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VA Loans

What is a VA Loan

A Veterans Affairs (VA) loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs and issued by qualified lenders.

The VA loan was designed to offer long-term financing to eligible American veterans or their spouses (provided they do not remarry). The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available, as well as to help veterans purchase properties with no down payment. Eligible areas are designated by the Department of Veterans Affairs as housing credit shortage areas, and are generally rural areas and small cities and towns not near metropolitan or commuting areas of large cities.

The VA loan allows veterans 103.15% financing without private mortgage insurance or a 20% second mortgage and up to $6,000 for energy efficient improvements. A VA funding fee of 0-3.15% of the loan amount is paid or financed to the Department of Veterans Affairs. In a purchase, veterans may borrow up to 103.15% of the sales price or reasonable value of the home, whichever is less. Since there is no monthly private mortgage insurance (PMI), more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment. In a refinance, where a new VA loan is created, veterans may borrow up to 90% of reasonable value, where allowed by state laws. In a refinance where the loan is a VA loan refinancing to VA loan (IRRRL Refinance), the veteran may borrow up to 100.5% of the total loan amount. The additional .5% is the funding fee for an VA Interest
Rate Reduction Refinance.

VA loans allow veterans to qualify for loans amounts larger than traditional Fannie Mae/conforming loans. The Department of Veterans Affairs will insure a mortgage where the monthly payment of the loan is up to 41% of the gross monthly income vs. 28% for a conforming loan, assuming the veteran has no monthly bills.

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