Certificate of Eligibility

VA's Home Loan Program is for veterans and active duty military personnel  and certain members of the reserves and National Guard.  VA's program provides an excellent product and benefit.

The VA allows a veteran who qualifies to purchase a primary residence without putting money down towards the sales price (as long as the sales price does not exceed the appraised value).  Veterans do, however, need money towards closing costs and the earnest money deposit. 

• Loans are assumable, provided the person assuming the loan is qualified.

• Veterans' closing costs are limited by VA.

• Additional assistance is offered by VA should veterans have problems making their home loan payments in the future.

• Prepayment of the loan without a penalty.

• There is no Private Mortgage Insurance

• Veterans must meet credit standards but loans are not “score driven”

• The VA does not have a maximum loan amount.  However, lenders do sell loans on the secondary mortgage market, so they will generally limit loans to the VA limit for the county where the property is located. 

• The veteran does have to qualify (income and credit).

• The veteran does have to occupy the home as their primary residence.

• The veteran does not have to be a first time home buyer and may reuse his/her benefit.

• The lender, not VA, sets the interest rate and discount points  so these may vary from lender to lender.

• There is no private mortgage insurance; but, the VA does charge an up-front VA funding fee (which may be financed).  The exception to this is that if a veteran is in receipt of VA service connect disability payments each month. In this case, he or she does not have to pay a VA funding fee.

• The seller can pay for closing costs.  There is a requirement that seller concessions do not exceed 4%. Certain items are considered as part of the concession; i.e., payment of pre-paids, VA funding fee, payoff of credit balances or judgments on behalf of the veteran, and funds for temporary buydowns (not discount points).

• The veteran is not allowed to pay for the wood destroying insect (termite) report (CL-100) ; it is generally paid by the seller.

• VA does not approve the majority of loans.  The majority of transactions are handled directly by the lender with little VA intervention.

How much can the veteran afford (and other important factors)?

The VA uses two methods for qualification purposes.  The primary method of evaluating a veteran's income is the residual income method.  Under this method, the underwriter determines that a veteran has sufficient income to cover day-to-day living expenses after paying housing expenses, taxes, and other debts such as car payments and credit card payments.  The VA also uses a debt-to-income ratio method like many programs.  However, VA uses only one ratio which is the ratio of total debt (both housing and other debt) to income. 

Steps in the Process of a VA Home Loan:

1. The veteran selects a home they are interested in.  The purchase and sales agreement should contain a VA option clause

2. Veterans may also apply for a certificate of eligibility prior to looking for a home or contacting a lender.  Please review our site for information on certificates of eligibility and a listing of lenders.

3. The veteran contacts a lender to apply for the loan.  At this point, if the veteran has not already obtained his/her certificate of eligibility, they will need to.  The lender may be able to obtain it off the internet or the veteran may have to complete a form and send it to the eligibility center.  In either case the lender will be able to assist in the procedures of how to obtain a certificate of eligibility.  The lender will complete a loan application and gather supporting documentation, i.e., paystubs and bank statements.  An important item for veterans to know is that lenders set their own interest rates, discount points and closing points.

4. The lender will "process" (develop) all credit and income information.  Lenders are allowed to use VA approved automated underwriting systems.  The lender will also order a VA appraisal.  The VA's appraisal is not a home inspection or a guaranty of value.  It is an estimate of the market value as of the date the inspection is made comparing it to similar homes that have recently sold in that area.  Although the appraiser does look for obviously needed repairs, the VA does request that appraisers not address cosmetic items.  The VA does not warrant the condition of existing homes.  The appraiser is a licensed individual who does not work for VA but is chosen by VA to assure his/her review is unbiased in any way.  The lender can not request which appraiser to use as they are assigned on a rotation basis.

5. Upon receipt of the appraisal and all supporting documentation on credit, income and assets, the lender will "underwrite" the loan.  It is the lender who reviews all the data collected and decides if the loan should be granted, developed for additional data or if the veteran does not qualify and must be denied.  Although VA does "underwrite" some loans, it is very rare.  The decision on whether or not to approve the loan is generally made by the lender.

6. The final step for loans that meet VA regulations and guidelines is the loan "closing" (when the transfer actually takes place).