The Department of Veterans Affairs (VA) will guarantee home loans to be used for certain purposes:
Financing for these may be obtained through the Farmers Home Administration and the Small Business Administration, respectively, both of which give preference to veterans.
Except as noted below, VA does not actually make the loan; rather, VA guarantees a percentage of the loan value, thereby reducing the risk to the lender. The actual amount of the guarantee varies according to the total amount of the loan, the value of the property involved, and whether the veteran has previously used any of his or her loan guaranty entitlement.
The amount of the loan may not exceed the reasonable value of the property. VA will make direct loans under certain circumstances to eligible Native American veterans to buy, build or improve a home on Native American trust (tribal) lands. The maximum loan in this case is $80,000 or the actual cost of the home, whichever is less. VA may also make direct loans to eligible disabled veterans who qualify for the Special Adapted Housing grant, to help cover the difference between the amount of the grant and the cost of the housing unit. In this case, the maximum loan is $48,000.
The veteran or other eligible person must meet all of the credit-worthiness and the other usual and customary requirements of the lending institution, as well as making the down payment (if any) and paying the normal and reasonable closing costs. There is also a funding fee, which may be either paid separately or included in the loan; this fee varies according to the amount of down payment made. If the veteran is in receipt of service-connected disability compensation or is entitled to compensation but for the receipt of military retired pay, the funding fee is waived. Interest rates are negotiable.
The length of the mortgage and repayment plan depends on the specifics of the loan, including the amount and purpose and the particular lender. In general, the maximum length of the loan term is 30 years and 32 days; the repayment plan may be a fixed-payment, a graduated payment, a “buydown,” or a growing equity mortgage plan. If the loan is to build a new home, VA will require the builder to offer a warranty against construction defects; however, VA has no enforcement authority in such cases except to suspend the builder from future participation in the Loan Guaranty program.
For qualifying service, veterans who served during any wartime period from World War II or later (except for the Persian Gulf Conflict) must have served at least 90 days of active duty and have been discharged under honorable conditions. Veterans whose service was entirely during peacetime periods July 26, 1947 to June 26, 1950; February 1, 1955 to August 4, 1964; or May 8, 1975 to September 7, 1980 (if enlisted) or to October 16, 1981 (if an officer) must have served at least 181 days of continuous active duty and have been discharged under honorable conditions.
In both cases, if service was less than the minimum specified time but the veteran was discharged because of a service-connected disability, the veteran may still be eligible for benefits. Veterans whose service began after September 7, 1980 (if enlisted) or after October 16, 1981 (if an officer) and ended before August 1, 1990 must have completed 24 months of continuous active duty or the full period for which called or ordered to active duty, and have been discharged under honorable conditions.
Eligibility may still exist if the veteran served less than the specified length of time, but was discharged because of a service-connected disability; or served at least 20 months and was discharged for the convenience of the Government; or served at least 181 days and was discharged because of hardship or reduction in force; or has been determined to have a service-connected disability of compensable severity. Veterans who served during the Persian Gulf Conflict (beginning August 2, 1990), have the same 24-month length of service requirement; however, the exceptions only require 90 days of active duty rather than 181 days. Current active duty service members require 90 days of continuous active service for eligibility.
Certain members of the Selected Reserve and National Guard who are not otherwise eligible for Loan Guaranty benefits, who have served at least 6 years in the Reserves or National Guard and who continue to serve in the Selected Reserve, or have been discharged under honorable conditions, or have been discharged because of a service-connected disability, or have been placed on the retired list, or have been transferred to an element of the Ready Reserves other than the Selected Reserve, are eligible for VA Loan Guaranty benefits.
Eligibility for these Reservists originally expired on October 28, 1999, but now has been extended to September 30, 2009. Other persons eligible for VA Loan Guaranty benefits include the un-remarried surviving spouse of a veteran who died on active duty or whose death is determined to be service-connected in nature; the spouse of any active duty service member who has been listed as missing in action or as a prisoner of war for more than 90 days; certain U.S. citizens who served in the armed forces of an Allied government during World War II; and persons who served as members of certain other organizations, services, programs or schools.
Veterans of World War I and members of the Reserves or National Guard whose only active duty was Active Duty for Training are not eligible for VA Loan Guaranty benefits. However, they may qualify for a veteran’s loan under the National Housing Act loan program (FHA/HUD). Upon application, VA will make a determination of eligibility and entitlement and issue a Certificate of Eligibility, which the eligible person should present to the lending institution when applying for the loan (however, the loan application may be made before applying to VA). There is no time limit for using Loan Guaranty entitlement (except for members of the Selected Reserve, whose eligibility will expire on September 30, 2009). Once entitlement has been used it generally cannot be restored, except under the following circumstances:
In each of these cases application for restoration of entitlement must be made. A veteran or eligible person may sell at any time the property on which a VA loan has been made. However, if the new buyer will be assuming the existing VA loan there are differing requirements, according to whether the original loan was closed before or after March 1, 1988.
If the original loan closed before that date, the loan may be assumed without the approval of either VA or the lender; however the veteran or eligible person who obtained the original loan will remain liable should the current or any future assumer ever go into default. This can be avoided by obtaining a release of liability from the VA office which guaranteed the loan.
If the original loan closed on or after March 1, 1988, the loan cannot be assumed unless VA or the lender (or both) are notified, approve the assumer, and release the veteran or eligible person from further liability. The application forms are requested from the lender to whom the payments are being made.