Closing Costs


For purchase home loans, payment in cash is required on all closing costs, including title search and recording fees, hazard insurance premiums and prepaid taxes. For refinancing loans, all such costs may be included in the loan, as long as the total loan does not exceed 90 percent of the reasonable value of the property. Interest rate reduction loans may include closing costs, including a maximum of two discount points.


All veterans, except those receiving VA disability compensation and unmarried surviving spouses of veterans who died in service or as a result of a service-connected disability, are charged a VA funding fee. For all types of loans, the loan amount may include this funding fee.



Required Occupancy


To qualify for a VA purchase home loan, a veteran or the spouse of a service member must certify that he or she intends to occupy the home. When refinancing a VA-guaranteed loan solely to reduce the interest rate, a veteran need only certify to prior occupancy.



Financing, Interest Rates and Terms


Veterans obtain VA-guaranteed loans through the usual lending institutions, including banks, savings and loan associations and mortgage brokers. VA-guaranteed loans can have either a fixed interest rate or an adjustable rate, where the interest rate may adjust up to one percent annually and up to five percent over the life of the loan.  VA does not set the interest rate.  Interest rates are negotiable between the lender and borrower on all loan types.


Veterans may also choose a different type of adjustable rate mortgage called a hybrid ARM, where the initial interest rate remains fixed for three to 10 years. If the rate remains fixed for less than five years, the rate adjustment cannot be more than one percent annually and five percent over the life of the loan. For a hybrid ARM with an initial fixed period of five years or more, the initial adjustment may be up to two percent. The Secretary has the authority to determine annual adjustments thereafter.  Currently annual adjustments may be up to two percentage points and six percent over the life of the loan.


If the lender charges discount points on the loan, the veteran may negotiate with the seller as to who will pay points or if they will be split between buyer and seller. Points paid by the veteran may not be included in the loan (with the exception that up to two points may be included in interest rate reduction loans). The term of the loan may be for as long as 30 years and 32 days.



Loan Assumption Requirements and Liability


VA loans made on or after March 1, 1988, are not assumable without the prior approval of VA or its authorized agent (usually the lender collecting the monthly payments). To approve the assumption, the lender must ensure that the assumer is a satisfactory credit risk and will assume all of the veteran’s liabilities on the loan. If approved, the assumer will have to pay a funding fee that the lender sends to VA, and the veteran will be released from liability to the federal government.  A release of liability does not mean that a veteran’s guaranty entitlement is restored. That occurs only if the assumer is an eligible veteran who agrees to substitute his or her entitlement for that of the seller. If a veteran allows assumption of a loan without prior approval, then the lender may demand immediate and full payment of the loan, and the veteran may be liable if the loan is foreclosed and VA has to pay a claim under the loan guaranty.


Loans made prior to March 1, 1988, are generally freely assumable, but veterans should still request VA’s approval in order to be released of liability. Veterans whose loans were closed after Dec. 31, 1989, usually have no liability to the government following a foreclosure, except in cases involving fraud, misrepresentation, or bad faith, such as allowing an unapproved assumption.  However, for the entitlement to be restored, any loss suffered by VA must be paid in full.



VA Acquires Property Foreclosures

VA acquires properties as a result of foreclosures. Ocwen Loan Servicing, LLC, under contract with VA, is currently marketing the properties through listing agents using local Multiple Listing Services. A listing of “VA Properties for Sale” may be found at  Contact a real estate agent for information on purchasing a VA acquired property.



Loans for Native American Veterans


Eligible Native American veterans can obtain a loan from VA to purchase, construct or improve a home on Federal Trust land, or to reduce the interest rate on such a VA loan. The maximum loan amount is equal to the Freddie Mac conforming loan limit for a single-family home.  This limit changes yearly.  In 2008, the limit is $417,000 for the continental United States and $625,500 for Hawaii, Alaska, Guam, and the U.S. Virgin Islands.


Veterans who are not Native American, but who are married to Native American non-veterans, may be eligible for a direct loan under this program.  To be eligible for such a loan, the qualified non-Native American veteran and the Native American spouse must reside on Federal Trust land, and both the veteran and spouse must have a meaningful interest in the dwelling or lot.


A funding fee must be paid to VA unless the veteran is exempt from such a fee because he or she receives VA disability compensation. The fee, which is 1.25 percent for loans to purchase, construct or improve a home, and 0.5 percent to refinance an existing VA loan, may be paid in cash or included in the loan. Closing costs such as VA appraisal, credit report, loan processing fee, title search, title insurance, recording fees, transfer taxes, survey charges or hazard insurance may not be included in the loan.



Safeguards Established to Protect Veterans


The following safeguards have been established to protect veterans:


1. VA may suspend from the loan program those who take unfair advantage of veterans or discriminate because of race, color, religion, sex, disability, family status or national origin.


2. The builder of a new home (or manufactured home) is required to give the purchasing veteran either a one-year warranty or a 10-year insurance-backed protection plan.


3. The borrower obtaining a loan may only be charged closing costs prescribed by VA as allowable.   


4. The borrower can prepay without penalty the entire loan or any part not less than one installment or $100. 


5. VA encourages holders to extend forbearance if a borrower becomes temporarily unable to meet the terms of the loan.