VA Home Loan Information
A VA home loan is a mortgage loan backed by the Department of Veterans Affairs through its home-loan guaranty program. The aim of the program is to help veteran homebuyers secure a loan with favorable terms. The guaranty motivates lenders to give competitive rates and forgo the down payment in most cases. Such advantages enable veterans to buy a more expensive home than they might be able to afford otherwise.
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History
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The VA home loan came about in 1944 as part of the Servicemen's Readjustment Act, better known as the "G.I. Bill." The bill was created to provide federal aid to millions of veterans who would return to civilian life after World War II. While most of its provisions focused on education and training, the G.I. Bill brought a variety of other benefits as well, including the VA home loan guaranty program. One out of five homes built after the war was purchased by veterans through this program. Since then, the VA has guaranteed more than 18 million home loans to eligible homebuyers.
Uses
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A veteran can use a VA home loan to purchase a new home that he or she will occupy. The loan may also be used to construct a new house, to buy and/or make improvements on an existing home, to purchase a lot with or without a house or to refinance an existing home loan. Provided certain conditions are met, a veteran who has used a VA home loan may use it again.
How It Works
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When a lender grants a VA loan to a buyer, VA guarantees part of the loan. The amount of the guarantee varies. As of July 2010, according to the VA-Guaranteed Home Loans for Veterans pamphlet, the guaranty limit is 50 percent for loans worth up to $45,000; 40 percent or up to $36,000 for loans between $45,000 and $144,000; and 25 percent for loans above $144,000. The loan cannot be greater than the appraised value of the property (or the purchase price, whichever is smaller). The lender will prepare the buyer's credit history and income to assess credit. If everything is clear, the VA home loan will be approved.
Benefits
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Often a buyer can purchase a home without a down payment and no monthly private mortgage insurance premiums. There are lesser fees to pay, and those receiving VA disability compensation are exempt from paying a funding fee. Interest rates are fixed and negotiable, and amortization terms are long. If able to do so, the buyer can pay off the loan early without prepayment penalty.
Limitations
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VA does not guarantee that a home purchased with the loan will be free of problems. The appraisal is not an inspection of the property. It is left to the buyer to research diligently prior to buying a home to ensure that the property is in good condition. Further, being eligible for a VA-backed loan does not guarantee that a lender will grant the loan. The home loan can only be used within the United States and its territories and possessions.
Eligibility
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The VA home loan is available to veterans, active-duty servicemen and women, reservists and members of the National Guard who have never been called to active duty. Prospective borrowers must have served for a minimum amount of time, and the character of their discharge cannot be dishonorable. Surviving spouses of veterans are also eligible if the veteran died on active duty or as a consequence of a service-connected disability.
Application Process
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Before seeking a loan, obtain a Certificate of Eligibility or CoE as proof that you qualify for a VA-backed loan. Afterward, find suitable property and a VA-approved lender. Agree to buy the property on the condition that your application for a VA loan will be approved. The lender will assess your credit and order an appraisal of the property. If the VA appraisal, your income and credit score meet requirements, your loan will be approved. Pay applicable closing costs and funding. Make sure you understand the terms of the mortgage, and sign the paperwork.
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