The VA home loan is one of the greatest benefits offered by the U.S. Department of Veteran Affairs, but how did it get started? A VA loan is a loan from a qualified independent lender that’s backed by the VA. The VA doesn’t actually lend money, but instead guarantees loans made to veterans and active-duty military in case of default.
The pledge gives lenders the confidence they need to lend on low- or no-down payment home purchases.
Beginning in 1944, during the height of World War II, Congress passed a bill to help veterans returning home from the war. The VA home loan was one of many benefits included in the Servicemen’s Readjustment Act of 1944.
Instead of giving returning veterans a lump sum of money, lawmakers decided it would help spur the economy if veterans could buy homes. The first eligibility requirements focused solely on WWII veterans but were revised in the 1950s to include Korean War vets.
Also, thanks to a booming economy in the late 1940s and early 1950, the VA was forced to raise its loan limits to keep up with increasing property values. In the spring of 1950, some major changes were implemented, including:
- Increasing the VA guarantee to 60 percent of the loan amount
- Extending loan terms to 30 years (previously it was 20 years)
- Allowing surviving spouses of veterans who died in combat to use the program
In the 1970s, President Nixon signed the Veterans Housing Act, which implemented the most sweeping reform to the program since its inception, including eliminating any type of expiration of the program’s benefits. Millions of veterans who had lost out taking advantage of the program were able to once again.
The new law also introduced a refinance component. Veterans who had previously purchased homes with high interest rates could now refinance. Condos and mobile homes were also added to the list of home loans the VA would back.
More changes came in the 80s and 90s, but the biggest was perhaps 1992’s amendments, which extended the benefit to Gulf War veterans and those who’ve served at least six years in the Reserves or National Guard.
Now, 70 years after its creation, VA loans are eligible to all military active-duty, reservists and veterans in good standing. Buyers can borrow up to $417,000 without a down payment in most parts of the country with a minimum credit score of 530. Some Counties allow up to $625,500.