When an eligible current or ex-servicemember needs to purchase a home for their own personal use, they can obtain a VA Guaranteed loan from a bank, mortgage lender, or savings & loan company, depending on the circumstances.
First, the veteran must apply for the loan with one of these lenders; if approved, the VA will guarantee a certain amount of the loan amount to the lender.
This means that if the borrower defaults on the loan the lender will be repaid the guaranteed amount, and they can generally make up the remainder of the loan amount through the sale of the property in foreclosure. This makes VA loans much less risky and allows lenders to offer more favorable terms to those who qualify.
Qualified VA borrowers can often obtain financing with no down payment. $36,000 is the maximum entitlement, or amount the VA will guaranty, for a loan up to $144,000. For loans over this amount, it can go as high as $104,250.
Given the property appraises for the asking price and the borrower is qualified, a lender will generally loan up to 4 times the available entitlement without down payment.
A Few Benefits Of VA Loans:
- Any qualified veteran or current military personnel has equal opportunity to be given a VA loan.
- 100% financing is often available.
- Buyer is notified of appraised value.
- VA will assist borrowers in case of default due to financial difficulty.
- The VA funding fee can be financed into the loan amount.
- Closing costs comparable (possibly lower) to other financing types.
- Interest rate can be negotiated.
- An assumable mortgage.
- Ability to prepay without being penalized.
- For houses appraised by the VA during construction, builder-provided warranty and help from the VA in acquiring builder cooperation.
- No mortgage insurance required.
However, the VA does not:
- Promise that a home is defect-free; only the loan is guaranteed by the VA.
- Order a builder to fix defects in your home if you had a house built.
- Guarantee that a veteran is making a good investment.
- Provide veterans with legal services.
So, how do you go about getting a VA loan?
- Find the property you would like to buy and arrange the purchase with the seller. You’ll then sign a purchase contract conditional upon approval of a VA guaranteed loan.
- Choose your lender, present your Certificate of Eligibility, and finish the loan application. Your lender will determine your credit and submit a request to the VA to dispatch a licensed appraiser to evaluate the value of the property.
- If the determined value is acceptable to all involved parties, and the lender determines that your loan application meets the VA loan requirements, your mortgage can be approved.
- You (and co-borrower, if applicable) will then attend the loan closing and sign the related papers. The closing attorney will explain loan terms and requirements and monthly payment details.
When the VA receives report of loan, Certificate of Eligibility is adjusted to reflect use of entitlement and is then returned to the veteran.