The Veterans Administration (VA) will guarantee certain owner occupied residential loans made by banks or other lenders. Investors and flippers need not apply.
The guarantee is limited to qualified veterans, up to a maximum guarantee amount of $50,750. The Veterans Administration does not actually loan the money directly. Most lenders require that the VA guarantee, along with a down payment from the buyer, equal at least 25% of the value, or purchase price, whichever is less, of the home.
The eligibility rules for length of service are rather complicated and range from ninety days to six years, depending on the circumstances, timing, whether it is war time or peace time, and the borrower’s status as active duty, member of the National Guard, etc. For more information, contact the Veterans Administration at www.va.gov or 1-800-827-1000.
With a VA guarantee, lenders can approve somewhat riskier loans at lower interest rates and with little or no down payment. In addition, borrowers can qualify, even though up to 41% of their income is used for debt service. This is higher than typical underwriting requirements for non-VA loans.
The borrower must live in the home and not use it for rental income, be a satisfactory credit risk (under lenient VA guidelines), and have a stable source of income. In order to obtain the guarantee, the veteran will usually have to pay a 2% fee, and eligible Reserve/National Guard members will have to pay a 2.75% fee. These fees can be reduced by paying a down payment; any lender or broker can help you with the details.
You will need a Certificate of Eligibility to qualify for a VA guarantee. If you do not already have one, it can be obtained from your local VA office by completing VA Form 26-1880, Request for a Certificate of Eligibility. You will also need a VA appraisal, called a certificate of reasonable value (CRV). The lender usually orders one.
Otherwise, the process is pretty much the same as it is for any other loan, except that you must advise your lender that you want a VA guarantee.