Department of Veterans Affairs (VA) has assisted veterans with homeownership
since 1944, when Congress enacted the loan guaranty program to help
veterans returning from World War II purchase homes. The loan guaranty
program assists veterans by insuring mortgages made by private lenders,
and is available for the purchase or construction of homes as well as to refinance existing
loans. The loan guaranty has expanded over the years so that it is available to
(1) all veterans who fulfill specific duration of service requirements or
who were released from active duty due to service-connected disabilities,
(2) members of the reserves who completed at least six years of service,
and (3) spouses of veterans who died in action, of service-connected
disabilities, or who died while receiving (or were entitled to receive)
benefits for certain service-connected disabilities (see Table 1).
Under the loan guaranty, the VA agrees to reimburse lenders for a portion
of losses if borrowers default. Unlike insurance provided through the Federal
Housing Administration (FHA) insurance program, the VA does not insure
100% of the loan, and instead the percentage of the loan that is
guaranteed is based on the principal balance of the loan (see Table 3).
Veterans who enter into VA-guaranteed loans must pay an up-front fee based on a
number of factors that include the type of loan entered into (for example,
purchase or refinance), whether service was active duty or in the
reserves, whether the loan is the first or subsequent VA loan a borrower
has entered into, and the amount of down payment (see Table 6).
Borrowers are not required to make a down payment for a VA-guaranteed
loan, but the up-front fee is reduced if there is a down payment of 5% or
more. Most borrowers (88% in FY2011) do not make a down payment.
In addition to guaranteeing loans from private lenders, the VA also makes
direct loans to borrowers in certain circumstances. The original VA direct
loan, which was targeted to veterans in rural areas, is now available only
to veterans or servicemembers with certain service-connected disabilities.
Another direct loan program, originally enacted as a demonstration program in
1992, serves Native American veterans, including veterans living in
American Samoa, Guam, and the Commonwealth of the Northern Mariana
Islands. In addition, the VA may enter into direct loans in cases where a
borrower is delinquent or defaults on a VA-guaranteed loan. The VA may either acquire
a loan from a lender and continue servicing itself (called “acquired loans”)
or, in cases of foreclosure, the VA may purchase the property and resell
it. In these cases, the VA may enter into a loan with a purchaser whether
he or she is a veteran or not (called “vendee loans”).
A third way in which the VA provides housing assistance to both veterans and
active duty servicemembers is through the Specially Adapted Housing (SAH)
Program. Through the SAH program, veterans with certain service-connected
disabilities may obtain grants from the VA to purchase or remodel homes to
fit their needs. The amount of a grant depends on the disability, and in
some cases grants can be used to modify the homes of family members with whom
veterans or servicemembers are staying (see Table 7).
This report discusses these three types of housing assistance—the loan guaranty
program, direct loan programs, and Specially Adapted Housing program—their
origins, how they operate, and how they are funded. The report also has a
section that discusses the default and foreclosure of VA-guaranteed loans.
Date of Report: September 14, 2012
Number of Pages: 43 Order Number: R42504 Price: $29.95
For email and phone orders, provide a Visa, MasterCard, American Express, or Discover card
number, expiration date, and name on the card. Indicate whether you want e-mail
or postal delivery. Phone orders are preferred and receive priority processing.