Define a VA Loan

By Cynthia Clark

Serving as a member of the U.S. military has its risks, so the federal government tries to provide services and benefits to help offset the stress and make military enlistment more appealing. Among benefits available in the Department of Veterans Affairs (VA) loan program for home buyers.

VA loans are benefits restricted to members of the active U.S. military and its veterans. However, the Department of Veterans Affairs notes additional persons who may be qualified in its Lenders Training Guide. Members of the National Guard and select reserves who "were called to active duty for at least 90 days during the Persian Gulf Era" may be eligible Additional individuals who may qualify for a VA home loan include non-married surviving spouses of veterans who died in service or from related disabilities.

VA loans are made through private lending institutions and mortgage companies. Each institution that offers VA loans is eligible for a guarantee from the Department of Veterans Affairs that if the loan were to go into foreclosure, the VA would purchase the home from the lender based on a qualifying percentage of the loan. This guarantee provides the lender with greater confidence in the loan application of the military member or veteran.

A military member may use a VA loan to purchase a home as a primary residence or refinance an existing mortgage. A participant is only eligible to have one VA loan at a time, but qualifies for new loans so long as the initial loan has been paid in full. VA loans are restricted to personal residences and may not be used for investment or business property.

As with most loans the military member must prove credit worthiness and reliable income in order to qualify for the VA loan through a lender. Credit scores and income of both the military member or veteran and their spouses are taken into consideration. The amount of a monthly payment considered affordable is based on a percentage of monthly income. An article on the MSN Money website notes that "the traditional limit, still used by many lenders, is 28 percent of gross monthly income," with others willing to lend more than 33 percent. Financial advisers such as Dave Ramsey prefer limiting the monthly payment to 25 percent or less of take-home pay or net income.

VALoans, a non-government website with information on VA loans, notes that the loans require no down payment unless required by the lender or the purchase price exceeds a reasonable value of the home. VALoans also notes "there is no maximum VA loan, but lenders will generally limit VA loans to $417,000."

For service members who move frequently, an assumable VA mortgage may be the key to help them sell their homes faster. Simply put, an assumable loan may be assumed or passed on to another individual when a home is sold instead of having to acquire a new mortgage. The buyer, who does not have to be a service member or veteran, will begin making payments on the mortgage after a few papers are filed with the required fees.

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