What is a VA Loan?

Posted by Laine Smith on 11/15/13 10:57 AM

Topics: Home Buying

Veterans and military families make many sacrifices to keep our country safe. Veterans are still able to benefit from a loan program created almost 70 years ago to honor their service and help them achieve a large part of the American dream: homeownership.

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The VA Loan was established in 1944 when the GI Bill was signed into law by Franklin D. Roosevelt. The program was built to help servicemen who had missed an opportunity to build credit and a financial reserve while away at war.

The VA’s mission to level the playing field in the housing market for veterans is still at the heart of the program today. According to the Department of Veterans Affairs, in the 2012 fiscal year, the VA backed approximately 540,000 loans, averaging $220,000 per transaction and amounting to more than $119 billion nationwide.

The Benefits

The ability to purchase without a down payment tends to be the most attractive benefit of a VA loan. Nine out of 10 VA borrowers purchase without a down payment. Servicemen and women can also benefit from:

  • No mortgage insurance premiums
  • Right to prepay without penalty
  • Closing costs comparable to other financing options
  • Lower interest rates, in many cases

An additional advantage of financing with a VA loan is the security. Prudent underwriting guides the VA’s mission of helping veterans not only purchase but maintain their mortgage. Income requirements give lenders and the VA a greater sense of what a borrower can afford. The VA also has resources for servicemen and women facing foreclosure.


To be eligible for a VA-guaranteed loan, you must meet credit and income standards and provide a valid Certificate of Eligibility (COE). To obtain a COE, you must have been honorably discharged and meet certain service requirements.

You may be eligible for a VA loan if any of the following apply:

  • You served 181 days during peacetime (active duty)
  • You served 90 days during wartime (active duty)
  • You served 6 years in the Reserves or National Guard
  • You are the spouse of a service member who died in the line of duty or because of a service-connected disability

Using a VA Loan

VA offers three home loan programs for eligible active duty service member, veterans, National Guard members, Reserve members and certain surviving spouses:

Purchase Loan. A purchase loan can be used to buy a home or residential condominium, build a home, simultaneously purchase and improve a home, or buy a manufactured home to be permanently affixed to a lot.

Streamline Refinance Loan. The VA Streamline allows the borrower to obtain a lower interest rate by refinancing an existing VA loan. Borrowers also have the capability of refinancing a VA adjustable rate mortgage into a fixed rate mortgage.

Cash-Out Refinance Loan. This loan is used to cash out home equity to pay for other debt, such as home improvements or school tuition. A cash-out refinance can also be used to refinance a non-VA loan into a VA loan. VA will guaranty loans up to 100% of the value of your home.

Though the VA does not set restrictions on how much you can borrow for home financing, there are limits on the amount of liability VA can assume. This usually affects the amount an institution will lend you. To view the limits set in your county, visit www.benefits.va.gov/homeloans or call Compass Mortgage today to learn more!

Interested in learning more about home loans and the home buying process? Download the ultimate guide for first-time homebuyers, our Mortgage 101 Handbook.

Download: Mortgage 101 Handbook

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