About VA Loans

By Joseph Nicholson

VA loan guarantees offer veterans several options. Though most are used for the purchase of existing homes, the program is available for construction of new homes and refinancing of existing mortgages. In some cases, such as to increase energy efficiency, a VA loan can be taken out to improve a home at the same time the home is purchased. It is also possible for a veteran to obtain VA guaranty on a loan for a manufactured home and lot.

The Department of Veterans Affairs (VA) has helped provide beneficial terms on home loans to more than 18 million veterans. The VA does not loan the money itself, but, by guaranteeing the loan,encourages the lender to relax interest rates and fees for those who have served their country in the Armed Forces. The limitations of the program are based on the amount of the loan, and the active duty service of the individual. It is speculated that the number of VA-backed loans has underwritten the home mortgage industry as a whole to some extent, and helped create more beneficial terms for all buyers.

The VA loan programs are designed to compensate individuals for their service to the country, but do not necessarily help those individuals meet specific economic or social goals. Thus, a veteran who already qualifies as a buyer may receive better rates or terms on the basis of the VA guaranty, but a homeless veteran with little or no assets will be no closer to buying a home. It is possible, though, that some marginal buyers could become qualified to own a home with the VA guaranty as the deciding factor.

The primary eligibility for a VA loan is qualifying service in the military, with the terms of qualification varying according to the time and nature of the service. Ninety days on active duty during wartime in WWII, Korea, Vietnam or the Persian Gulf qualifies, provided the veteran was discharged in other than dishonorable conditions. During peacetime periods, a veteran must have served in at least 181 days of continuous active duty to qualify.

To obtain a VA loan, a veteran must first obtain a certificate of eligibility by applying to the Department of Veterans Affairs. Second, he should find a home and enter into a purchase agreement with the seller. Then, the home must be appraised by the VA, though the primary lender will probably conduct the appraisal on its behalf and report the results. Afterward, the veteran buyer can apply for a VA guaranteed loan through his commercial lender. Finally, the buyer accepts a loan offer and takes possession of the home.

The U.S. Department of Veterans Affairs has long guaranteed home loans made to qualifying veterans of the Armed Forces. On October 10, 2008, the President signed the Veterans' Benefits Improvement Act which updated the VA Loan program to meet the realities of the then escalating housing market collapse and general credit crunch. The new law authorized the VA to guarantee adjustable rate mortgages (ARMs) through September 30, 2012, and extended the temporary increase to the maximum guaranty to $1,094,625 through December 31, 2011. Finally, the law raised the limit on cash-out refinance loans to as much as 100 percent of the appraised value of the home.

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