New American Funding Blog

A Brief Look at the VA Loan

By Rosemarie Pirio   |  September 7, 2011

There are quite a few loans available to potential home owners right now. But there’s one great opportunity available only to “a few good men.” It’s the VA loan, and there are a lot of great benefits tied to it. We’ve gathered up the basics of what this loan offers, and how you can take advantage of it, in this quick rundown:

WHAT IS A VA LOAN?

The VA loan was originally introduced in 1944 as the Servicemen’s Readjustment Act, most commonly known as the GI Bill of Rights. It is a mortgage loan, guaranteed by the U.S. Department of Veterans Affairs, aimed at providing qualifying veterans the opportunity to purchase a house without making a down payment. The loan can also be used to build a home, or make repairs and improvements to an existing home.

These loans are issued by private lenders, such as banks and mortgage companies. They are protected from default if either the borrower or a future owner fails to repay the loan. This guarantee is usually 25% the total amount of the loan, which limits the loan amount to a maximum of $417,000.

WHO IS ELIGIBLE FOR A VA LOAN?

All veterans, active duty personnel, Reservists/National Guard members, and surviving spouses that do not remarry are eligible, but must qualify. Length and time of their service, as well as discharge conditions, are taken into consideration. The applicant must also obtain a certificate of eligibility from the VA. They must also have the intention of occupying the home, either before closing or within a reasonable time after.

WHAT ARE THE BENEFITS OF A VA LOAN?

The VA loan was designed to offer 100% financing to active and retired military personnel with no down payment necessary, unless the lender requires it or if the purchase price is more than the value of the property. Since the Federal Government backs this type of loan, the lender is protected from default, so there’s less risk when handing out a VA loan, which means lower interest rates for the borrower. Another benefit associated with the VA loan is the absence of private mortgage insurance and limitations on origination fees and appraisal fees charged by lenders. A VA loan can also be used to refinance, either to reduce your interest rate or to take equity out.

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