VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC)

Updated 2026-05-18

The Department of Veterans Affairs (VA) Home Loan program, established in 1944 as part of the original GI Bill, helps eligible veterans, service members, and their spouses obtain, build, repair, retain, or adapt homes. The VA guarantees a portion of these loans, reducing risk for private lenders and encouraging them to offer favorable terms. This guaranty protects lenders against loss if the borrower defaults.

Central to this program are three key concepts and documents:

• VA Loan Entitlement: The amount of guarantee the VA provides to a lender on behalf of an eligible borrower.
• Certificate of Eligibility (COE): An official document verifying a borrower's service eligibility and available entitlement.
• Loan Guaranty Certificate (LGC): An electronic document serving as tangible proof of the VA's guaranty on a mortgage loan.

The program is governed by extensive regulations and policies detailed in the VA Pamphlet 26-7, Revised, which covers all aspects from loan origination to post-guaranty issues.

VA Loan Entitlement

VA Loan Entitlement refers to the amount of guarantee the Department of Veterans Affairs (VA) (VA) provides to a lender on behalf of an eligible veteran, service member, or their surviving spouses. This entitlement is a crucial component of the VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC) and allows eligible borrowers to obtain a mortgage with favorable terms, often without a down payment.

This guarantee protects the lender against loss if the borrower defaults on the loan. Understanding VA loan entitlement is crucial for determining a veteran's eligibility for various VA loan programs and the maximum loan amount they can obtain without a down payment.

The amount of available entitlement directly impacts:

• Maximum Loan Amount: It determines the maximum loan amount a veteran can obtain without a down payment.
• Extent of Guaranty: It defines the portion of the loan that the VA will guarantee to the lender, which is the basis for the VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC).

The entitlement is documented on the borrower's COE. Specific calculations and considerations for entitlement, especially in scenarios like VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC), are detailed in guidance such as the Department of Veterans Affairs (VA).

Types of Entitlement

Entitlement can be either full or partial, depending on the veteran's service history and any prior use of VA loan benefits. The type of entitlement impacts whether a borrower is subject to Conforming and High-Balance Loan Limits.

A veteran's entitlement is typically divided into two parts:

1. Basic Entitlement: A standard amount available to all eligible veterans.
2. Bonus Entitlement (or Second-Tier Entitlement): An additional amount available for loans exceeding a certain threshold, often tied to Conforming and High-Balance Loan Limits.

• Full Entitlement: As of 2026, veterans with full entitlement are generally not subject to VA-imposed loan limits.
• Partial Entitlement: Borrowers with partial entitlement may still be subject to county-specific loan limits.

Using Entitlement and Multiple VA Loans

Borrowers can use their full entitlement or a portion of it. It is possible for an eligible individual to have Multiple VA Loans at a time. This situation commonly arises for service members who receive a permanent change of station (PCS) and need to purchase a new home while still owning a previous one financed with a VA loan.

For example, if a Veteran has remaining entitlement after using some for a previous home, they can use a VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC) with another Veteran who has full entitlement to purchase a second home.

For an Interest Rate Reduction Refinance Loan (IRRRL), the original entitlement used for the existing VA loan is reused. No additional charge is made against the veteran's entitlement, meaning the IRRRL does not consume new entitlement or reduce the amount available for future VA loans. To be eligible for an IRRRL, the borrower must have already used their VA loan eligibility for the property being refinanced.

Entitlement Restoration

VA Loan Entitlement Restoration refers to the process by which a veteran can regain their home loan guaranty entitlement after it has been used for a previous VA-guaranteed loan. This allows eligible veterans to use their VA home loan benefit again for a new purchase or refinance.

Conditions for Restoration

According to 38 CFR § 36.4204, a veteran's home loan guaranty entitlement may be restored under specific conditions:

• Disposal of Property: The property securing the prior VA loan has been disposed of.
• Repayment in Full: The prior VA loan has been repaid in full.
• Release from VA Liability: The veteran has been released from all liability to the VA on account of the prior loan.
• One-Time Restoration: In some cases, a veteran may be eligible for a one-time restoration of entitlement if they have repaid a prior VA loan in full but still own the home.

Restrictions

Generally, a veteran may not purchase a second VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC) until the unit securing the first loan has been disposed of or destroyed (38 CFR § 36.4204). Exceptions apply if the conditions for entitlement restoration are met.

Understanding entitlement restoration is crucial for Mortgage Loan Originators (MLOs) to properly advise veterans on their eligibility for subsequent VA loans.

Certificate of Eligibility (COE)

The Certificate of Eligibility (COE) is an official document issued by the VA that verifies a service member, veteran, or eligible surviving spouse meets the service requirements for a VA home loan. It is a critical and mandatory component of the VA loan application process, as lenders require it to confirm that a borrower meets the VA's service requirements and is eligible for the VA home loan benefit.

Purpose of the COE

The COE serves as official confirmation that an applicant meets the VA's eligibility criteria based on their service history and other requirements. It confirms the borrower's entitlement to VA loan benefits.

The COE also indicates the amount of VA loan entitlement the borrower has available. This entitlement is the amount of guarantee the VA provides to the lender and is essential for determining the maximum loan amount the VA will guarantee without a down payment.

How to Request a COE

Borrowers can typically request a COE through several methods:

• Online: Through the VA's eBenefits portal or the VA's official website (VA.gov). The COE is generated based on the applicant's service history and duty status as recorded by the VA.
• Through a Lender: Most VA-approved lenders can help borrowers obtain their COE electronically, often streamlining the process.
• By Mail: By submitting VA Form 26-1880, "Request for Certificate of Eligibility," directly to the VA.

It is generally recommended to obtain the COE early in the home-buying process to streamline the loan application.

Automated Certificate of Eligibility

The Automated Certificate of Eligibility is an electronic version of the traditional VA Form 26-8320 / 26-8320a. This automated process streamlines the verification of entitlement for lenders.

When submitting a loan for guaranty under the VA Loan Guaranty Certificate (LGC), an Automated Certificate of Eligibility can be used in place of a paper COE, provided it has not been previously submitted for a prior approval loan application. This electronic option contributes to the overall efficiency of the VA loan process.

VA Loan Guaranty Certificate (LGC)

The VA Loan Guaranty Certificate (LGC), specifically VA Form 26-1899, is an electronically generated document that serves as tangible proof of the VA's guaranty on a mortgage loan. It identifies the percentage and dollar amount of the guaranty that the VA may pay a lender in the event of loss due to foreclosure. This guaranty protects the lender against loss if the Veteran defaults on the loan.

The VA Guaranty

The VA Guaranty is the amount the VA may pay a lender in the event of loss due to foreclosure on a VA-guaranteed loan. Its primary purpose is to encourage lenders to make VA loans by protecting them against financial loss, up to the specified percentage and dollar amount of the guaranty.

Key Characteristics of the Guaranty

• Protection Against Loss: The guaranty serves as a form of insurance for lenders, mitigating the risk associated with lending to Veterans.
• Amount: The guaranty amount is a percentage of the loan, up to a specific dollar maximum, and is identified on the LGC. The calculation of the maximum guaranty depends on the loan amount and the Veteran's entitlement (full or partial), as detailed in va-loan-maximums-and-guaranty.
• Automatic Guaranty: A loan is automatically guaranteed by the VA upon closing (prior to LGC issuance) if made by an approved lender with automatic authority and if the lender complied with applicable law and regulations. Prior approval loans are guaranteed if the closed loan matches the proposed loan and the lender complied.
• Evidence of Guaranty: The LGC is the tangible proof of the VA's guaranty.

Contingency and Compliance

The guaranty represented by the LGC is contingent upon the Veteran, property, and loan purpose being eligible, the absence of fraud or material misrepresentation by the lender, and the lender's compliance with applicable laws and regulations. The validity of the VA guaranty is contingent upon the lender's strict compliance with all applicable VA laws, policies, procedures, and regulations. Non-compliance, fraud, or material misrepresentation by the lender can lead to a partial or total loss of the guaranty.

LGC Generation and Process

LGCs are primarily generated electronically via VA’s webLGY application, using data from sources like the VA Funding Fee Payment System (VA FFPS). In specific circumstances, a manual guaranty request may be submitted to obtain the LGC.

Documentation Requirements and Submission Procedures

The various stacking orders outlined by the VA dictate the precise documentation required to be submitted to the VA Loan Guaranty Service (LGY) to obtain an LGC, whether through prior approval or full file loan review processes.

Modified Guaranty Submission Procedure

The Modified Guaranty Submission Procedure is a streamlined process implemented by the VA to reduce administrative burden and expedite the issuance of the LGC. Under this procedure, lenders submit a limited set of key documents to the VA when requesting a guaranty for most loans, with full loan packages requested only for selected cases for audit purposes. This procedure does not apply to Fannie Mae to Fannie Mae Refinances, which have separate guaranty request procedures.

Required Documents for Initial Submission (Modified Procedure): Lenders must submit copies (except for the COE, which must be an original or automated) of the following items in the specified order:

1. va-form-26-0286 (Loan Summary Sheet)
2. va-form-26-8320-certificate-of-eligibility-coe or Automated Certificate of Eligibility (if not previously submitted for prior approval)
3. Funding Fee receipt
4. Lender Appraisal Processing Program (LAPP) - VA or copy of Master Certificate of Reasonable Value (with relevant pages highlighted)
5. va-form-26-1820 (Report and Certification of Loan Disbursement)
6. HUD-1 Settlement Statement, Special Information Booklet, Closing Disclosure, and Form HUD-11702
7. Name and mailing address for requesting full review file
8. E-mail address (if available) for requesting file in lieu of a letter

Audit and Review Process (Modified Procedure): VA field stations identify cases for full review or other audit purposes at least weekly, within 30 days of receipt. Lenders are notified by letter or e-mail and must forward the complete origination package to the requesting VA office within 15 days of notification.

Termination of Participation (Modified Procedure): VA field stations may, at their discretion, terminate a lender's participation in this modified procedure if the lender demonstrates an ongoing inability or unwillingness to respond timely to VA requests.

This procedure aims to improve efficiency, but lenders must still maintain all necessary documentation for potential audits. The VA Loan Electronic Reporting Interface (VALERI) and Veterans Information Portal (VIP) offers an even more paperless alternative.

LGC Management

• Corrections: Errors in LGC data can be corrected via VA FFPS before generation or by contacting the appropriate VA Regional Loan Center (RLC) afterward. Minor typographical errors that do not compromise accurate identification of the loan do not invalidate the LGC.
• Duplicates: Lenders can obtain duplicate LGCs by reprinting them from the system.
• Audit Indicator: The LGC may include an audit indicator, signaling that the loan has been identified for a full review, requiring the lender to submit a complete loan origination package to the VA.
• Termination: Lenders are not required to mail LGCs to the VA when a loan is terminated; this information is reported electronically through the VALERI system.

VA Home Loan Program: Key Components and Benefits

VA loans offer unique advantages compared to conventional mortgages, making homeownership more accessible and affordable for eligible individuals:

• VA Loan Guaranty: The VA's promise to a lender to repay a portion of a loan if the borrower defaults. This significantly reduces risk for lenders and encourages their participation in the program. The "Amount of Guaranty Rules" define how this is calculated. This protection is contingent on the lender's compliance with VA regulations. For loans under 38 U.S.C. 3712 (e.g., manufactured home loans), the guaranty is 40% of the original principal amount or $20,000, whichever is less.
• No Down Payment: In most cases, eligible borrowers can purchase a home with no money down, allowing for 100% financing. Exceptions include when the purchase price exceeds the reasonable value, for Graduated Payment Mortgages (GPMs), or when required by secondary market participants like GNMA due to partial entitlement.
• No Private Mortgage Insurance (PMI): Unlike conventional loans with low down payments or FHA loans, VA loans do not require Private Mortgage Insurance (PMI), which can result in significant monthly savings.
• Competitive Interest Rates: Due to the government guarantee, VA loans typically offer competitive interest rates, often lower than other loan types. Interest rates and discount points are negotiated between the Veteran and the lender.
• Limited Closing Costs: The VA strictly limits the fees and charges that a veteran can pay to obtain a loan, including specific itemized fees and charges and a one percent flat charge by the lender. Certain fees, such as most lender-related costs, attorney's fees (unless independently retained by the veteran), and real estate brokerage fees, cannot be charged to the veteran.
• No Prepayment Penalties: Borrowers can pay off their loan early without incurring any fees.
• Assumable: VA loans are assumable, meaning a qualified buyer can take over the existing loan, which can be an attractive feature when selling a home.
• No VA-Prescribed Maximum Loan Amount: The VA does not set a specific dollar amount for maximum loans for veterans with full entitlement. Instead, limits are influenced by the property's reasonable value, secondary market requirements, and the Veteran's guaranty entitlement. Partial entitlement may still be subject to county limits.
• Funding Fee: A one-time fee paid by the veteran to the VA to help offset the cost of the VA home loan program. It is typically financed into the loan amount and varies based on factors like loan type, down payment amount, and prior use of VA benefits. Certain veterans (e.g., those receiving VA disability compensation) may be exempt. The VA funding fee can always be included in the loan amount. Other fees and charges can only be included in the loan amount for refinancing loans, with specific limitations for IRRRLs.

VA Loan Application Process Overview

The typical VA Home Loan application process includes:

1. Obtain a Certificate of Eligibility (COE): This document confirms that the applicant meets the VA's service requirements. It can be obtained online via the VA's eBenefits portal, by mail, or often through the lender.
2. Pre-qualification or Pre-approval: Borrowers work with a VA-approved lender to determine affordability and receive a pre-approval letter. This involves reviewing income, assets, and credit history.
3. Find a Home: Once pre-approved, the borrower searches for a home that meets their needs and the VA's Minimum Property Requirements (MPRs).
4. Submit an Offer and Apply for the Loan: After an offer is accepted, the borrower formally applies for the VA loan with their chosen lender.
5. VA Appraisal and Inspection: The VA requires a specific appraisal to ensure the property meets MPRs and to establish its value. This is distinct from a general home inspection.
6. Underwriting: The lender's underwriter reviews all documentation, including the COE, appraisal, credit report, and income verification, to ensure the loan meets VA and lender guidelines.
7. Closing: Once approved, the loan proceeds to closing, where all final documents are signed, and the property title is transferred.

Official VA videos like "Overview of VA home loans and how to apply" and "Buying a New Home? | VA Home Loan Guarantee Program" provide guidance on this process (U.S. Department of Veterans Affairs, YouTube).

Eligibility Requirements

Eligibility for a VA home loan is determined by the Department of Veterans Affairs (VA) and is based primarily on service history. To qualify, a veteran, service member, or eligible surviving spouse must meet specific service requirements. In addition to VA service requirements, borrowers must also satisfy financial requirements set by Creditor (Lender).

The definitive proof of VA service eligibility is the Certificate of Eligibility (COE), which is issued by the VA. Lenders use the COE to confirm a borrower's eligibility for the VA home loan program.

VA Service Requirements

The VA outlines detailed criteria for service, which typically include minimum active-duty service requirements and an honorable discharge. These requirements vary depending on the period of service (e.g., wartime vs. peacetime).

General Service Duration

• Wartime Service: Generally, 90 consecutive days of active service.
• Peacetime Service: Generally, 181 days of active service.
• Service members currently on active duty: 90 continuous days of active duty.

National Guard and Reserve Service

• National Guard: 90 days of Title 10 service, OR 90 days with 30 consecutive days, OR 6 creditable years.
• Reserve members: 90 days of non-training active duty, OR 6 creditable years.

Exceptions to Minimum Service

Eligibility may still be granted in cases of:

• Hardship discharge.
• Discharge for the convenience of the government (e.g., 20+ months of a 2-year enlistment).
• Early out (e.g., 21+ months of a 2-year enlistment).
• Involuntary reduction in force.
• Medical conditions.
• Service-connected disability.

Surviving Spouses

Certain surviving spouses may also qualify for VA loan benefits if they are:

• Receiving Dependency and Indemnity Compensation (DIC).
• The spouse of a service member who was Missing in Action (MIA) or a Prisoner of War (POW).
• The spouse of a veteran who died in service or from a Servicemembers Civil Relief Act (SCRA), provided they have not remarried (or remarried after a certain age).

Occupancy Requirement

The Veteran must certify their intent to personally occupy the property as their home within a reasonable time (generally 60 days, up to 12 months in specific cases). This is a fundamental eligibility criterion. For certain loan types, such as VA Loan Application Process, the veteran must certify personal occupancy of the property as their home, or their spouse must certify occupancy if the veteran is on active duty (38 CFR Part 36 Subpart A).

Credit Requirements for VA Loans

While the VA does not set a minimum credit score, private lenders typically establish their own credit score thresholds as part of their risk assessment.

Key aspects of credit requirements include:

• Lender Overlays: Most VA-approved lenders have "overlays" – additional requirements beyond the VA's minimums, such as specific FICO score cutoffs (e.g., 620 or 640).
• Credit History Review: Lenders review the borrower's entire credit history, looking for timely payments, outstanding debts, and any derogatory marks (bankruptcies, foreclosures, collections).
• Debt-to-Income (DTI) Ratio: Lenders assess the borrower's DTI ratio to ensure sufficient income for mortgage payments and existing debts. The VA also uses a residual income guideline, a unique factor ensuring borrowers have enough discretionary income after major expenses.
• Derogatory Credit Events: Recent bankruptcies or foreclosures require specific waiting periods and demonstrated re-establishment of credit.

Borrowers are encouraged to check their credit report for accuracy and work to improve their credit score before applying. The official VA video "Credit Scores & VA Home Loans | Qualifying for and Getting a VA Loan" provides further explanation (U.S. Department of Veterans Affairs, YouTube).

Lender-Specific Requirements

While the VA sets the guidelines for who is eligible for the benefit, Creditor (Lender) have their own requirements for lending money. Borrowers will still need to demonstrate:

• A satisfactory credit score, with most lenders looking for 620 or higher.
• Sufficient income to cover the mortgage payments.
• Occupancy requirements (the borrower must intend to occupy the home as their primary residence).
• Underwriting: Loans are underwritten according to specific VA standards, including analysis of military income, credit history, and debt-to-income ratios.

VA Minimum Property Requirements (MPRs) and Property Eligibility

Properties financed with a VA Home Loan must meet specific Minimum Property Requirements (MPRs) set by the VA to ensure the home is safe, sanitary, and structurally sound. Adherence to MPRs is fundamental to the VA Home Loan Guaranty program, safeguarding the Veteran's investment and the VA's guarantee. Properties must meet MPRs prior to the guaranty of the loan by VA.

Purpose and Scope of MPRs

MPRs ensure the property is:

• Safe: Free from hazards that could adversely affect the health and safety of occupants (Index.pdf, 12-1).
• Sanitary: Has a continuous supply of safe and potable water, proper sewage disposal, and is free from pest infestations.
• Structurally Sound: Free from defects that impair structural integrity, with a functional roof, foundation, and utilities (heating, cooling, plumbing, electrical).
• Habitable: Suitable for year-on-year occupancy, with functional utilities and essential components.

The scope of MPRs also includes issues related to the property’s location and legal considerations. The VA may allow for MPR variations and exemptions under certain circumstances (Index.pdf, 12-3).

Role of the VA Appraisal Process

A VA-assigned appraiser conducts a specific appraisal that not only determines the property's market value but also verifies that it meets the VA's MPRs. The appraiser's role is to protect the veteran by ensuring the property is a suitable investment.

Appraiser's Responsibilities

The VA-assigned fee appraiser's primary responsibilities include:

• Estimating Value: Determining the market value of the property.
• Identifying MPR Deficiencies: Noting any readily apparent repairs needed to meet MPRs (safety, structural soundness, sanitation).
• "Subject To" Appraisals: Preparing appraisals "subject to" the completion of identified MPR repairs. The contributory value of completed repairs is included in the estimated market value.
• Recommending Repairs, Not Inspections: Appraisers must recommend specific repairs for conditions that do not appear to meet MPRs, rather than recommending general inspections.
• No Operational Checks: Appraisers do not perform operational checks of mechanical systems or appliances. Utilities are not required to be turned on during the appraisal visit.
• Reporting Hazards: Promptly notifying the lender of any identified hazards (e.g., dangerous subsidence, environmental problems) that could make the property ineligible.

During the appraisal review process, the Staff Appraisal Reviewer (SAR) must ensure that the property meets or will meet VA's MPRs. Any deficiencies that prevent the property from meeting MPRs are noted in the appraisal report and often become conditions on the Notice of Value (NOV) (Index.pdf, 11-15). Properties that cannot reasonably be expected to meet eligibility or VA MPRs prior to loan guaranty are not eligible for an NOV.

Distinction from Home Inspections

It is crucial to distinguish between a real estate appraisal and a home inspection:

• Appraisal: Focuses on identifying MPR deficiencies and estimating property value. It is not a comprehensive home inspection.
• Home Inspection: A more comprehensive operational check of a property's systems and components. Borrowers are strongly advised to obtain an independent home inspection to identify potential issues not covered by the VA appraisal. The NOV issued to the Veteran includes a recommendation that the Veteran may wish to obtain a home inspection.

Notice of Value (NOV)

After an origination appraisal is completed, the Notice of Value (NOV) is issued to the Veteran. The NOV includes:

• The estimated market value of the property.
• Any conditions for loan guaranty, typically requiring the completion of MPR-related repairs.
• Recommendations, such as obtaining a home inspection or radon testing.
• Specific acknowledgments required from the Veteran for certain property conditions (e.g., individual water supply systems, non-vented heating appliances, proximity to stationary storage tanks).
• Escape Clause: All sales contracts must include an "Escape Clause" to protect the Veteran if the purchase price exceeds the VA's Notice of Value (NOV) (38 C.F.R. 36.4303(k)(4)).

Lender's Responsibilities

Lenders have responsibilities in the VA appraisal process, including:

• Verifying Flood Zone Information: Lenders are responsible for verifying the flood zone information provided on the appraisal report.
• Obtaining Agreements: For properties with shared wells, the lender must obtain and review the shared well agreement to determine eligibility.
• Prompt Notification: Lenders must be promptly notified by the appraiser of any apparent encroachments or hazardous conditions.
• Due Diligence: Lenders have a responsibility to exercise due diligence in determining that a property is eligible and meets MPRs. Failure to do so may result in VA denying or reducing payment on a future claim.

Key Areas Covered by MPRs and Property Eligibility Criteria

MPRs and general eligibility criteria address a wide range of property characteristics and potential issues:

Basic Requirements

• Space Requirements: Each living unit must have sufficient space for living, sleeping, cooking, dining, and sanitary facilities.
• Structural Integrity: Foundations, roofs, attics, crawl spaces, basements.
• Utilities: Each living unit must have electricity, hot water, and a continuous supply of safe and potable water, along with a safe method of sewage disposal. Utilities must generally be independent for each unit.
• Access: Properties must have safe and adequate pedestrian or vehicular access from a public or private street with an all-weather surface. Private roads require permanent easements and maintenance agreements.
• Drainage and Topography: The site must be graded for positive, rapid drainage away from the dwelling, preventing water ponding. Appraisers must report dangers from topographic conditions.

Environmental and Hazard Considerations

• Environmental Hazards: Properties must be free from hazards (Index.pdf, 12-11) and defective conditions, including issues like drainage problems, Special Flood Hazard Area (SFHA), Coastal Barrier Resources System (CBRS), Lava Flow Hazard Zones, VA Radon Gas Requirements, Lead-Based Paint Hazards, Abatement, and Regulations, VA Wood Destroying Insect Requirements, and proximity to stationary storage tanks, high-voltage lines, and pipelines (Index.pdf, 12-12).
• Special Flood Hazard Areas (SFHAs): Properties located in an SFHA are not eligible if flood insurance is unavailable. Properties subject to regular flooding are also ineligible, regardless of SFHA designation.
• Coastal Barrier Resources System (CBRS): Properties located in CBRS areas are not eligible for a VA appraisal.
• Lava Flow Hazard Zones: Properties in Lava Flow Hazard Zones 1 and 2 (as designated by the USGS) are not eligible for appraisal.
• Dangerous Geological Conditions: Probable or imminent danger of subsidence or sinkholes can make a property ineligible.
• Airport Clear Zones: Proposed construction located in an airport Clear Zone (also known as a Runway Protection Zone) is not eligible.
• High Voltage Electric Transmission Lines/Pipelines: No part of any residential structure may be located within a high voltage electric transmission line easement or a high-pressure gas or liquid petroleum pipeline easement.

Legal and Zoning

• Marketable Real Estate Entity: The property must be a single, readily marketable real estate entity. Multiple contiguous parcels may be included if legally marketable and placed on one deed.
• Zoning Compliance: The property must comply with all applicable zoning ordinances.
• Legal Non-Conforming Use: If a property does not comply with current zoning but is accepted by the local authority as a legal-non-conforming-use, the appraiser must comment on its marketability and rebuildability.
• Non-Residential Use: While properties with both residential and business use may be eligible, the property must be primarily for residential use, the non-residential use must not impair the residential character, and there can be no more than one business unit. No value is given to business operations or commercial fixtures.
• Title Standards: The property's title must meet VA parameters, generally acceptable to informed buyers, title companies, and attorneys in the community. Restrictions on purchase or resale are typically unacceptable without VA approval (38 C.F.R. 36.4354, 36.4308, 36.4309(b), 38 U.S.C. 3704(c)).
• First Lien Requirement: VA-guaranteed loans must be secured by a first lien on the realty (38 U.S.C. § 3703(d)(3)(A)). Existing liens must be paid off or subordinated. Superior liens by private entities generally require prior VA approval (38 C.F.R. 36.4356).
• Sales Contract Review: Lenders must review sales contracts for proposed construction to ensure they are acceptable and do not contain unfair contractual provisions.

Specific MPRs and Related Requirements

Lead-Based Paint Requirements

• Properties Built in 1978 or Later: Appraisers must report all defective paint surfaces on the exterior and require repair of any defective paint that exposes the subsurface to the elements. Interior defective paint is normally considered cosmetic and typically does not require repair for VA purposes.
• Properties Built Before 1978: The presence of lead-based paint must be presumed. Any defective lead-based paint in these properties is considered a safety hazard and must be remediated. Economic feasibility is not an acceptable reason for waiver of a repair involving lead-based paint. The appraiser must clearly identify the location of any defective paint.
• Correction: Defective lead-based paint must receive adequate treatment to prevent ingestion. This can be achieved by thoroughly washing, scraping, wire brushing, or otherwise cleaning the surface to remove all cracking, scaling, peeling, chipping, and loose paint, and then repainting with two coats of a suitable nonleaded paint. Alternatively, the paint can be completely removed or the surface covered with a suitable material (e.g., gypsum wallboard, plywood, plaster) before painting.
• Certification: The completion of all repairs involving defective lead-based paint must be certified by the VA-assigned appraiser.

Radon Gas Requirements

• Testing Recommendation: The VA recommends testing for radon gas on the Notice of Value (NOV).
• New Construction: For proposed and new construction, the builder must certify that radon-resistant construction techniques were used where applicable and that construction meets any local or state building codes for radon control. Radon-resistant construction techniques are considered applicable for properties located in Radon Zone 1, as designated by the Environmental Protection Agency (EPA).

Wood-Destroying Insect Requirements

• Apparent Damage: Appraisers must report any apparent evidence of wood-destroying insect infestation, fungus growth, or dry rot. If any infestation or damage is apparent, the appraisal must be prepared "subject to" a wood-destroying insect inspection, and all damage must be repaired.
• Termite Infestation Probability Map: If the property is located in an area on the Termite Infestation Probability Map where the probability of termite infestation is "very heavy" or "moderate to heavy," a wood-destroying insect inspection report must be required on the NOV for origination appraisals.
• Condominiums: A termite inspection is not required for units in high-rise condominiums (units stacked vertically). For villa and townhome style condominiums (side-by-side units) in "very heavy" or "moderate to heavy" zones, a termite inspection must be required on the NOV, unless the homeowners association provides evidence of treatment.
• Exclusions: Small sheds or other detached, non-residential improvements that were not given value on the appraisal report may be excluded from the inspection report.

Individual Water Supply Requirements

For properties financed with a VA loan, specific requirements apply to individual water supply and sewerage systems to ensure the health and safety of the Borrower (Consumer). These are part of the Department of Veterans Affairs's Minimum Property Requirements (MPRs) and are assessed during the The Appraisal Foundation process by a VA-Approved Appraiser.

Water Quality Testing

• When a Water Test is Required: A Water Quality Test is mandatory if the property's drinking water originates from a private well, cistern, or spring, rather than a municipal water system. Connection to a public water system is not a prerequisite for a VA loan, but the water source must meet health and safety standards.
• Testing Standards and Contaminants: The water test must confirm the water is safe for consumption. While federal safety standards apply, individual states may impose additional, stricter requirements for specific contaminants (e.g., arsenic, radon, volatile organic compounds, PFAS). Lenders must adhere to the stricter of either VA or state standards.
• Addressing Unsafe Water: If a private water source fails to meet safety standards, it must be treated and re-tested to pass before the Loan Estimate (LE) and Good Faith Estimate (GFE) can proceed to closing. Remediation costs can vary significantly depending on the issue.
• Water Test Validity: VA water tests are valid for 90 days from the certification date provided by an approved testing facility.

Common Individual Water Sources

• Private Wells: The most common individual water source, requiring a water quality test.
• Cisterns or Springs: Acceptable if common to the area and a water test confirms safety. A veteran homebuyer may need to sign a hold-harmless agreement.
• Shared Wells: Properties with shared wells are also subject to VA well test requirements.

Well and Septic System Separation: The 100-Foot Distance Rule

A critical requirement is the 100 Foot Distance Rule, which mandates at least 100 feet of separation between a private well and the septic system (including the tank and drain field). This rule prevents groundwater contamination from septic effluent. If the well is within 100 feet, the property typically does not meet VA MPRs, potentially requiring remediation (e.g., relocating the well or septic system) or a variance from the local health department.

Repairs and Conditions

If the appraisal identifies any deficiencies that do not meet MPRs, these must typically be repaired before the loan can close. The appraisal will be prepared "subject to" the completion of these repairs. The contributory value of the completed repairs is included in the estimated market value. Appraisers should not recommend repairs for cosmetic items or minor deferred maintenance. These repairs often require VA Repair Inspections to confirm satisfactory completion.

Many specific NOV conditions are directly related to ensuring MPR compliance, such as those concerning:

• Wood-destroying insect infestations (termite inspections are mandatory in some regions).
• Water and sewage system acceptability.
• Repairs for defective conditions.
• New construction inspections and warranties.
• Lead/water distribution systems.
• Radon gas mitigation.

Specific Property Scenarios

• New Construction: For new construction where local authorities do not provide inspections, the lender must certify that the property is complete and meets VA MPRs for existing construction. Specific requirements for proposed construction include inspections and builder warranties (Index.pdf, 12-4, 10-18, 14-1).
• Foreclosed Properties: Foreclosed or "Real Estate Owned" properties sold by lenders must still meet VA MPRs to be eligible for a VA loan.
• Manufactured Homes: Special MPRs apply to manufactured homes classified as real estate (Index.pdf, 12-20).
• Nuisances (Appraisal): In the context of VA appraisals, Nuisances refer to factors affecting property value that do not render a property ineligible for a VA loan or require repair. However, appraisers must describe any nuisances and consider their effect on the property's value.
  • Key Considerations for Nuisances:
    • Description and Effect on Value: The appraiser must describe any nuisances present and analyze how they impact the property's Market Value.
    • Comparable Sales: If available, appraisers should use comparable sales that are also influenced by the same type of nuisance to ensure an accurate valuation.
    • Examples: Common examples of nuisances include heavy traffic, noise from a nearby highway, or odors from a factory in the vicinity.
  • Citation: VA Pamphlet 26-7, Chapter 12, Topic 1. The Military.com video "VA Loan Inspections and Appraisals" provides further details on these special requirements (Military.com, YouTube).
• Escrow for Postponed Completion: VA permits escrowing funds for minor, postponed improvements (e.g., landscaping, driveways) if the dwelling is otherwise suitable for occupancy, typically 1.5 times the estimated cost.
• Insurance Requirements: Lenders must ensure adequate hazard insurance is obtained and maintained. Flood insurance is mandatory for properties in Special Flood Hazard Areas (SFHAs) (38 C.F.R. 36.4329).
• Taxes and Insurance Escrow: VA does not require lenders to establish escrow accounts for property taxes and hazard insurance, but if established, lenders must comply with applicable laws like RESPA.
• Property Types: VA loans can be used to purchase various property types, including condominiums, provided the condo project is VA-approved. Properties with Accessory Dwelling Unit (ADU)s are generally eligible for VA financing, provided the ADU meets the general industry definition of a separate living unit on the same site, including kitchen, sleeping, and bathroom facilities. A manufactured home on the site could also be considered an ADU for VA loan purposes.

Types of VA Loans and Special Considerations

The VA Home Loan program offers various loan types and structures to meet diverse veteran needs.

Purchase and Refinancing Loans

VA loans can be used for various purposes, including purchasing or constructing a residence, refinancing existing VA or other mortgage loans, repairing or improving a home, and installing energy efficiency improvements.

The program supports various loan types, including:

• Purchase loans
• Interest Rate Reduction Refinancing Loans (IRRRLs): A streamlined refinance for existing VA loan holders to reduce their interest rate, lower payments, or convert an Adjustable-Rate Mortgage (ARM) to a Fixed-Rate Mortgage. IRRRLs generally do not allow cash out, except for energy efficiency improvements, and often do not require new appraisals or credit reports.
• Cash-Out Refinancing Loans: Allows borrowers to take cash out of their home equity, which can be used for any purpose. This option can also be used to refinance a non-VA loan into a VA-guaranteed loan.
• Construction/Permanent Home Loans: The VA can guarantee loans that finance both construction and purchase, with specific requirements for lender responsibility and inspections.

VA Manufactured Home Loans

VA Manufactured Home Loans are a specific type of VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC) designed to finance the purchase of manufactured homes and their associated lots. These loans are guaranteed by the Department of Veterans Affairs (VA) (VA) and are subject to particular statutory and regulatory requirements.

• Statutory Authority: Governed by Department of Veterans Affairs (VA) (38 U.S.C. 3712), which specifically addresses loans for manufactured homes and lots, including refinancing to reduce interest rates.
• Implementing Regulations: Detailed rules are found in Department of Veterans Affairs (VA), particularly Subpart A (Manufactured Homes and Lots).
• Guaranty Computation: The VA guaranty for loans under 38 U.S.C. 3712 is 40% of the original principal amount or $20,000, whichever is less. For interest rate reduction refinancing loans, the dollar amount of guaranty may not exceed the original guaranty amount (38 CFR § 36.4205).
• Maximum Loan Amount: Regulations outline specific limits for new and used manufactured homes, including allowable fees such as recordation, stamp taxes, local taxes, and insurance premiums (38 CFR Part 36 Subpart A).
• Occupancy: The veteran must certify personal occupancy of the property as their home. If the veteran is on active duty, their spouse must certify occupancy (38 CFR Part 36 Subpart A).
• Real Property Status: For VA purposes, manufactured homes and lots must be for units permanently affixed to a lot and considered real property under state law. If purchased together, it must be considered one loan (38 CFR Part 36 Subpart B).
• Entitlement Use: A veteran typically cannot purchase a second manufactured home until the unit securing the first loan has been disposed of or destroyed. Exceptions exist for VA Loan Entitlement if the prior loan has been repaid or VA liability released (38 CFR § 36.4204).

Farm Residence Loans (VA)

Farm Residence Loans (VA) are a specialized type of VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC) designed for properties that include a farm residence. These loans necessitate specific underwriting considerations related to the farm component, as detailed in the Department of Veterans Affairs (VA). The VA's underwriting process for these loans extends beyond the residential portion. It critically assesses how the farm's income and expenses might impact the veteran's ability to repay the mortgage. This comprehensive evaluation ensures that the property's overall use is compatible with the objectives and requirements of the VA loan program.

Cooperative Home Loans (VA) and Valuation

Cooperative Home Loans (VA) are a specialized type of VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC) designed for veterans purchasing shares in a housing cooperative. Unlike traditional mortgages that finance real property, these loans finance the acquisition of shares in a corporation that owns the property. This grants the shareholder the right to occupy a specific unit through a proprietary lease or occupancy agreement.

These loans have distinct underwriting and VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC) requirements, which are outlined in the Department of Veterans Affairs (VA). The VA ensures that the cooperative's financial health and governing documents meet its standards to protect the veteran's investment.

Cooperative Interest Valuation

The valuation of a cooperative (co-op) interest differs significantly from that of traditional real estate due to its unique ownership structure. The borrower purchases shares in a corporation, not the real estate directly.

During a Government Sponsored Enterprise (GSE) loan process, lenders must validate that the co-op interest was developed correctly. The final value for a co-op is typically developed using the share price of the cooperative. This means the appraisal focuses on the market value of the shares that grant occupancy rights to a specific unit, rather than the fee simple or leasehold interest in the real property itself.

Fannie Mae Form 1033 specifically requires lenders to "validate the co-op interest was developed correctly" and to "validate that it was correctly developed" using share price. This ensures that the appraisal methodology aligns with the unique ownership structure of cooperative properties, protecting both the lender and the borrower's investment.

Joint VA Loan

A Joint VA Loan is a mortgage loan backed by the Department of Veterans Affairs (VA) (VA) where at least one of the borrowers is eligible for a VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC). Two or more individuals apply for the loan, and all borrowers share responsibility for payments and home ownership. These loans require specific VA-Approved Credit Underwriter and Underwriting Standards, VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC), VA Loan Entitlement, and VA Funding Fee and Payment System (FFPS) calculations, as detailed in the Department of Veterans Affairs (VA).

Regulatory Framework

Joint VA loans are specifically regulated under 38 CFR Part 36 -- Loan Guaranty, § 36.4210, titled "Joint loans". This regulation outlines the conditions and requirements for such loans. Other related aspects covered in 38 CFR Part 36 include:

• Eligibility of the veteran for the manufactured home loan benefit (§ 36.4203)
• Loan purposes, maximum loan amounts, and terms (§ 36.4204)
• Computation of guaranty (§ 36.4205)
• Underwriting Standards, Occupancy, and Discrimination in Housing requirements (§ 36.4206)
• Interest Rates and Late Charges (§ 36.4212)

Key Characteristics and Benefits

Joint VA loans offer several advantages:

• No Mortgage Insurance: Unlike many conventional loans, joint VA loans typically do not require Homeowners Protection Act (HPA) and Mortgage Insurance (MI).
• No Down Payment: For the Veteran's portion of the loan, there is generally no Down Payment and Closing Cost Assistance required.
• Favorable Terms: The VA's guaranty, which covers a portion of the outstanding balance if the Borrower (Consumer) defaults, often leads to more favorable terms and competitive Adjustable-Rate Mortgage (ARM).

Eligibility and Borrower Combinations

The VA imposes specific restrictions on who can be included in a joint VA loan, with marital status and VA eligibility being key factors. The structure of a joint loan can vary, impacting the calculation of the VA guaranty and entitlement.

• Veteran and Spouse: A VA loan involving a Veteran and their spouse is generally not considered a joint loan by the VA if the spouse is not a Veteran or is a Veteran not using their VA Loan Entitlement. The VA typically treats a Veteran and their spouse as a single entity for guaranty purposes.
• Veteran and Non-Veteran: When a Veteran and a non-Veteran (who is not the veteran's spouse) apply for a loan together, it is classified as a joint VA loan. In such cases, the VA guaranty only applies to the veteran's portion of the loan.
• Multiple Eligible Veterans: A loan made to two or more eligible veterans. Veterans can co-own a property. For example, a multifamily home with more than four units, where the property can have four residential units, one business unit, and an additional unit for each participating Veteran. The guaranty and entitlement use are calculated based on both veterans' eligibility.
• Second VA Loan: A Veteran with remaining VA Loan Entitlement can use a joint loan with another Veteran who has full entitlement to purchase a second home.

Guaranty and Entitlement

Specific rules apply to calculating the guaranty and entitlement use for joint loans, especially when a non-veteran is involved. The VA guaranty only applies to the veteran's portion of the loan when a non-veteran is involved.

Underwriting Joint Loans

All borrowers on a joint loan are subject to VA underwriting standards, including credit and income analysis. For veteran/non-veteran joint loans, the veteran's VA-Approved Credit Underwriter and Underwriting Standards and income must be sufficient for their allocable portion of the loan. The non-veteran's credit must also be satisfactory, but the combined income of both borrowers can be considered to evaluate repayment ability. The income strength of one borrower may compensate for weakness in the other.

Funding Fee Calculation

The actual loan amount is allocated equally between borrowers for funding fee calculation, regardless of down payment source or amount. For example, a veteran's funding fee is based on their equal portion of the loan amount.

Other Considerations

• Occupancy: Occupancy requirements still apply, typically requiring the veteran or their spouse to occupy the property.
• Prior Approval: Some joint loans may require prior approval from the VA.

VA Joint Loans offer flexibility for veterans who wish to purchase a home with another individual, but MLOs must carefully understand the implications for guaranty and entitlement.

Supplemental Loans (VA)

Supplemental Loans (VA) are additional loans provided under the VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC) for specific purposes, often related to existing VA-financed properties. These loans allow veterans to leverage their existing VA benefits for further property enhancements.

• Purpose: These loans can be used for various purposes, such as making energy-efficient improvements or other approved alterations to a home that is already financed with a VA loan.
• Underwriting: Supplemental Loans require special underwriting considerations as outlined in Department of Veterans Affairs (VA).

VA Energy Efficient Mortgages (EEMs) and Alteration/Repair Loans

The Department of Veterans Affairs (VA) offers specific loan programs to help eligible veterans finance improvements to their homes. These include VA Energy Efficient Mortgages (EEMs) and general Loans for Alteration and Repair. Both programs allow veterans to enhance their homes, whether for energy savings, increased value, safety, or accessibility.

VA Energy Efficient Mortgages (EEMs)

VA Energy Efficient Mortgages (EEMs) are a type of VA-guaranteed loan that allows eligible veterans to finance the cost of energy-efficient improvements into their mortgage. This program encourages veterans to make their homes more energy-efficient, which can lead to lower utility bills.

Key aspects of VA EEMs include:

• Purpose: To help veterans finance energy-saving improvements to their homes, such as solar energy systems, insulation, weatherstripping, and energy-efficient windows (Index.pdf, 7-15, 13-12).
• Eligibility: EEMs can be combined with a purchase loan or an IRRRL (Index.pdf, 7-17).
• Improvement Costs: The cost of energy-efficient improvements can be added to the loan amount, up to specific limits, which vary based on the total cost of the improvements (Index.pdf, 7-17).
• Funding Fee: EEMs are subject to the VA funding fee, with specific calculation rules (Index.pdf, 7-19).
• Guaranty and Entitlement: The calculation of guaranty and entitlement use for EEMs has specific rules (Index.pdf, 7-19).
• Documentation: Lenders must ensure proper documentation of the proposed improvements and their estimated cost.
• Escrow: An escrow or earmarked account may be established for the funds designated for energy efficiency improvements (Index.pdf, 7-20).

VA EEMs provide a valuable opportunity for veterans to invest in their homes' energy efficiency, potentially saving money on utility costs over the long term.

Loans for Alteration and Repair

Loans for Alteration and Repair are a specific type of VA Loan Entitlement, Certificate of Eligibility (COE), and Loan Guaranty Certificate (LGC) designed to finance modifications or improvements to an existing home. These loans are subject to unique underwriting considerations detailed in the Department of Veterans Affairs (VA). This benefit allows veterans to enhance the value, safety, or accessibility of their current residence, ensuring that the improvements meet VA standards and are a sound investment.

Lender Participation and Responsibilities

• Lender Participation: Lenders can participate through automatic authority or prior approval processing.
• Lender Responsibilities: Lenders must comply with all VA laws and regulations to ensure the guaranty remains valid. Non-compliance or fraud can lead to partial or total loss of the VA guaranty. Lenders must strictly adhere to fee limitations when making VA loans.
• Security Instruments: Lenders must use security instruments that establish a first lien, comply with VA and state laws, and contain specific VA clauses (e.g., assumption approval, acceleration, funding fee, processing charge, and indemnity liability assumption) (38 C.F.R. 36.4337).
• MLO Responsibilities: Mortgage Loan Originators (MLOs) involved with VA loans must adhere to specific responsibilities, including:
  • Understanding VA loan eligibility and program requirements.
  • Complying with the Nationwide Mortgage Licensing System Registry (NMLS) and Regulation G (SEC and CFPB), including providing their Nationwide Mortgage Licensing System Registry (NMLS) in disclosures and advertisements.
  • Avoiding prohibited acts such as "bait-and-switch" tactics or falsifying information.
  • Recognizing VA loans as a type of 12 CFR 1026 43 Refinancing Non Standard Mortgages (QM), alongside other government loans like Federal Housing Administration (FHA) and Federal Housing Administration (FHA).

VA Quality Control Plan for Lenders

A VA Quality Control Plan refers to the internal system and procedures that lenders must implement to ensure compliance with Department of Veterans Affairs (VA) regulations and sound lending practices for VA-guaranteed loans. The "Elements of a Quality Control Plan" are discussed in Chapter 1, topic 15 of the Department of Veterans Affairs (VA) (VA Pamphlet 26-7).

This plan is crucial for lenders to:

• Maintain the integrity of their VA loan operations.
• Identify and correct deficiencies in loan origination and underwriting.
• Ensure that all VA loan requirements, including Applicant eligibility and VA-Approved Credit Underwriter and Underwriting Standards standards, are consistently met.
• Mitigate risks associated with non-compliance.

A robust quality control plan is a fundamental aspect of a lender's responsibility when participating in the VA Home Loan Program.

Governing Framework

VA loans are governed by a multi-layered framework:

1. Federal Statutes: Primarily Department of Veterans Affairs (VA) (38 U.S.C. Chapter 37), which provides the statutory authority for the program.
2. Federal Regulations: Detailed rules are found in Department of Veterans Affairs (VA) (38 CFR Part 36).
3. Agency Guidance: Comprehensive operational guidance is provided through the Department of Veterans Affairs (VA) (VA Pamphlet 26-7) and periodic updates.

VA regulations are designed to conform to RESPA requirements, particularly concerning annual statements of interest paid and taxes disbursed (38 CFR § 36.4346).

Additional Considerations

• Secondary Borrowing: Permitted simultaneously with a VA first mortgage under specific conditions, ensuring the Veteran is not disadvantaged and the total loan amount does not exceed the NOV.
• Homebuyer Assistance Programs (HAP): Veterans can utilize HAPs, with state, county, or municipal programs having blanket VA approval. Other HAPs may require RLC review.
• Land Sale Contracts: VA may guarantee obligations secured by land sale contracts for improved residential property, provided they contain mandatory clauses and are recorded (38 U.S.C. 3710(b)(7)(B)).
• Seller Concessions: Seller concessions are limited to four percent of the property's reasonable value to prevent inflated property values.
• Power of Attorney (POA): Veterans can use a valid POA to execute loan documents, with specific requirements for content and lender verification of the Veteran's status.

Official Resources

• VA.gov - Eligibility for VA home loan programs: https://www.va.gov/housing-assistance/home-loans/eligibility/
• VA.gov - How to request a Certificate of Eligibility: https://www.va.gov/housing-assistance/home-loans/how-to-request-coe/
• 38 U.S.C. § 3702
• 38 CFR § 36.4302
• For an overview of eligibility, refer to the official VA video "Overview of VA home loans and how to apply" (U.S. Department of Veterans Affairs, YouTube).
• 38 U.S.C. §§ 3701 et seq.
• 38 CFR Part 36