A VA loan is a mortgage home loan guaranteed by the U.S. Department of Veterans Affairs (VA). This type of loan is only issued by qualified lenders like Veterans Mortgage of AmericaTM. Since its inception in the 1940’s, the VA Loan Program has helped more than 20 million Veterans and their families purchase an affordable home with distinct advantages to traditional mortgage lending options.
The VA loan allows veterans to acquire 100% financing with a zero down payment, without private mortgage insurance (PMI), and with an energy credit of up to $6,000. A standard conventional loan (Fannie Mae/Freddie Mac) requires a minimum down payment of 20% to avoid paying for PMI. Since a VA loan has no monthly PMI, the veteran can qualify for a larger purchase and a lower payment than conventional type financing would offer. The Department of Veterans Affairs does require a funding fee on all VA loans unless you are exempt from this fee which will be reflected on your certificate of eligibility (COE). This funding fee can range from 2.15% for first time use to 3.30% for subsequent use and is payable to the VA on a purchase or cash out refinance. On a VA interest rate reduction refinance loan (IRRRL) the VA funding fee is .5% and is financed in the loan amount.
To get an idea of what this looks like in real world numbers, see the table below:
| Mortgage Amount | 0% Down | 5% Down | 10% Down | 20% Down |
| $100,000 | $0 | $5,000 | $10,000 | $20,000 |
| $175,000 | $0 | $8,750 | $17,500 | $35,000 |
| $250,000 | $0 | $12,500 | $25,000 | $50,000 |
On a purchase, the funding fee can be rolled into your loan up to 103.3% loan to value (LTV) of the purchase price. In a cash out refinance (conventional loan being paid off by a new VA loan), the veteran is allowed up to 100% loan to value (LTV) and unlimited combined loan to value (CLTV) when there is a second mortgage needing to subordinate. With conventional type loans, the borrower is limited to 80% (LTV). With a VA interest rate reduction refinance loan (IRRRL) (refinancing a VA loan to reduce your interest rate and payment), there is no income required or appraisal. The VA funding on an IRRRL is .5% and is rolled into your loan amount.
The VA will guaranty a loan with an income to debt ratio of up to 65% or less of the veteran’s gross monthly income vs. 44% on conventional type loans. This includes all of the veterans’ obligations reflected in their total mortgage payment and on their credit report.
The maximum VA loan guarantee is determined by the veteran’s certificate of eligibility (COE) and county limits. Since January 2020, VA no longer has a maximum guaranty amount and can guaranty up to 25% of the qualifying loan amount for Veterans with no previously used and outstanding entitlement.
VA Loan History
The Servicemen’s Readjustment Act passed in 1944 has helped eligible veterans, active-duty personnel, National Guard Reserve members and their eligible surviving spouses achieve affordable home ownership. VA loans are mortgage loans guaranteed by the U.S. Department of Veterans Affairs which are granted by private lenders.
No Down Payment Qualified veterans may purchase a home with a zero percent down payment compared to up to 20 percent required in a traditional loan.
No Private Mortgage Insurance The VA loan allows veterans 103.3 percent financing without Private Mortgage Insurance. With no monthly PMI, more of the mortgage payment goes towards paying down the loan amount.
Qualifying VA loans allow veterans to qualify for larger loan amounts. The program is available to veterans who meet the minimum days of service depending on type of service. The VA does not require a minimum credit score to pre-qualify. A veteran who has used the program to buy a house may use any remaining entitlement balance towards another purchase.
Interest Rates The government issued guaranty means more competitive interest rates compared to traditional loans. VA interest rates are about .5% to 1% lower than conventional type financing.
Funding Fee A funding fee must be paid to theVA to keep the program running. The funding fee varies by person but borrowers can roll the funding fee into their loan amount.
*Veterans receiving a minimum of $1.00 in VA disability compensation are exempt from the funding fee.
