VA-Guaranteed Home Loans for Veterans

VA-GUARANTEED HOME LOANS FOR VETERANS

Partial reprint from benefits.va.gov

FOREWORD
The main purpose of the VA home loan program is to help veterans finance the purchase of homes with favorable loan terms and at a rate of interest which is usually lower than the rate charged on other types of mortgage loans. For VA housing loan purposes, the term “veteran” includes certain members of the Selected Reserve, active duty service personnel and certain categories of spouses.

This pamphlet should help you to understand what VA can and cannot do for the home purchaser. However, it is not a legal document and should not be interpreted as one. Nothing should be taken as a change of law or regulations. The pamphlet does not attempt to go into detail or into unusual problems. Information about VA loans is given in a narrative format followed by questions and answers in those areas of the greatest concern.

It is suggested that the pamphlet be read in its entirety. Please pay particular attention to the information about your responsibility to determine the condition of the property you purchase and to the information about assumption of your VA loan and obtaining a release of liability. Any questions you have which are not answered should be directed to your VA Regional Loan Center, or to your lender who will take them up with VA, if necessary. A list of VA offices with loan activities may be found in the back of this pamphlet.

For additional information about the VA Loan Guaranty Program, please visit our website at:
http://www.benefits.va.gov/homeloans

6 STEPS IN ARRANGING A VETERAN’S GUARANTEED LOAN

1. Find the property suitable for your needs.
2. Go to a lender and apply for the loan.
3. Present your discharge or separation papers relating to latest period of service and/or a Certificate of Eligibility.
4. Property is appraised by approved appraiser.
5. Estimate of property’s reasonable value is determined.
6. If application is approved, you get the loan.

WHAT VA CAN DO:

VA loans offer the following important features:

• Ensure that all veterans are given an equal opportunity to buy homes with VA assistance, without regard to their race, color, religion, sex, handicap, familial status, or national origin;
• No downpayment (unless required by the lender, the purchase price is more than the reasonable value of the property as determined by VA, or the loan is made with graduated payment features);
• A freely negotiable fixed interest rate competitive with conventional mortgage interest rates;
• The buyer is informed of the estimated reasonable value of the property;
• Limitations on closing costs;
• An assumable mortgage. However, for loans closed on or after March 1, 1988, the assumption must be approved in advance by the lender or VA. Generally, this involves a review of the creditworthiness of the purchaser (ability and willingness to make the mortgage payments). Be sure to see section entitled “Loan Repayment Terms”;
• Long amortization (repayment) terms;
• Right to prepay without penalty (lenders may require that any partial prepayments be in the amount of at least 1 monthly installment of principal or $100, whichever is less);
• For houses inspected by VA during construction, a warranty from the builder and VA assistance in trying to obtain the builder’s cooperation in correcting any justified construction complaint; and
• Forbearance extended to VA homeowners experiencing temporary financial difficulty.

WHAT VA CANNOT DO

• GUARANTEE THAT THE HOUSE YOU BUY, WHETHER IT IS NEW OR PREVIOUSLY OCCUPIED, WILL BE FREE OF DEFECTS. The VA appraisal is NOT intended to be an “inspection” of the property. It is in your best interest to seek expert advice BEFORE you legally commit yourself in a purchase agreement, particularly if you have any doubts about the condition of the house. Most sellers will permit you, at your expense, to arrange for an inspection by a qualified residential inspection service and negotiate with you concerning repairs to be included in the purchase agreement. Such action can prevent later problems, disagreements and disappointment.Remember, VA guarantees only the loan, NOT the condition of the property. It is your responsibility to be an informed buyer and assure yourself that what you are buying is satisfactory to you in all respects.
• If you have a home built, VA cannot compel the builder to correct construction defects or otherwise live up to the contract. VA authority is limited to suspension of the builder from participation in the VA Loan Guaranty Program.
• VA cannot guarantee that you are making a good investment or that you can resell the house at the price you paid.
• VA does not have the authority to provide you with legal services.

REQUIREMENTS FOR VA LOAN APPROVAL

To get a VA loan the law requires that:

• You must be an eligible veteran who has available home loan entitlement (except in the case of an interest rate reduction refinancing loan–see “Interest Rates” below.
• The loan must be for an eligible purpose. The purchase price should not exceed the appraised value. Otherwise, you will have to pay the difference from your own resources;
• You must occupy or intend to occupy the property as your home within a reasonable period of time after closing the loan;
• You must have enough income to meet the new mortgage payments on the loan, cover the costs of owning a home, take care of other obligations and expenses, and still have enough income left over for family support (a spouse’s income is considered in the same manner as the veteran’s); and
• You must have a good credit record.

THE GUARANTY

VA-guaranteed loans are made by private lenders such as banks, savings and loan associations, or mortgage companies. To get a loan, you apply to the lender. If the loan is approved, VA guarantees the loan when it is closed. The guaranty means the lender is protected against loss if you or a later owner fail to repay the loan.

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