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How Veterans Administration Loans (VA Loans) Work

Mar 14, 2008
The United States Department of Veterans Affairs provides a loan guarantee service to honorably discharged veterans of the United States military. Essentially, any serviceman or their surviving spouse is eligible for 100% financing without a down payment or mortgage insurance or 90% refinancing on an existing home.

How exactly does a VA loan work?

The VA loan isn't issued by Veterans Affairs. Instead, the loans are issued by private lenders like banks and mortgage companies, but insured by VA. This means that if you default on your loan, Veterans Affairs will guarantee or secure it. This often translates to lower down payment requirements and eligible interest rates.

What else does the VA loan program do?

The Veterans Affairs loan program also provides pre-purchase counseling. VA officers will sit down with you and your families and go through the process of purchasing and owning a home, obtaining financing and basically understanding the home ownership process.

Does entitlement to a VA loan guarantee a mortgage?

Unfortunately, no it doesn't. Veterans Affairs can't force a lender to issue you a home loan, but it can help to make you a more attractive recipient. You still must meet basic credit and income requirements. But if a lender is concerned, for example, about a veteran's poor credit history, the loan can still be denied or offered at a higher interest rate.

How much are veterans entitled to under the VA loans program?

The bare-bones, basic entitlement is $36,000, but this varies depending on region, median home prices and the amount required. While the amount changes yearly, the limit for the continental U.S. in 2008 was $417,000. Consequently, a qualified veteran could obtain a no down-payment mortgage for an amount up to $417,000.

What do I need to get a VA loan?

You need a Certificate of Eligibility. You can get one either from your lender or the Department of Veterans Affairs. Most recent veterans' information is stored in an online database known as ACE (Automated Certificate of Eligibility), so lenders can access this database to find out if a borrower has a certificate.

How do I get a VA loan?

First you need to select a home and sign a purchase contract that's dependant on you receiving a VA home loan. Next, you should choose a lender and complete a loan application with your Certificate of Eligibility. The lender will then contact Veterans Affairs to assign an appraiser to determine the market value of the home.

Once a Certificate of Reasonable Value has been issued on the home, your lender will let you know that you've been approved for your loan. At that time, you'll attend the closing where the lender or its attorney will explain the terms of the loan to you, and you will sign the loan agreement. After the signing, the loan is sent to Veterans Affairs for guaranty, at which point your Certificate of Entitlement is annotated and sent back to you. Finally, once all appropriate approval has taken place and paperwork is signed, you move in.
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