VA mortgage loan

What’s a VA mortgage loan?

A VA mortgage loan is a mortgage loan guaranteed by the United States Department of Veteran Affairs (VA).

The VA mortgage loan exist to make it easier for U.S. Military veterans to obtain mortgage loans. Also, with a VA mortgage loan, the borrower doesn’t have to obtain the down payment from another source (saved up money, unsecured debt, etc).

Do I borrow the money directly from the VA?

va loanNormally, the borrower will not borrow the money from the Department of Veteran Affairs (VA). Instead, the loan is issued by a private lender – such as a bank – and the VA only helps out by making the loan less risky for the lender.

In certain areas of the United States however, the VA is permitted to lend money.

What can I borrow money for?

A VA mortgage loan can be used to purchase, construct or improve/repair/alter a home or farm residence. This includes mobile homes, even though such loans are strictly speaking not mortgage loans since they aren’t secured by real property.

Can I borrow money to cover the down payment?

Yes, as stated above, the down payment can be included in your VA mortgage loan. This makes the VA mortgage loan different from most other mortgage loans.

What’s the mandatory funding fee?

When you obtain a VA mortgage loan, you must pay a funding fee of 3.3%.

Exception: A veteran receiving at least 10% VA disability is exempt from paying the funding fee.

Can I borrow money to cover the mandatory funding fee?

Yes, it is possible to borrow money to cover the mandatory funding fee for the VA mortgage loan.

You can borrow 103.3% of the purchase price (or reasonable value) which means that you can borrow enough to cover down payment + the rest of the purchase price + funding fee.

Can I borrow money to cover closing costs?

No, closing costs can not be included in the VA mortgage loan. You must obtain money to pay for the closing costs from some other source, e.g. saved up money or unsecured debt.

It is important to remember that becoming a home owner can involve substantial closing costs. You might for instance have to pay surveying, title search, title insurance, appraisal, credit report, transfer fee, transfer tax and recording fee.

Who can be eligible for a VA mortgage loan?

  • A United States military veteran that fulfills certain requirements.
  • Reservists and National Guard personnel who has served honorably for a minimum of six years and fulfill the other requirements.
  • In some circumstances, the surviving spouse of a qualifying person.

How much money can I borrow?

There are two general caps that limit how large a VA guaranteed mortgage loan can be: the area cap and the individual cap.

The area cap makes it impossible to obtain a VA guaranteed mortgage loan for an exceptionally expensive home in the area where the home is located. Since what’s considered a normal price for a home varies significantly from one area to another, the max size of the loan will vary accordingly depending on the area. This cap is based on market prices.

The individual cap states that a VA guaranteed mortgage loan can be no larger than 103.3% of the purchase price or reasonable value (whichever is less).

How do I apply for a VA mortgage loan?

You apply using the form 1003 issued by Fannie Mae (the Freddie Mac Form 65).

You will be required to send in certain documentation together with the form, such as your two most recent pay stubs, your DD214 (or Certificate of Guarantee) and your W2 statements for the two most recent years. Assets must also be declared, including real estate, savings, securities, and more. If you are self-employed, two years of consecutive tax returns should accompany the application in addition to the rest of the required documentation.

You can find more detailed information about the application process by contacting the U.S. Department of Veteran Affairs.

This article was last updated on: February 12, 2018