VA Regulations for Mortgages
The Department of Veterans Affairs provides qualifying veterans from all the military branches with a mortgage guarantee benefit to encourage home ownership. The mortgage program is managed by the VA Loan Guaranty Service, which is an organization within the VA that oversees compliance with the regulations established by the agency.
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Background
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A VA loan is a form of mortgage insurance and not a direct lending program. This means the VA insures the veteran's mortgage lender against any financial losses the lender incurs if the veteran is unable to make mortgage payments. By insuring veterans' mortgages, lenders can ease lending standards to better accommodate the financial circumstances of borrowers. It caps the loan amount in most parts of the country at $417,000. The maximum is $625,000 in Alaska, U.S. Virgin Islands, Hawaii and Guam. The VA also specifies that the benefit may be used partly or all at once.
Qualifying Service
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Veterans who meet the minimum amount of time in service qualify for the mortgage benefit. The service requirement varies for veterans who served as far back as World War II and during more recent conflicts. VA regulations, as of October 2010, open eligibility to veterans who served in war or peace since Sept. 16, 1940.
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Costs
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Financing the purchase of a home with a VA mortgage reduces the up-front costs of obtaining the mortgage. According to the VA, veteran home buyers are not typically required to make a down payment and have the flexibility to negotiate with lenders over interest rates. In addition, closing costs are limited and monthly mortgage insurance payments are not necessary, further reducing the initial investment to buy a home. However, the veteran is liable for a funding fee to obtain a VA mortgage guarantee. The fee ranges from .5 percent to 3.3 percent of the loan amount and exempts disabled veterans, as of August 2010.
Financing Options
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VA mortgage regulations allow veterans to buy homes using a variety of financing options, as of August 2010. For example, veterans can finance homes with traditional, 30-year, fixed-rate repayment terms, and adjustable-rate mortgage loans. Other options include graduated payment mortgages, where mortgage payments start low but increase to normal levels during the sixth year of repayment.
Lending Criteria
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VA regulation and legal requirements establish a particular set of lending criteria veterans must meet to qualify for the mortgage guarantee. According to the VA, the veteran must reside in the home after closing, show proof of sufficient and stable household income and have satisfactory credit history.
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