- Other than in a few rare circumstances, VA does not lend directly to the veterans. Instead, the VA promises to reimburse lenders the money they lose if the veteran defaults on the loan up to 25 percent of the initial loan amount. Lenders and banks throughout the country that want to offer loans using this program apply for approval through VA, and once approval is received, can close loans for veterans with very little risk.
- To qualify for a VA guaranteed loan, the person applying must have served in the military on active duty, received an honorable discharge or be an eligible spouse and not already have a VA guaranteed loan. Some National Guard and reserve personnel also qualify for the VA home loan benefit if they've spent at least 90 days on active duty. The veteran must have a reasonable credit history and proof of enough income to repay the loan. The benefit does not require lenders give the veteran a loan, it only guarantees the lender will not lose money if it does.
- The VA charges the veteran a funding fee each time a VA guaranteed loan is closed. This funding fee acts like mortgage insurance for the loan. VA collects the funding fees and then uses them to reimburse the lenders if a loan defaults. This is a one-time fee, however, the veteran may finance it into the loan and pay it in addition to the monthly mortgage payment.
- The VA typically restricts veterans to one VA loan at a time. The VA also requires that the veteran occupy the home at closing or within 60 days of closing. The VA does not guarantee loans for investment property or vacation homes. The VA also does not finance commercial buildings or mutli-family units greater than 4-units.
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