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The Many Advantages of VA Loans

The mortgages offer veterans great rates, low fees and no down payments

By Craig Venezia

With Veterans Day approaching and this year being the 70 anniversary of The G.I. Bill, it’s an apt time to remind America’s 22 million veterans about the many enticing benefits of VA (Veteran’s Administration) mortgages.

Among the advantages of VA loans:

  • Interest rates that are a little lower than those of conventional loans (the recent national average rate on 30-year VA fixed loans: 3.59 percent, about .60 percent less than the national average for 30-year fixed loans in general
  • No down payment needed (if the purchase price doesn’t exceed the appraised value)
  • No private mortgage insurance required on loans of more than 80 percent of a home’s appraised value (which can often save borrowers $100 to $200 a month)
  • Strict limits on closing costs
  • No minimum credit score required
  • No prepayment penalty for eliminating your mortgage ahead of schedule

With these advantages, little surprise the VA’s home-financing program is hitting record levels (recently guaranteeing its 21 millionth loan) and attracting the interest of vets like Gary Nordman, of Friendship, Wisc.

Having served in the U.S. Navy from 1969 to 1973, this 64-year-old Vietnam vet was recently looking for a cash-out refinance to remodel his house. Ultimately, he opted for a VA loan through NewDay USA, a national mortgage company based in Fulton, Md. committed to serving veterans and their families. “I was able to borrow 100 percent of the equity in my home,” recalls Nordman. “The rate I got and the process was amazing.”

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Says Allison A. Hickey, VA’s Undersecretary for Benefits: “This vital program offers veterans, servicemembers and their families the keys to homeownership and is truly a testament to our nation’s commitment to enhancing the lives of those who served our country.”

There’s one drawback of VA loans, though: You may run into some red tape, so the process of getting the loan can sometimes take several weeks longer than a standard mortgage. But the generous terms usually make the wait worthwhile.

How VA Loans Work

The VA doesn’t make the actual loans. Rather, it partially guarantees mortgages and refinancings made through private lenders such as banks, credit unions and mortgage companies. This guarantee encourages lenders to offer borrowers more favorable terms than on conventional loans. You can use a VA loan to buy or build a primary residence (not a second home or vacation property) or for a cash-out refinancing.

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There are generally no limits on the size of the loans unless you’re looking to buy with no money down. Then, the cap in most places is $417,000 (for 2014). The mortgage limit is higher in designated “high-cost counties” in 22 states and Washington, D.C.; it’s as high as $1,094,625 in Nantucket, Mass. The states with high-cost counties: Alaska, Calif., Colo, Conn., Fla., Ga., Hawaii, Idaho, Mass., Md., N.C., N.H., N.J., N.Y., Pa., R.I., Tenn., Utah, Va., Wash., W. Va. and Wyo. (You can find the actual counties on the VA’s site.)

Although the VA doesn’t set a minimum credit score for applicants, lenders often have their own credit requirements and approve or deny loans based on their own policies. “We make it a priority to understand each borrower’s unique situation so we can structure the best possible VA-backed loan,” says retired U.S. Navy Rear Admiral and NewDay USA Chairman Tom Lynch.


Who’s Eligible For VA Loans

A Certificate of Eligibility is required for obtaining a VA loan. The VA stipulates that borrowers “must have been discharged under conditions other than dishonorable and meet specific service requirements” based on military status, which includes: veterans, those currently on active duty and National Guard/Reserve members.

Getting that Certificate of Eligibility has become less of a hassle lately. "A significant change in the last few years is the increased use of our automated process to determine eligibility," says Jeff London, Deputy Director, VA Home Loan Program. "Through our eBenefits online portal, veterans and servicemembers can get eligibility determinations in a matter of seconds."

Some surviving spouses of veterans can apply, too, such as: Unremarried spouses of veterans who died in service or from a service-connected disability; spouses of servicemembers who were missing in action and surviving spouses who remarried on or after age 57 and on or after Dec. 16, 2003.

VA Loan Fees

While the VA’s strict limits on fees often keep them below those of conventional loans, VA loan borrowers generally must pay a special “funding fee” at closing, which can be added to the loan amount. The fee ranges from 1.25 to 3.30 percent of the loan value (your percentage depends on factors such as the type of loan, your military status and, for home purchases, the size of your down payment).

You may also be asked to pay other fees and charges the VA deems “reasonable and customary” — such as for VA appraisal and compliance inspectors, credit checks and title examination — and a fee of up to one percent of the loan amount to cover other lender costs.

Where to Find a VA Loan

The VA has regional loan centers across the country in Atlanta, Ga.; Cleveland, Ohio; Denver, Colo.;  Honolulu, Hawaii;  Houston, Texas; Phoenix, Ariz.; Roanoke, Va.; St. Paul, Minn. and St. Petersburg, Fla. Visit The VA’s website to find the one that services your state and you’ll be one step closer to enjoying the American dream you’ve served to protect.

Craig Venezia is a real estate writer for the San Francisco Chronicle and author of Buying a Second Home: Income, Getaway or Retirement. He and his wife own a second home in the San Francisco Bay Area. Read More
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