Any credit, any income. Our lenders accept requests for many loans of other
VA's Home Loan Program is for veterans and active duty
military personnel (referred to as veterans throughout the rest of the document)
and certain members of the reserves and National Guard. VA's program provides
an excellent product and benefit for those individuals who have served or are
serving to protect our families and our nation, as well as giving them a form of
financing that will allow real estate professionals to sell more homes.
For those who are unfamiliar with the program, there are
several advantages to using VA's Home Loan Program. The VA allows a veteran who
qualifies income and credit-wise to purchase a primary residence without putting
money down towards the sales price, as long as the sales price does not exceed
the appraised value. Veterans do, however, need money towards closing costs and
the earnest money deposit, which the seller generally requires when a sales
contract is signed. Closing costs may be paid by the seller, which is an item
to consider when the sales price is being negotiated.
Other benefits of using VA's program (other than the 100%
financing of the sales price) include:
- Loans are assumable, provided the person assuming the
loan is qualified.
- Veterans' closing costs are limited by VA.
- Additional assistance is offered by VA should veterans
have problems making their home loan payments in the future.
- Prepayment of the loan without a penalty.
Here are some quick facts you may find useful concerning
- VA does not have a maximum loan amount. However, lenders
do sell loans on the secondary mortgage market, so they will generally limit
loans to $417,000 ($625,500 in Hawaii, Guam, Alaska and U.S. Virgin Islands)
with no down payment. With a down payment, loans may exceed these
- The veteran does have to qualify income and credit wise.
- The veteran does have to occupy the home as their primary
- The veteran does not have to be a first time home buyer
and may reuse his/her benefit.
- The lender, not VA, sets the interest rate and discount
points, so they may vary from lender to lender.
- There is no private mortgage insurance, but VA does
charge an up front VA funding fee, which may be financed. The exception to
this is that if a veteran is in receipt of VA service connect disability
payments each month, he or she does not have to pay a VA funding fee.
- The seller can pay for closing costs. There is a
requirement that seller concessions do not exceed 4%, but only certain items
are considered as part of the concession; i.e., payment of pre-paids, VA
funding fee, payoff of credit balances or judgments on behalf of the
veteran, funds for temporary buydowns (not discount points).
- The veteran is not allowed to pay for the wood destroying
insect (termite) report; it is generally paid by the seller.
- VA does not approve the majority of loans. The majority
of transactions are handled directly by the lender with little VA
Here are additional items you may choose if you find them
How much can the veteran afford (and other important
Please note that VA uses two methods for qualification
purposes. The primary method of evaluating a veteran's income is the residual
income method. Under this method, the underwriter determines that a veteran has
sufficient income to cover day-to-day living expenses after paying housing
expenses, taxes, and other debts such as car payments and credit card payments.
VA also uses a debt-to-income ratio method like many programs. However, VA uses
only one ratio which is the ratio of total debt (both housing and other debt) to
income. To calculate the ratio, please go to the
Important: This is provided for informational purposes
only. A VA approved lender is the best resource to see how large a VA loan the
veteran truly qualifies for. The lender will look at income (amount and
stability), credit and compensating factors involved when rendering a decision.
VA also allows lenders to use certain approved automated underwriting systems.
Other Useful Links:
- This site will give you information on the process and calculators
Contains information on shopping for a home, closing costs and terminology
MBA (Mortgage Bankers Association of America) - Will give you
information on the purchase process, calculators and real estate terms.
Freddie Mac (Federal Home Loan Mortgage Corp.) - Site will give you
information about the purchase process and real estate terms.
FNMA (Fannie Mae) - Contains information on the purchase process.
Steps in the Process of a VA Home Loan:
There are five basic steps when obtaining a VA backed home
loan. Although there are lots of details within each step and some may overlap,
here is a basic overview of how the process works.
- The veteran selects a home they are interested in. The
purchase and sales agreement should contain a VA option clause. Sample
wording for a VA option clause:
"It is expressly agreed that, notwithstanding any other provisions of this
contract, the purchaser shall not incur any penalty by forfeiture of earnest
money or otherwise of be obligated to complete the purchase of the property
described herein, if the contract purchase price or cost exceeds the
reasonable value of the property established by the Department of Veterans
Affairs. The purchaser shall, however, have the privilege and option of
proceeding with the consummation of this contract without regard to the
amount of the reasonable value established by the Department of Veterans
The contract must also allow the veteran to "escape" from the contract
without penalty if he/she is unable to obtain a VA loan. Some veterans
prefer to contact a lender to get "pre-qualified" (see how much they can
afford) prior to searching for a home. Veterans may also apply for a
certificate of eligibility prior to looking for a home or contacting a
lender. Please review our site for information on certificates of
eligibility and a listing of lenders.
- Contact a lender to apply for the loan. At this point,
if the veteran has not already obtained his/her certificate of eligibility,
they will need to. The lender may be able to obtain it off the internet or
the veteran may have to complete a form and send it to the appropriate
eligibility center. In either case the lender will be able to assist in the
procedures of how to obtain a certificate of eligibility. The lender will
complete a loan application and gather supporting documentation, i.e.,
paystubs and bank statements. An important item for veterans to know is
that lenders set their own interest rates, discount points and closing
- The lender will "process" (develop) all credit and income
information. Lenders are allowed to use VA approved automated underwriting
systems. The lender will also order a VA appraisal. VA's appraisal is not
a home inspection or a guaranty of value. It is an estimate of the market
value as of the date the inspection is made comparing it to similar homes
that have recently sold in that area. Although the appraiser does look for
obviously needed repairs, VA does request that appraisers not address
cosmetic items. VA does not warrant the condition of existing homes. The
appraiser is a licensed individual who does not work for VA but is chosen by
VA to assure his/her review is unbiased in any way. The lender can not
request which appraiser to use, they are assigned on a rotation basis.
- Upon receipt of the appraisal and all supporting
documentation on credit, income and assets, the lender will "underwrite" the
loan. It is the lender who reviews all the data collected and decides if
the loan should be granted, developed for additional data or if the veteran
does not qualify and must be denied. Although VA does "underwrite" some
loans, it is very rare. The decision on whether or not to approve the loan
is generally made by the lender.
- The final step for loans that meet VA regulations and
guidelines is the loan "closing" (when the transfer actually takes place).
The lender chooses the title company, attorney or if their representative
will conduct the closing. The title company, attorney or lender
representative who will handle the closing will coordinate the date and
time. If there are any questions during the process that the lender can not
assist you with, please contact a VA representative