Created by the original G.I. Bill (Servicemen’s Readjustment Act of 1944), the VA-Guaranteed Home Loan program has helped generations of Veterans, Service members, and their families enjoy the dream of homeownership and the opportunity to retain their homes in times of temporary financial hardship.
In this article, we will help you understand what a VA home loan guaranty, who is eligible for a VA home loan, the cost to using a VA home loan guaranty, and other basic information for veterans looking to purchase real estate.
What is the VA Home Loan ‘Guaranty’?
The VA home loan guaranty is an agreement that VA will reimburse a lender (such as banks, credit unions, mortgage companies, etc.) in the event of loss due to foreclosure. This guaranty takes the place of your down payment.
Who is eligible for a VA Home Loan?
Active-duty service members and Veterans with discharges other than dishonorable, National Guard and Reserve service members and Veterans with an honorable discharge, certain eligible spouses, and other uniformed service personnel may be eligible for VA home loan guaranty benefits.
Yes, but the funding fee can be waived (see list below). To keep the program viable, Congress instituted a program funding fee, which is a percentage of the total loan amount. This user fee varies based whether the loan is a first-time or subsequent (second, third, etc.) use of the benefit. The funding fee may be paid in cash or included in the loan at closing.
The funding fee can also be paid by the seller, lender, or any other party on your behalf. (See Chapter 8 of the Lenders Handbook)
The following individuals do not pay the VA funding fee:
• Veterans receiving VA compensation for a service-connected disability.
• Veterans entitled to receive VA compensation for a service-connected disability, but receive retirement pay or active service pay.
• Unremarried surviving spouses of Veterans who died in active service or from a service-connected disability.
• Service member with a proposed or memorandum rating from VA, prior to loan closing, as eligible to receive compensation as a result of a pre-discharge claim.
• Service member on active duty who provides, on or before the date of loan closing, evidence of having been awarded the Purple Heart.
Is there a limit to the size of a VA-backed mortgage?
There are no loan limits if one has full home loan benefit or full entitlement. If you are a first-time homebuyer or have sold your previous VA-backed home and paid your loan in full, you can enjoy VA-backing on a home loan regardless of home price and without the need for a down payment. Of course, you must be able to afford the home and the property must appraise for at least the purchase price, otherwise you may have to make a small down payment.
To learn more about VA home loans, see our related articles below.
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Michael Tennant, a licensed mortgage professional (NMLS License #1404861), operates as a net branch of MortgageRight (NMLS License #2239).
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