The VA home loan program was originally part of an overall package initiated by Congress and signed into law by the President. The original legislation was called the Servicemen’s Readjustment Act of 1944 as a way to help returning soldiers from WWII more easily assimilate back into civilian life with education opportunities, grants to start a business and buying a home with no down payment among others. Congress and economists alike have long known that home buying is an important cog in the economic wheel and the wave of soldiers returning home at war’s end meant housing would be an issue. There were other home loan programs available at the time but the Department of Veteran’s Affairs recognized that veterans really didn’t have the time nor income to save up for a down payment.
The VA loan also had an insurance policy attached to it that comes with every single VA loan issued. This policy is paid for by the borrowers but does not have to be paid for out of pocket and instead rolled into the loan amount. Should a VA loan ever go into default, the lender is compensated at 25% of the loss. However, such a payout to a lender is rare as VA loans are the highest performing of the three government-backed programs.
Over the years, the VA has handed over the loan approval process to VA approved mortgage lenders. It used to be that a bank would accept an application for a VA loan and then hand it over to the VA for an approval. As you might imagine, the approval process took quite some time. So much so that some sellers would reject an offer on a home because the prospective buyers were going to use a VA loan to purchase a home. Today, individual mortgage companies approve the entire loan package, including the appraisal.
The VA loan’s most popular feature is the lack of a down payment just as it was back in 1944. The VA loan also restricts certain closing costs the veteran is allowed to pay. Further, there is no monthly mortgage insurance premium that must be paid. Interest rates for VA loans are also very competitive as well. For those that are eligible for the VA loan and want a loan that has as little out of pocket expense as possible, there really is no better option.