VA Home Loan Guarantees

The more you know about the VA home loan program, the more you will realize how little red tape there really is in getting a VA loan. These loans are often made without any down payment at all, and frequently offer lower interest rates than ordinarily available with other kinds of loans. Aside from the veteran's certificate of eligibility and the VA-assigned appraisal, the application process is not much different than any other type of mortgage loan. And if the lender is approved for automatic processing, as more and more lenders are now, a buyer's loan can be processed and closed by the lender without waiting for VA's approval of the credit application.

Q. What is a VA guaranteed loan?

A. These loans are made by a lender, such as a mortgage company, savings and loan or bank. VA's guaranty on the loan protects the lender against loss if the payments are not made, and is intended to encourage lenders to offer veterans loans with more favorable terms. The amount of guaranty on the loan depends on the loan amount and whether the veteran used some entitlement previously. With the current maximum guaranty, a veteran who hasn't previously used the benefit may be able to obtain a VA loan up to $417,000 depending on the borrower's income level and the appraised value of the property.

Q: How do I apply for a VA guaranteed loan?

A: You can apply for a VA loan at any mortgage lender that participates in the VA home loan program. At some point, you will need to get a Certificate of Eligibility from VA to prove to the lender that you are eligible for a VA loan.

Q: How do I get a Certificate of Eligibility?

A: To get a Certificate of Eligibility, you need to submit a form 26-1880, Request for Determination of Eligibility and Available Loan Guaranty Entitlement. You can visit your local County Veterans Services office to obtain the request from. You must include a copy of your DD214 with the form 26-1880. If you are on active duty, you must submit a statement of service signed by, or by direction of, the adjutant, personnel officer, or commander of your unit or higher headquarters showing date of entry on your current active duty period and the duration of any time lost.

Q: How big of a loan can I get? If my guaranty entitlement is $36,000, does this mean I am limited to a $36,000 loan?

A: There is no limit on the size of a VA guaranteed home loan, provided that the veteran is qualified for the loan from a credit and income standpoint. However, as a practical matter, lenders will generally limit the maximum loan amount to 4 times the amount of the veteran's available entitlement plus any down payment. Currently, the maximum entitlement on loans above $144,000 is $417,000.

Q: Can I get a VA loan if I have had a bankruptcy in the last few years?

A: VA credit standards state that a veteran with a bankruptcy less than 3 years ago would generally not be considered a satisfactory credit risk unless: the veteran or spouse has obtained items on credit since the bankruptcy and has paid the obligations in a satisfactory manner for a continued period; and the bankruptcy was caused by circumstances beyond the control of the borrower, which would have to be verified. A bankruptcy discharged discharged 3 to 5 years ago must be given some consideration in the underwriting of the loan. A bankruptcy discharged more than 5 years ago may be disregarded. These are the minimum standards that lenders must follow when making a VA loan.
In 95% of the cases, lenders make the decision to approve a loan without VA's prior approval.
Keep in mind that lenders also have money at risk in giving you a VA loan, so they may have stricter credit standards than those mandated by VA.

Q: I want to buy a house with a VA loan. Do I need to occupy the property?

A: The law requires that you certify that you intend to occupy the property as your home. This requirement is considered satisfied if you actually intend to occupy the property as your home and in fact so occupy it when the loan is closed or within a reasonable time afterward.

Q: I am a single veteran stationed overseas and want to buy a home in my home town. My
friends who are married can do this with their spouses occupying the property in their place, but VA says I can't do this with my parents or other relatives occupying on my behalf. Isn't this discrimination against single veterans?

A: The law specifically provides that occupancy by the veteran's spouse satisfies the personal occupancy requirement. The law makes no provision for occupancy by any other relatives as a substitute for personal occupancy by the veteran.

Q: May a veteran join with a non veteran who is not his or her spouse in obtaining a VA loan?

A: Yes, but the guaranty is based only on the veteran's portion of the loan. The guaranty cannot cover the non-veteran's part of the loan. Consult lenders to determine whether they would be willing to accept applications for joint loans of this type. Lenders that are willing to make these types of loans will likely require a down payment to cover risk on the un-guaranteed, non veteran's portion of the loan. Unlike other loans, the lender must submit joint loans to VA for approval before they are made. Both incomes can be used to qualify for the loan. However, the veteran's income must be sufficient to repay at least that portion of the loan related to the veteran's interest in (portion of) the property and the non veteran's income adequate to cover the rest.

Q: If a veteran dies before the loan is paid off, will the VA guaranty pay off the balance of the loan?

A: No. The surviving spouse or other co-borrower must continue to make the payments. If there is no co-borrower, the loan becomes the obligation of the veteran's estate. Mortgage life insurance is available but must be purchased from private insurance sources.