VA Home Loan Guaranty
The VA can guarantee part of a loan from a private lender to help you buy a home, a manufactured home, a lot, or certain types of condominiums. There are also loans for building, repairing, and improving homes.
VA home loan guaranties are issued to help eligible servicemembers, veterans, reservists and certain unmarried surviving spouses obtain homes, condominiums, residential cooperative housing units, and manufactured homes, and to refinance loans.
A VA guaranty helps protect lenders from loss if the borrower fails to repay the loan. It can be used to obtain a loan to:
- Buy or build a home.
- Buy a residential condominium unit.
- Buy a residential cooperative housing unit.
- Repair, alter, or improve a residence owned by the veteran and occupied as a home.
- Refinance an existing home loan.
- Buy a manufactured home and/or lot.
- Install a solar heating or cooling system or other energy-efficient improvements.
In addition to the periods of eligibility and conditions of service requirements, applicants must have a good credit rating, sufficient income, a valid Certificate of Eligibility (COE), and agree to live in the property in order to be approved by a lender for a VA home loan.
In applying for a hard-copy COE from the VA Eligibility Center, it is typically necessary that the eligible veteran present a copy of his/her report of discharge or DD Form 214 Certificate of Release or Discharge from Active Duty or other adequate substitute evidence to VA. An eligible active duty servicemember should obtain and submit to the VA Eligibility Center a statement of service signed by an appropriate military official.
VA Guaranty Amount Varies with the size of the loan and the location of the property. Because lenders are able to obtain this guaranty from VA, borrowers do not need to make a down payment, provided they have enough home loan entitlement.
VA will guarantee 25 percent of the principal loan amount, up to the maximum guaranty. The maximum guaranty varies depending upon the location of the property.
For all locations in the United States other than Alaska, Guam, Hawaii, and the U.S. Virgin Islands, the maximum guaranty is the greater of 25 percent of (a) $417,000 or (b) 125 percent of the area median price for a single-family residence, but in no case will the guaranty exceed 175 percent of the Freddie Mac loan limit for a single-family residence in the county in which the property securing the loan is located.
No loan can be guaranteed by VA without first being appraised by a VA-assigned fee appraiser. A lender can request a VA appraisal through VA systems. The veteran borrower typically pays for the appraisal upon completion, according to a fee schedule approved by VA. This VA appraisal estimates the value of the property. It is not an inspection and does not guarantee the house is free of defects. VA guarantees the loan, not the condition of the property. A thorough inspection of the property by you or a reputable inspection firm may help minimize any problems that could arise after loan closing. In an existing home, particular attention should be given to plumbing, heating, electrical, and roofing components.
For purchase home loans, payment in cash is required on all closing costs, including title search and recording fees, hazard insurance premiums and prepaid taxes. For refinancing loans, all such costs may be included in the loan, as long as the total loan does not exceed the reasonable value of the property. Interest rate reduction loans may include closing costs, including a maximum of two discount points.
All veterans, except those receiving VA disability compensation, those who are rated by VA as eligible to receive compensation as a result of pre-discharge disability examination and rating, and unmarried surviving spouses of veterans who died in service or as a result of a service-connected disability, are charged a VA funding fee. For all types of loans, the loan amount may include this funding fee.
To qualify for a VA home loan, a veteran or the spouse of an active duty servicemember must certify that he or she intends to occupy the home. When refinancing a VA-guaranteed loan solely to reduce the interest rate, a veteran need only certify to prior occupancy.
Financing, Interest Rates and Terms
Veterans obtain VA-guaranteed loans through the usual lending institutions, including banks, credit unions, and mortgage brokers. VA-guaranteed loans can have either a fixed interest rate or an adjustable rate, where the interest rate may adjust up to one percent annually and up to five percent over the life of the loan. VA does not set the interest rate. Interest rates are negotiable between the lender and borrower on all loan types.
Veterans may also choose a different type of adjustable rate mortgage called a hybrid ARM, where the initial interest rate remains fixed for three to 10 years. If the rate remains fixed for less than five years, the rate adjustment cannot be more than one percent annually and five percent over the life of the loan. For a hybrid ARM with an initial fixed period of five years or more, the initial adjustment may be up to two percent. The Secretary has the authority to determine annual adjustments thereafter. Currently annual adjustments may be up to two percentage points and six percent over the life of the loan.
If the lender charges discount points on the loan, the veteran may negotiate with the seller as to who will pay points or if they will be split between buyer and seller. Points paid by the veteran may not be included in the loan (with the exception that up to two points may be included in interest rate reduction refinancing loans). The term of the loan may be for as long as 30 years and 32 days.
To apply for a Certificate of Eligibility, please contact our office at (914) 377-6700.