National Guard members and reservists are eligible for a VA home loan if they have completed at least six years of honorable service, are mobilized for active duty service for a period of at least 90 days, or are discharged because of a service—connected disability. Reservists who do not qualify for VA housing loan benefits may be eligible for loans on favorable terms insured by the Federal Housing Administration (FHA), part of HUD.
VA home loan guaranties are issued to help eligible Servicemembers, Veterans, Reservist and certain unmarried surviving spouses obtain homes, condominiums, residential cooperative housing units, and manufactured homes, and to refinance loans. For additional information or to obtain VA loan guaranty forms, visit homeloans.va.gov/.
Loan Uses: A VA guaranty helps protect lenders from loss if the borrower fails to repay the loan. It can be used to obtain a loan to:
1. Buy or build a home.
2. Buy a residential condominium unit.
3. Buy a residential cooperative housing unit.
4. Repair, alter, or improve a residence owned by the Veteran and occupied as a home.
5. Refinance an existing home loan.
6. Buy a manufactured home and/or lot.
7. Install a solar heating or cooling system or other energy-efficient improvements.
Eligibility: In addition to the periods of eligibility and conditions of service requirements, applicants must have a good credit rating, sufficient income, a valid Certificate of Eligibility (COE), and agree to live in the property in order to be approved by a lender for a VA home loan.
A COE can be obtained either directly from the VA Eligibility Center (in hard-copy form), or electronically, either through your lender, or by applying online at VA’s COE website.
In applying for a hard-copy COE from the VA Eligibility Center, it is typically necessary that the eligible Veteran present a copy of his/ her report of discharge or DD Form 2I4 Certificate of Release or Discharge From Active Duty or other adequate substitute evidence to the VA. An eligible active duty Servicemember should obtain and submit to the VA Eligibility Center a statement of service signed by an appropriate military official.
Please note that while VA’s Internet-based system can establish eligibility and issue an online COE in a matter of seconds, not all cases can be processed online. The system can only process those cases for which VA has sufficient data in their records.
However, Veterans and Servicemembers are encouraged to apply online before seeking a hard-copy COE from the VA Eligibility Center. For more information, or to apply for a COE online.
Periods of Eligibility: World War II: (1) active duty service after Sept.15, 1940, and prior to July 26, 1947; (2) discharge under other than dishonorable conditions; and (3) at least 90 days total service unless discharged early for a service-connected disability.
Post-World War Il period: (1) active duty service after July 25, 1947, and prior to June 27, 1950; (2) discharge under other than dishonorable conditions; and (3) 181 days continuous active duty service unless discharged early for a service-connected disability.
Korean War: (1) active duty after June 26, 1950, and prior to Feb. 1, 1955; (2) discharge under other than dishonorable conditions; and (3) at least 90 days total service, unless discharged early for a service-connected disability.
Post-Korean War period: (1) active duty after Jan. 31, 1955, and prior to Aug. 5, 1964; (2) discharge under other than dishonorable conditions; (3) 181 days continuous service, unless discharged early for a service-connected disability.
Vietnam War: (1) active duty after Aug. 4, 1964, and prior to May 8, 1975; (2) discharge under other than dishonorable conditions; and (3) 90 days total service, unless discharged early for a service connected disability. For veterans who served in the Republic of Vietnam, the beginning date is Feb. 28, 1961.
Post-Vietnam period: (1) active duty after May 7, 1975, and prior to Aug. 2, 1990; (2) active duty for 181 continuous days, all of which occurred after May 7, 1975; and (3) discharge under conditions other than dishonorable or early discharge for service-connected disability.
24-Month Rule: lf service was between Sept. 8, 1980, (Oct. 16, 1981, for officers) and Aug. 1, 1990, Veterans must generally complete 24 months of continuous active duty service or the full period (at least 181 days) for which they were called or ordered to active duty, and be discharged under conditions other than dishonorable.
Exceptions are allowed if the Veteran completed at least 181 days of active duty service but was discharged earlier than 24 months for (1) hardship, (2) the convenience of the government, (3) reduction-in-force, (4) certain medical conditions, or (5) service-connected disability.
Gulf War: Veterans of the Gulf War era -- Aug. 2, 1990 to a date to be determined -- must generally complete 24 months of continuous active duty service or the full period (at least 90 days) for which they were called to active duty, and be discharged under other than dishonorable conditions.
Exceptions are allowed if the Veteran completed at least 90 days of active duty but was discharged earlier than 24 months for (1) hardship, (2) the convenience ofthe government, (3) reduction-in-force, (4) certain medical conditions, or (5) service-connected disability.
Reservists and National Guard members are eligible if they were activated after Aug. 1, 1990, served at least 90 days, and received an honorable discharge.
Active Duty Personnel: Until the Gulf War era is ended, persons on active duty are eligible after serving 90 continuous days.
Surviving Spouses: Some spouses of Veterans may have home loan eligibility. They are:
• the unmarried surviving spouse of a Veteran who died as a result of service or service-connected causes;
• the surviving spouse of a Veteran who dies on active duty or from service-connected causes, who remarries on or after attaining age 57 and on or after December 16, 2003;
• and the spouse of an active duty member who is listed as missing in action (MIA) or a prisoner of war (POW) for at least 90 days.
An eligible borrower can use a VA-guaranteed Interest Rate Reduction Refinancing Loan to refinance an existing VA loan to lower the interest rate and payment. Typically, no credit underwriting is required for this type of loan. The loan may include the entire outstanding balance of the prior loan, the costs of energy-efficient improvements, as well as closing costs, including up to two discount points. An eligible borrower who wishes to obtain a VA-guaranteed loan to purchase a manufactured home or lot can borrow up to 95 percent of the home’s purchase price. The amount the VA will guarantee on a manufactured home loan is 40 percent of the loan amount or the veteran’s available entitlement, up to a maximum amount of $20,000. These provisions apply only to a manufactured home that will not be placed on a permanent foundation.
VA Appraisals: No loan can be guaranteed by the VA without first being appraised by a VA-assigned fee appraiser. A lender can request a VA appraisal through the VA systems. The Veteran borrower typically pays for the appraisal upon completion, according to a fee schedule approved by the VA. This VA appraisal estimates the value of the property. It is not an inspection and does not guarantee the house is free of defects. The VA guarantees the loan, not the condition of the property. A thorough inspection of the property by you or a reputable inspection firm may help minimize any problems that could arise after loan closing. In an existing home, particular attention should be given to plumbing, heating, electrical, and roofing components.
Closing Costs: For purchase home loans, payment in cash is required on all closing costs, including title search and recording fees, hazard insurance premiums and prepaid taxes. For refinancing loans, all such costs may be included in the loan, as long as the total loan does not exceed the reasonable value of the property. Interest rate reduction loans may include closing costs, including a maximum of two discount points.
All Veterans, except those receiving VA disability compensation, those who are rated by the VA as eligible to receive compensation as a result of pre-discharge disability examination and rating, and unmarried surviving spouses of veterans who died in service or as a result of a service—connected disability, are charged a VA funding fee. For all types of loans, the loan amount may include this funding fee.
Required Occupancy: To qualify for a VA home loan, a Veteran or the spouse of an active duty Servicemember must certify that he or she intends to occupy the home. When refinancing a VA—guaranteed loan solely to reduce the interest rate, a Veteran need only certify to prior occupancy.
Financing, Interest Rates and Terms: Veterans obtain VA—guaranteed loans through the usual lending institutions, including banks, credit unions, and mortgage brokers. VA—guaranteed loans can have either a fixed interest rate or an adjustable rate, where the interest rate may adjust up to one percent annually and up to five percent over the life of the loan. The VA does not set the interest rate. Interest rates are negotiable between the lender and borrower on all loan types.
Veterans may also choose a different type of adjustable rate mortgage called a hybrid ARM, where the initial interest rate remains fixed for three to 10 years. If the rate remains fixed for less than five years, the rate adjustment cannot be more than one percent annually and five percent over the life of the loan. For a hybrid ARM with an initial fixed period of five years or more, the initial adjustment may be up to two percent. The Secretary has the authority to determine annual adjustments thereafter. Currently annual adjustments may be up to two percentage points and six percent over the life of the loan. If the lender charges discount points on the loan, the Veteran may negotiate with the seller as to who will pay points or if they will be split between buyer and seller. Points paid by the veteran may not be included in the loan (with the exception that up to two points may be included in interest rate reduction refinancing loans). The term of the loan may be for as long as 30 years and 32 days.
Loan Assumption Requirements and Liability: VA loans made on or after March 1, 1988, are not assumable without the prior approval of the VA or its authorized agent (usually the lender collecting the monthly payments). To approve the assumption, the lender must ensure that the borrower is a satisfactory credit risk and will assume all of the Veteran’s liabilities on the loan. If approved, the borrower will have to pay a funding fee that the lender sends to the VA, and the Veteran will be released from liability to the federal government.
A release of liability does not mean that a Veteran’s guaranty entitlement is restored. That occurs only if the borrower is an eligible Veteran who agrees to substitute his or her entitlement for that of the seller. If a Veteran allows assumption of a loan without prior approval, then the lender may demand immediate and full payment of the loan, and the Veteran may be liable if the loan is foreclosed and the VA has to pay a claim under the loan guaranty.
Loans made prior to March 1, 1988, are generally freely assumable, but Veterans should still request the VA’s approval in order to be released of liability. Veterans whose loans were closed after Dec. 31, 1989, usually have no liability to the government following a foreclosure, except in cases involving fraud, misrepresentation, or bad faith, such as allowing an unapproved assumption. However, for the entitlement to be restored, any loss suffered by the VA must be paid in full.
A funding fee must be paid to the VA unless the Veteran is exempt from such a fee because he or she receives VA disability compensation. The fee may be paid in cash or included in the loan. Closing costs such as the VA appraisal, credit report, loan processing fee, title search, title insurance, recording fees, transfer taxes, survey charges, or hazard insurance may not be included in the loan.