VA Mortgage Loans: Do You Qualify?

The Veterans Administration mortgage loan program offers several benefits to qualified military personnel looking to buy a home. VA loans offer no down payment and low closing costs among other benefits.

The Veterans Administration mortgage loan program was created in 1944 as part of what became known as the GI Bill of Rights. The goal of the program was to help returning war veterans become home owners.

The key to the success of the program was that no down payment was required. This allowed veterans returning from the war to purchase homes almost immediately, without having to save for a down payment. While some of the specifics of the program have changed over the years, VA loans are still insured by the government against default, and still offer no down payment or private mortgage insurance. Read more on Choosing a Mortgage Loan.

Here are some other benefits of VA loans:

• No prepayment penalties;
• Insured against default by the United States government;
• Lower closing costs.

Another benefit of a VA loan is the ability to apply for an interest-rate reduction loan. Offered by the VA as part of the Streamline Refinancing Program, this loan allows veterans to refinance to a lower rate with little or no out-of-pocket expenses. Read Should I Refinance My Mortgage Loan? for more details on refinancing.

VA loans are not actually provided by the federal government; rather, the government insures loans provided by private lenders. VA-insured loans are open to active military personnel, veterans, reservists, members of the National Guard, and unmarried spouses of a qualifying member of the armed forces who died as a result of serving in the military, who meet the following qualifications:

• Veterans must have served a minimum of 90 days during wartime in World War II, the Korean Conflict, or the Vietnam War. Peacetime service requires at least 181 continuous days of military service.
• Enlisted veterans who began their service after September 7, 1980, or officers who began their service after October 16, 1981, must have served at least two years.
• National Guard or Reservists need to have served a minimum of six years.
• No one who has been dishonorably discharged is eligible.

There are additional criteria for military personnel who have served in Afghanistan and Iraq. See the VA's home loan eligibility page for more information.

Before you start shopping for a VA loan, you'll need a DD214 form, which certifies your veteran status. You will also need all the other information you'd need when applying for a loan, including your Social Security number, gross monthly salary, bank account information, and other pertinent details.

The maximum guarantee authorized by the VA is 25 percent of the loan amount up to $104,250. The maximum VA home loan is $417,000. The maximum guarantee in Hawaii and Alaska is 25 percent of the loan amount up to $156,375. The maximum VA home loan in these states is $625,500.

While there are closing costs, some fees are negated for veterans, including settlement fees, document-preparation fees, attorney's services for non-title work, and escrow fees, among others.

You'll negotiate the interest rate and the other details of the loan directly with your lender. Since VA loans are insured by the government, lenders may be willing to concede in certain areas. But it still pays to shop around.

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