Home Loan Guarantees
The Department of Veterans Affairs (VA) guarantees loans made to Service members, veterans, reservists and unmarried surviving spouses for the purchase or refinancing of homes, condos and manufactured homes. VA guarantees part of the total loan, permitting the purchaser to obtain a mortgage with a competitive interest rate, even without a down payment if the lender agrees. VA requires a down payment for the purchase of a manufactured home. With a VA guarantee, the lender is protected against loss up to the amount of the guarantee if the borrower fails to repay the loan. A VA loan guarantee can be used to:
- Buy a home
- Buy a residential condominium
- Build a home
- Repair, alter or improve a home
- Refinance an existing home loan
- Buy a manufactured home with or without a lot
- Buy and improve a manufactured home lot
- Install a solar heating or cooling system or other weatherization improvements
- Purchase and improve a home simultaneously with energy-efficient improvements
- Refinance an existing VA loan to reduce the interest rate and make energy-efficient improvements
- Refinance a manufactured home loan to acquire a lot
Applicants must have a good credit rating, have an income sufficient to support mortgage payments, and agree to live in the property. To obtain a VA certificate of eligibility, complete VA Form 26-1880, and submit it to the nearest VA regional office.
The amount of the VA guarantee available to an eligible veteran is called the entitlement, and may be considered the equivalent of a down payment by the lenders. Up to $50,750 in entitlement may be available to veterans purchasing or constructing homes to be financed with a loan of more than $144,000 and to veterans who obtain an Interest Rate Reduction Refinancing Loan of more than $144,000.
The amount of entitlement varies with the loan amount. VA does not establish a maximum loan amount. No loan for the purchase of a home, however, may exceed the reasonable value of the property. A loan for the purpose of refinancing existing mortgage loans or other liens secured on a dwelling is generally limited to 90% of the appraised value of the dwelling. A veteran who previously obtained a VA loan can use the remaining entitlement for a second purchase. The amount of remaining entitlement is the difference between $36,000, or $50,750 for special loans, and the amount of entitlement used on prior loans.
Veterans must certify that they intend to live in the home they are buying or building with a VA guarantee. A veteran who wishes to refinance or improve a home with a VA guarantee also must certify to being in occupancy if the buyer is on active duty. In refinancing a VA-guaranteed loan solely to reduce the interest rate, veterans need only certify to prior occupancy.
Payment in cash is required on all home loan closing costs, including:
- 1% origination fee which may be required by lenders in lieu of certain other costs
- Hazard insurance premiums
- Prepaid taxes
- Title search and recording
In case of refinancing loans, all such costs may be included in the loan, as long as the total loan does not exceed 90% of the reasonable value for the property.