Rules of a VA Mortgage

By Mark Kennan

One of the programs run by the U.S. Department of Veterans Affairs (VA) is the home loan program, which helps veterans get approved for mortgages with little or no down payment. The Department of Veterans Affairs does not issue the mortgages; instead, it guarantees a portion of the mortgage which makes the loan less risky for the lender.

In order to qualify for a VA loan, you must meet the minimum time in service requirements. If you were enlisted and served before Sept. 7, 1980 or were an officer serving before Oct. 16, 1981, you must have served at least 90 days during wartime on active duty or served at least 180 days during peacetime. If you served after these dates, you must have served for 24 months or the full time that you were called to active duty, unless you were discharged with a disability related to your service. In addition, you cannot have been dishonorably discharged.

Any size mortgage can be a VA mortgage. However, the VA only backs a mortgage up to 25 percent of the maximum amount for the county the home is located in. The maximum amount adjusts each year and varies between counties. For most counties in 2010, the limit is 25 percent up to $417,000. The limit in some counties is as high as 25 percent of over $1 million.

VA loans do not require a down payment, which can help veterans get a mortgage if they have little or no savings. VA loan rules also allow the seller to pay closing costs and the VA funding fee. The VA funding fee is a one-time charge, ranging from 0.5 to 3.3 percent of the loan, depending on the size of the down payment and whether the borrower has used VA loans in the past. However, the Department of Veterans Affairs allows this fee to be added to the amount of the mortgage.

In order to be approved for a VA loan, you must obtain a Certificate of Eligibility. to do so, complete VA form 26-1880 and mail it, along with a photocopy of your proof of service, to the Winston-Salem Eligibility Center. Proof of service depends on whether you are an active service member or if you have been discharged. For those still on active duty, you need an original statement of duty with your name, social security number, date of entry on your current active duty period and any period of time you were not serving. Those who have already been discharged use DD Form 214. Your proof of service can be obtained by filing Standard form 180. You can also apply online at the Veterans Information Portal (see Resources). Your lender may also be able to obtain a Certificate of Eligibility on your behalf through the Web LGY system, but according to the Department of Veterans Affairs, the system does not have enough records on every service person to guarantee that all veterans will be documented.

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