Understanding VA loans

VA loan

A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs. The loan may be issued by qualified lenders.

The VA loan was designed to offer long-term financing to American veterans or their surviving spouses (provided they do not remarry).

The VA loan allows veterans 100% financing without private mortgage insurance or 20% second mortgage. A VA funding fee of 0 to 3.3% of the loan amount is paid to the VA and is allowed to be financed. In a purchase, veterans may borrow up to 100% of the sales price or reasonable value of the home, whichever is less. In a refinance, veterans may borrow up to 90% of reasonable value, where allowed by state laws.

As of January 1st, 2006, the maximum VA loan amount with no down payment is $417,000 and can be as high as $625,500 in certain high cost areas. VA also allows the seller to pay all of the veteran's closing cost as long as the cost do not exceed 6% of the sales price of the home.

Funding Fees

Purchase And Construction Loans
Note: The funding fee for regular military first time use from 1/1/04 to 9/30/04 is 2.2 percent. This figure drops to 2.15 percent on 10/1/04.

Type of Veteran	Down Payment	First Time Use	Subsequent Use for loans from 1/1/04 to 9/30/2011
Regular Military	None 5% or more (up to 10%) 10% or more	2.15% 1.50% 1.25%	3.3%* 1.50% 1.25%
Reserves/National Guard	None 5% or more (up to 10%) 10% or more	2.4% 1.75% 1.5%	3.3%* 1.75% 1.5%

Cash-Out Refinancing Loans

Type of Veteran	Percentage for First Time Use	Percentage for Subsequent Use
Regular Military	2.15%	3.3%*
Reserves/National Guard	2.4%	3.3%*

* The higher subsequent use fee does not apply to these types of loans if the veteran's only
 prior use of entitlement was for a manufactured home loan. 

Other Types Of Loans

Type of Loan	Percentage for Either Type of Veteran Whether First Time or Subsequent Use
Interest Rate Reduction Refinancing Loans	.50%
Manufactured Home Loans	1.00%
Loan Assumptions	.50%