The VA program, administered by the U.S. Department of Veterans Affairs, is designed to help military veterans obtain special, sometimes discounted, home loans. To be eligible for a VA loan, veterans must have served on active duty for at least a minimum of 90 days during wartime or a minimum of 181 continuous days during time of peace. Veterans must have a discharge other than dishonorable. The surviving spouses of veterans may also be eligible for home loans through the VA program. Through this lending program, the VA will guarantee homes loans up to a maximum of 25 percent of the total loan. The maximum loan amount offered through conventional VA programs is $417,000, but VA loan programs are available for properties that exceed this amount. The value of the property or the purchase price, including funding fees, will be taken into consideration.
VA Mortgage Programs Available
There are three loan programs through which veterans may receive a VA loan. The VA program offers fixed rate loans, adjustable rate mortgages (ARMs), and jumbo loans.
VA Fixed Rate Loans
Through the VA program, veterans can apply for a fixed rate loan with which to purchase a home. A fixed rate loan provides veterans with the security of knowing how much their monthly payment will be throughout the life of the loan. The most commonly utilized terms for fixed rate loans are 15 and 30 years. During the term of the loan, the interest rate will remain the same unless the veteran chooses to refinance. The veterans debt-to-income ratio, along with other eligibility requirements, will be used to determine if the veteran can meet all of the financial obligations associated with homeownership. Fixed rate loans are ideal for veterans that have a set budget and know how much income they can expect each month.
VA Adjustable Rate Mortgage (ARM)
An ARM differs from a fixed rate loan in one significant way: adjustable rate mortgages have variable interest rates. Because interests rates can fluctuate with an ARM, the veteran's principal and interest due each month may change over the life of the loan. For the first 12 to 18 months of the loan term, the interest rate will remain the same. At the end of this term, the interest rate will change on an annual basis. ARMs may be excellent options for veterans that expect their earning potential to increase in the future resulting in a higher salary.
VA Jumbo Loans
Most VA loans will only cover loans totaling a maximum of $417,000. Properties that veterans wish to purchase whose cost is more than $417,000 will need to secure a jumbo loan. The term “jumbo loan” simply refers to any loan exceeding $417,000. Veterans needing to borrow more than $417,000 to purchase their home should expect to pay 25 percent on any amount over this limit. Even with this required down payment, veterans will typically pay less with a VA jumbo loan than with a standard 10 percent down payment on a conventional mortgage.
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