General Mortgage Knowledge

    VA Loan Guide

    Master the mechanics of the most powerful lending product available for Veterans, Service Members, and eligible Surviving Spouses.

    Exam Tip: VA loan questions focus heavily on the Funding Fee, entitlement restoration, and the unique Residual Income qualifier. Master these three areas!

    VA Loans By The Numbers (Flashcards!)

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    What year was the VA Loan program created?
    1944
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    Max Purchase LTV?
    100%
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    Monthly Mortgage Insurance?
    $0 / None
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    Max Seller Concessions?
    4%
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    Origin & History

    1944

    GI Bill of Rights

    Created as part of the Servicemen's Readjustment Act to help WWII veterans integrate into civilian life and avoid post-war recession.

    Evolution

    Expanded Eligibility

    Extended to Korean, Vietnam, Gulf War vets, and eventually most Active Duty, Reservists, and National Guard members.

    Today

    Permanent Program

    The program is permanent with no expiration date and continues to serve millions of eligible borrowers.

    The Three Pillars of VA Lending

    1. The Guaranty

    • •Does the VA lend money directly?
    • •What portion does VA typically guarantee?
    • •What does this 25% replace?
    • •How do lenders view the guaranty?
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    1. The Guaranty

    • NO - Private lenders make the loan; VA guarantees a portion of the loan against lender loss
    • Typically 25% of loan amount
    • Replaces the need for a down payment
    • Lenders view the guaranty as "equity"
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    2. Entitlement

    • •What is entitlement?
    • •What is Basic Entitlement?
    • •What does Bonus (Tier 2) allow?
    • •Can entitlement be restored?
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    2. Entitlement

    • Dollar amount VA promises to pay lender if default
    • $36,000 (Historical)
    • With full entitlement, there is no VA loan limit; county conforming limits apply only when calculating remaining bonus entitlement
    • YES - if prior VA loan paid in full and property sold
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    3. Eligibility (COE)

    • •What document is required?
    • •What is eligibility based on?
    • •Wartime service requirement?
    • •Peacetime service requirement?
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    3. Eligibility (COE)

    • Certificate of Eligibility (COE)
    • Length and character of service
    • Generally 90 days (wartime/Gulf War era); current-era, Guard, and Reserve rules include 24-month and 6-year pathways
    • Generally 181 days (peacetime); active-duty, Guard, and Reserve have separate minimum-service requirements
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    VA Funding Fee

    A one-time fee that helps lower taxpayer cost because VA loans do not require down payments or monthly mortgage insurance. Can be financed.

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    0% Down - First Use?
    2.15%
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    0% Down - Subsequent Use?
    3.3%
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    5% Down?
    1.5%
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    10%+ Down?
    1.25%
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    IRRRL Funding Fee?
    0.5%
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    Can the fee be financed?
    YES

    ★ CRITICAL TEST FACT: 0% Funding Fee Exemptions

    • Veterans receiving or eligible to receive VA disability compensation for a service-connected disability
    • Surviving spouses receiving Dependency and Indemnity Compensation (DIC)
    • Active-duty Purple Heart recipients who provide evidence of the award by closing
    • Certain borrowers with a pre-discharge proposed or memorandum rating for a service-connected disability

    Qualifying: The VA Difference

    Conventional loans rely on DTI. VA loans use a two-step approach, prioritizing Residual Income.

    1. Debt-to-Income (DTI)
    41%

    The standard back-end ratio benchmark. Can be exceeded with compensating factors.

    VS
    2. Residual Income (The Key)
    Net Income

    Money left over after major debts/taxes to cover family living expenses (food, gas, etc.).

    *Requirements vary by region and family size.

    Test Tip: If DTI is >41%, Residual Income usually must exceed the minimum requirement by 120%.

    VA Loan Products

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    PURCHASE Loan
    Standard fixed-rate or ARM to buy primary residence
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    CASH-OUT REFI - Max LTV?
    Up to 100% of appraised value; funding fee amount exceeding 100% must be paid in cash at closing
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    IRRRL (Streamline) - What is it?
    VA-to-VA streamline refi. Reduced documentation; many IRRRLs skip the VA appraisal, though lender overlays may apply.
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    NADL - Who is the lender?
    VA is direct lender (for Federal Trust Land only)

    VA vs. The Rest

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    VA Down Payment?
    0%
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    VA Monthly Insurance?
    NONE
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    VA Max LTV?
    100%
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    VA Primary Qualifier?
    Residual Income (+DTI)
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    VA Occupancy?
    Primary Residence Only
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    Are VA Loans Assumable?
    YES — with required creditworthiness approval; a non-veteran assumption may not restore the seller's VA entitlement

    Exam Day Flash Facts

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    What is the VA appraisal called?
    Notice of Value (NOV) — historically called the Certificate of Reasonable Value (CRV)
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    Occupancy requirement?
    Generally within 60 days; exceptions apply (e.g., active-duty spouse occupancy, delayed construction)
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    Are VA loans assumable?
    YES — with required creditworthiness approval; non-veteran assumptions may not restore seller's VA entitlement
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    Minimum credit score set by VA?
    NONE (lenders have overlays)
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    Property standards?
    Safe, Sound, and Sanitary (MPRs)

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