VA Loans

Since its inception in 1944, the VA loan program has been intended to provide a benefit to veterans for their service to the United States. Similar to FHA loans, VA Loans are not loans that are made by the Department of Veterans Affairs. A VA Loan is a loan that is partially guaranteed by the VA allowing for some very favorable loan features for veterans.

VA Loans are available from lenders who participate in the VA Home Loan program.

Features of VA Loans

VA Loans are available as the following types of loans:

• Traditional fixed rate mortgages (FRMs)
• Graduated payment mortgages (GPMs) whose payments start low and gradually rise to a level payment in the loan's sixth year
• Hybrid adjustable rate mortgages (ARMs) where the initial fixed rate period is at least 3 years
• Traditional adjustable rate mortgages
• In some areas, Growing Equity Mortgages (GEMs) where gradually increasing payments are applied to the principal, resulting in an earlier payoff of the loan

Some of the attractive features of VA Loans include:

• Available for purchasing a home, a unit in a VA-approved condominium, building a home, for home improvements, to refinance an existing home loan up to 90 percent of the VA-established reasonable value, to purchase a manufactured home and/or lot
• No down payment requirements (may finance up to 100% of the cost of the home)
• Limitations on closing costs
• No private mortgage insurance (PMI)
• Will allow a home purchase two years after a bankruptcy
• Will allow a home purchase three years after a foreclosure
• Default assistance to avoid foreclosure
• Mortgage assumability subject to VA approval of the assumer's credit
• No prepayment penalties
• The VA performs loan servicing and offers financial counseling to help veterans avoid losing their homes during financial difficulties

Qualifying for VA Loan

According to the VA, more than 27 million veterans are eligible for VA Loans. Qualifying for a VA Loan is relatively straight forward. The eligibility requirements are:

• The applicant must be an eligible veteran who has available home loan entitlement. The rules of eligibility require some minimum number of days of active duty which vary depending on whether or not the duty was during wartime or peacetime. Visit the VA's General Rules for Eligibility to determine your eligibility. Please note that certain categories of spouses may be eligible for VA Loans, such as the spouse of a veteran who died while in service or from a service connected disability.
• The loan must be for an eligible purpose.
• The property must be owner-occupied by the veteran within a reasonable period of time after closing the loan.
• The veteran must have reasonable credit.
• The income of the veteran and his or her spouse must be sufficient to to cover housing expenses as well as other expense obligations.

The VA Loan Application Process

The process of applying for a VA Loan is also pretty straight forward. The first step is for the veteran to apply for a Certificate of Eligibility (COE). One may be obtained by completing VA Form 26-1880, Request for a Certificate of Eligibility, and sending it, along with proof of military service, to an eligibility center (see http://www.homeloans.va.gov/contact.htm for eligibility center locations and contact information). Proof of military service may be obtained using Standard Form 180, Request Pertaining to Military Records. Veterans may also ask any lender that they are working with to try and obtain a COE through ACE (Automated Certificate of Eligibility).

The next step is for the veteran to find a home that they wish to purchase and sign a purchase agreement. After that, the lender (usually) will order an appraisal from the VA. The formal mortgage application to the lender is the next step. Most loans are authorized on an automatic basis and are approved and closed upon receipt of the appraised value determination. After that it is time for the veteran to close the loan and move in to their new house.

VA Loan Limits

While there is no loan limit for VA Loans, lenders typically pay up to 4 times a Veteran's entitlement, which is $36,000, or 25% of the Fannie Mae/Freddie Mac loan limits in effect at the time for larger loan amounts. As of 2006, this effectively makes the upper VA Loan limit $417,000. Many lenders may have limitations of their own. VA Loans are typically 15 year or 30 year loans. The maximum VA Loan term is 30 years and 32 days.

Important VA Contact Information

VA Eligibility Center Address and Telephone Numbers

Request for Determination of Eligibility (VA Form 26-1880), along with proof of military service should be sent to:

VA Loan Eligibility Center
PO Box 20729
Winston-Salem, NC 27120

For overnight delivery:

VA Loan Eligibility Center
251 N. Main Street
Winston-Salem, NC 27155

Toll free phone number: 1-888-244-6711

E-mail: nceligib@vba.va.gov

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