The VA Loan program started 1944 as part of the original Servicemen’s Readjustment Act also known as the GI Bill. The GI Bill was signed into law by Roosevelt and provided veterans with a federally guaranteed home loan that did not require a down payment. This feature allowed the dream of home ownership to become a reality for millions of veterans. The GI Bill contributed more than any other program in history to the welfare of veterans and their families.
With more than 22 million veterans and service personnel eligible for a VA loan, it is attractive and has many advantages over other loan programs. The requirement for eligibility varies depending on when the veteran served in the military.
- For those that served during wartime the requirement is for 90 days of service and 180 days of service for those that served during peace time.
- There is a two-year requirement if the service member joined and began service after September 7, 1980 or was an officer and began service after October 16, 1981.
- The requirement is for 6 years of service for Reservist and members of the National Guard.
VA loans will allow you to purchase a home with no down payment up to the VA county loan limit for your area. However, if you purchase a home that is priced greater than the VA county loan limit, there is formula that calculates the required down payment to be roughly 25% of the amount that is over the county loan limit.
The current standard VA loan limit is $417,000. Thus if you purchased a home with a VA loan for $517,000, the purchase price would be $100,000 over the county loan limit and your down payment requirement would be roughly $100,000.
VA loans also allow the seller to pay most, if not all of the buyer’s closing cost. This coupled with the no down payment requirement often allows the veteran to purchase a home with virtually no money out of pocket.
VA guaranteed loans are made by private mortgage lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of their primary home. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment or private mortgage insurance (PMI) allowing for more favorable financing terms.
The only time the VA loan may not be the best choice is when a home buyer has great credit scores and wants to put a 20% down payment on their home purchase. The reason is that with a 20% down payment no PMI or monthly mortgage insurance is required on the conventional loan. The conventional loan without the monthly mortgage insurance and great credit scores ( > 740) would result in the same payment as the VA loan.
Give me a call with any of your VA loan questions. VanDyk Mortgage has been helping veterans with their home loans for over 25 years and we would be happy to help you too.