What is the VA Loan??

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Introduction

The Veterans Administration created the concept of the VA loan directly in the aftermath of WW2 to help veterans who without a history of credit to purchase a home. Over the years the rules and regulations regarding the VA home loan program have changed countless times. I’ll be going over the VA home loan as well as some other things to keep in mind when purchasing a house as a member of the military.

Firstly, the VA loan is a little bit of a misnomer. It is less a loan, and more a guarantee from the VA to the bank that gives you the loan that, in the event of a default, the VA will pay a certain percentage of the value of the home as collateral. Back in the day this stipulation used to determine the maximum amount of a loan you could get using the VA program, but recently it has become accepted to use the conventional lending limits for the VA program. These conventional lending limits are limits determined for each state as to how much banks will lend on homes and are normally above the price of most homes you or I would be interested in buying, judging from the fact you aren’t reading this from your G Wagon. The limits are $647,200 as of 2022 unless you are in a high-cost area which is $970,800.

Eligibility

Eligibility is similar to the GI bill. You have to serve a certain amount of time and it extends to your immediate family. If you are active duty you are eligible 90 days after the completion of basic training. If you are guard or reserve you are eligible 90 days after being activated to active duty or after 6 years of service, whichever comes first.

Variations

  • There is the VA rehab loan which can allow you to lump in renovation costs into the initial loan amount. This is a tricky loan that not every bank does, but when the situation is right, it can be a powerful way to build equity quickly in a home if you have the know-how.
  • You can purchase a mobile home with a VA loan. Not every bank can or will do loans on mobile homes because of their intrinsic risks and problems maintaining value over the life of the loan. Having a mobile home on some land, however, is a great way to finance the purchase of raw land because without a home, VA will not guarentee a loan.
  • Another category of assets that the VA cannot help you with is property in a foreign country. However, you normally can get a mortgage for foreign property through other channels though, such as through a multinational bank like HSBC or Citibank.

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