VA Mortgage
- ZERO down payment purchase program
- Forgiving credit requirements
- Administered by the Department of Veterans Affairs
What is a VA Mortgage?
A mortgage loan in the US that is backed by the U.S. Department of Veterans Affairs (VA) is commonly referred to as a VA loan or a Veteran's Mortgage Loan. Only qualified lenders can issue a VA Mortgage. This loan type was intended to support the long term financing needs of military veterans in the United States and their surviving spouses where standard financing may be too expensive or unavailable.
The VA Mortgage is notable because it does not require a down payment and is available in areas that are less likely to offer conventional mortgage financing such as credit shortage areas, rural cities and towns or bedroom communities of large cities in that require long commutes.
Veterans can Borrow More Money
The VA mortgage also allows for increased loan amounts (up to 102.15% financing) and do not require mortgage insurance or twenty percent down payments. Other benefits include up to $6,000 in allowances for energy efficient improvements to a home. VA mortgage loans levy a 0% - 3.15% funding fee that is paid to the Veterans Administration which is generally amortized into the loan amount.
VA Mortgage Allow for Higher Payment to Income Ratios
A conforming traditional Fannie Mae mortgage allows a mortgage payment to only be 28% of the monthly income but a VA Mortgage is authorized to be as much as 41% of the veteran's monthly income (without taking into account monthly bills).
Maximum Loan Amounts for a VA Mortgage
Every county has different maximum VA Mortgage Guarantees but as a general rule the maximum qualifying VA Mortgage is $417,000. Some counties allow for higher loan limits where veterans live in areas that have higher costs of living which can go as high as $1,094,625.
The Seller Can Pay 100% of the Closing Costs
In situations where the closing costs are not higher than 6% of the sale price of the home, the seller is allowed to pay all of the closing costs for a VA mortgage.
The Origin of the VA Mortgage
In 1944, the US Congress authorized the Servicemen's Readjustment Act or the GI Bill which allowed the Veteran's Administration to provide insurance guarantees on mortgages issued to military veterans and their surviving spouses. These loans can be used to purchase homes, farm residences, or renovations and repairs. The Veterans Housing Act was passed in 1970 which allowed the VA to guarantee mortgages on mobile homes and removed termination dates for applying for VA loans. In 1978 the Veterans Housing Benefits Improvement Act expanded the program and its benefits to even more military veterans. In 1992 the VA mortgage loan program was expanded to more military vets outside of the traditional active duty eligibility including members of the military reserve and the National Guard. While there are still minimum terms of service (generally 6 years) and slightly higher fees for non active duty veterans, many more military servicemen and women can now apply for VA mortgage loans.
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