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Va Mortgage Definition

By Glenford Robinson

A VA mortgage is any mortgage provided by a lending institution to an eligible veteran of the U.S. Armed Forces and guaranteed or backed by the Department of Veterans Affairs. If a default occurs, the government would repay 25 percent of the loan to the lender. A VA mortgage requires no down payment and very minimum credit. There are no additional costs at closing because the closing costs are added to the principal of the loan. The loan is 100 percent financed at a fixed rate.

The VA mortgage guarantee program was created in 1944 to limit the effects of economic and social hardship faced by millions of veterans returning from World War II, according to the U.S. Department of Veterans Affairs. The program was an important part of the Servicemen’s Readjustment Act of 1944, established as an alternative to a cash bonus to service members simply because it was less expensive for the government and provided a better means to address the needs of veterans.

The VA mortgage program’s main function is to underwrite or guarantee conventional mortgages given to eligible U.S. veterans. The program does not lend money directly to borrowers; it only guarantees to lenders that they will recoup 25 percent of a loan if the borrower defaults on it. It therefore gives lenders the incentive to lend to veterans. A VA mortgage is one of the easiest mortgages to get if a person is eligible.

The VA imposes yearly county loan limits as to how much money a veteran with full entitlement can borrow. A veteran may borrow up to the limit set forth by the VA for that particular year and that county or area. The VA then guarantees 25 percent of the loan amount up to the established loan limit.

There are numerous benefits and advantages in having a VA home loan. The VA mortgage eliminates the need for private mortgage insurance (PMI), an insurance premium the borrower pays in order to protect the lender against borrower defaults. A veteran can purchase a home using the VA mortgage program without putting any money down. This is ultimately up to the borrower, though. If the borrower wants to put money down, he still can do so. Another benefit and advantage of the VA mortgage program is that it provides low, competitive and fixed interest rates.

One misconception is that the VA mortgage program can be used only once by a qualified veteran; however, the program can be used as many times as needed, once all guidelines are followed.

A certificate of eligibility is the first document that must be presented before a veteran can get a VA-backed mortgage. Active duty personnel, reservists, National Guard members, veterans with honorable discharges and some surviving spouses are all eligible for VA mortgages, provided that they meet all requirements. A person can be a veteran and still not be eligible for a VA mortgage. A bad conduct discharge from the Armed Forces disqualifies a person for a VA mortgage.

A veteran can be eligible to receive a VA mortgage but still not be qualified. Qualification entails having a good credit history that is acceptable by the lender. Lenders have credit guidelines that must be met before a prospective borrower can receive a VA mortgage. An outstanding credit history is a deciding factor in getting a VA mortgage; it provides proof to creditors that an individual is financially responsible and a person a lender can trust with a mortgage.


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