Thursday, September 18, 2014   

Home Loan Guarantee

The Department of Veterans Affairs (VA) will guarantee loans to be used for the following purposes:

  • To buy a home (including a townhouse or a condominium unit in a VA-approved project);
  • To build a new home;
  • To repair, alter, or improve an existing home
  • To refinance an existing loan (including an existing VA loan to reduce the interest rate);
  • To buy a manufactured (mobile) home and/or lot;
  • To buy and improve a lot on which to place an already-owned and -occupied mobile home; or
  • To refinance a mobile home loan in order to acquire a lot.

VA-guaranteed loans are not available to buy a farm (unless the farm includes a farm house which will be personally occupied by the veteran or eligible person as their home), or to buy a business. Financing for these may be obtained through the Farmers Home Administration and the Small Business Administration, respectively, both of which give preference to veterans.

Except as noted below, VA does not actually make the loan; rather, VA guarantees a percentage of the loan value, thereby reducing the risk to the lender. The actual amount of the guarantee will vary depending on the total amount of the loan, the value of the property involved, and whether the veteran or eligible person has previously used any of his or her loan guaranty entitlement. The amount of the loan may not exceed the reasonable value of the property; the maximum amount of the guarantee will be 25% of the Freddie Mac (Federal Home Loan Mortgage Corporation) conforming loan limit limitation for a single-family residence, as adjusted (for the year involved). If both spouses are veterans and each has loan guaranty entitlement available, their separate entitlements may be combined to obtain a greater guaranty amount.

VA will make direct loans under certain circumstances to eligible Native American veterans to buy, build, or improve a home on Native American trust (tribal) lands. The maximum loan in this case is $80,000 or the actual cost of the home, whichever is less. VA may also make direct loans to eligible disabled veterans who qualify for the Special Adapted Housing grant, to help cover the difference between the amount of the grant and the cost of the housing unit. In this case, the maximum loan is $48,000.

The veteran or other eligible person must meet all of the credit-worthiness and the other usual and customary requirements of the lending institution, as well as making the down payment (if any) and paying the normal and reasonable closing costs. There is also a funding fee, which may be either paid separately or included in the loan; this fee varies according to the amount of down payment made. If the veteran is in receipt of service-connected disability compensation or is entitled to compensation but for the receipt of military retired pay, the funding fee is waived. Interest rates are negotiable. The length of the mortgage and repayment plan depends on the specifics of the loan, including the amount and purpose and the particular lender. In general, the maximum length of the loan term is 30 years and 32 days; the repayment plan may be a fixed-payment, a graduated payment, a "buy-down," or a growing equity mortgage plan. If the loan is to build a new home, VA will require the builder to offer a warranty against construction defects; however, VA has no enforcement authority in such cases except to suspend the builder from future participation in the Loan Guaranty program.

To receive the VA's Home Loan Guaranty, you must apply for a Certificate of Eligibility by completing VA Form 26-1880.

VA Eligibility Center Address and Telephone Number

Please send your request for determination of Eligibility (VA Form 26-1880), along with proof of military service (copy of your DD-214) to:

VA Loan Eligibility Center
PO Box 20729
Winston-Salem, NC 27120

For overnight delivery:

VA Loan Eligibility Center
251 N. Main Street
Winston-Salem, NC 27155

The toll free telephone line to the Eligibility Center in Winston-Salem is 1-888-244-6711. This phone line is the VA's National Automated Response System. Accordingly, callers are now provided a menu of information regarding the guaranteed home loan program and may exercise options from that menu which allow them to speak to VA Eligibility Personnel. Currently, the most direct route through the menu for those program participants who wish to speak to Eligibility personnel includes menu selections in the following order:

(1) - Touchtone phone
(1) - Eligibility
(2) - Status

Once the VA makes the determination of eligibility and entitlement and you are approved, they will issue you a Certificate of Eligibility.

When you receive the Certificate of Eligibility, present it to the lending institution when applying for the loan.

There are no time limits for using your Loan Guaranty entitlement.

Qualifying service for a Certificate of Eligibility -

  • Veterans who served during any wartime period from World War II or later, (except for the Persian Gulf Conflict) must have served at least 90 days of active duty and have been discharged under honorable conditions.
  • Veterans whose service was entirely during peacetime periods, must have served at least 181 days of continuous active duty and have been discharged under honorable conditions.
  • In both cases, if service was less than the minimum specified time, but the veteran was discharged because of a service-connected disability, the veteran may still be eligible for benefits.
  • Veterans whose service began after September 7, 1980 (if enlisted) or after October 16, 1981 (if an officer) and ended before August 1, 1990 must have completed 24 continuous months of active duty or the full period for which called or ordered to active duty, and have been discharged under honorable conditions.
  • Eligibility may still exist if the veteran served less than the specified length of time, but was discharged because of a service-connected disability; or served at least 20 months and was discharged for the convenience of the Government; or served at least 181 days and was discharged because of hardship or reduction in force; or has been determined to have a service-connected disability of compensable severity.
  • Veterans who served during the Gulf War (beginning August 2, 1990), have the same 24 month length of service requirement; however, the exceptions only require 90 days of active duty rather than 181 days.
  • Current active duty service members require 90 days of continuous active service for eligibility.
  • Certain members of the Selected Reserve and National Guard who are not otherwise eligible for Loan Guaranty benefits, who have served at least 6 years in the Reserves or National Guard and who continue to serve in the Selected Reserve, or have been discharged under honorable conditions, or have been discharged because of a service-connected disability, or have been placed on the retired list, or have been transferred to an element of the Ready Reserves other than the Selected Reserve, are eligible for VA Loan Guaranty benefits.