a few weeks. Streamline refinancing has become more popular because reuse of the original home's appraisal may be the only way someone underwater on the property can refinance it at all.
References
1 2 3 Mishler, Lon; Cole, Robert E. (1995). Consumer and business credit management. Homewood, Ill: Irwin. pp.220–121. ISBN978-0-256-13948-8.
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