Common VA Loan Terms

Accessory Dwelling Unit (ADU): is a living unit including kitchen, sleeping, and bathroom facilities added to or created within a single-family dwelling, or detached on the same site. A manufactured home on the site could be an ADU. An ADU may also be called a guest house, granny flat, or an in-law suite.

Agent: a person or entity that performs any activity on behalf of, or in the name of, a sponsoring lender. An agent may also be referred to as a Mortgage Broker.

Amortization: the gradual payment of a debt by periodic (usually monthly) installments of principal and interest.

Appraisal: a method of property valuation, performed after the veteran borrower is under contract on a property. The appraisal is intended to be an authentic and reliable assessment performed by a VA-approved appraiser. (Not an inspection).

Appraisal Fee: the fee for an appraisal for partial release of security purposes is not fixed and could vary from the typical origination appraisal fee.

Automatic Authority: Authority to close loans on an automatic basis, is the authority given to a lender by the VA to close VA-guaranteed loans without the prior approval of the VA. Lenders with automatic authority should use it to the maximum extent possible.

Cash-out Refinance: any VA refinance, other than an IRRRL. This can be a mortgage loan that veterans can use to replace their current VA mortgage for a larger amount than what is currently owed, allowing the veteran to pocket the difference between the new loan and the current loan’s balance; or refinance any other type of existing loans into a new VA loan.

Certificate of Eligibility (COE): a form that serves to establish a veteran’s eligibility to apply for a loan and VA loan entitlement.

Circulars: (also called Loan Guaranty circulars) are current policy and procedure updates for servicing VA loans. Circulars are supplemental to the VA Home Loan regulations, VA Pamphlet 26-7.

Closing Date: the date upon which the property is conveyed by the seller to the buyer.

Command Sponsorship: required sponsorship and permission for family members to accompany the active military member to overseas assignments.

Common Interest Community: this is a subdivision containing common land, often including recreational amenities. Common property is typically owned by an association of the homeowners (HOA), to which they all belong, and pay lien-supported assessments for a proportionate share of the expenses of the HOA.

Compensating Factors: factors that can be considered for analyzing a VA loan applicant which include but are not limited to credit history, employment status, military benefits, use of credit, consumer debt, liquid assets, etc. to strengthen a borrower’s loan profile.

Concessions: a benefit or discount offered by the buyer or seller to help sell a home and close a deal. Include but not limited to payment for closing costs, necessary repairs, or personal property such as furniture offered by the seller. Also, see Interested Party Contributions (IPC).

Conforming Loan Limits: Fannie Mae and Freddie Mac are restricted by law from purchasing single-family mortgages with origination balances below a specific amount, known as the “conforming loan limit.” Loans above this amount are known as jumbo loans. VA uses the conforming loan limits to calculate second-tier entitlement.

Contingency: a provision in a contract that requires the occurrence of a specific event before the contract can be completed. For example, if a buyer is refused financing after recently taking on additional debt or suffering a loss of income, a loan ‘contingency’ would allow the buyer to exit the sale and walk away with their full earnest money deposit.

DD214: Certificate of Release or Discharge from Active Duty, a document that states the nature of a veteran’s discharge, dates of service, and classification (retired, separated).
Debarment: is a sanction that in most cases excludes the program participant from any participation in the non-procurement programs of any Federal agency, including VA’s loan guaranty program. Debarment is effective, often for a 3-year period.

Debt to Income Ratio (DTI): percentage of a veteran’s gross monthly income that goes towards paying monthly debt payments and includes the total proposed monthly housing payment. DTI is used to determine a veteran’s borrowing risk.

Detached Buildings: a manufactured home, shed, or other detached building on the property which does not have a kitchen, sleeping, and bathroom facilities, or cannot be legally used as a dwelling, may be valued as storage space if it does not present any health or safety issues.

Department of Housing and Urban Development (HUD): government department that administers programs that provide housing and community development assistance. The department also works to ensure fair and equal housing opportunities for all.

Dependent: military dependents are the spouses and/or children or other family members under the care of the primary military sponsor. Dual military couples are not considered each other’s dependents and serve each within their own rights and benefits.

Deployment: the movement of armed forces outside the continental United States. Veterans tasked with deployments will have military orders for their temporary assignment to the overseas location.

Disability Rating: a medical rating assigned to a Veteran based on the severity of a Veteran’s service-connected disabilities. VA Disability ratings, based on percentage, include benefits for the Veteran dependent on state and VA program participation. See VA Disability Compensation.

Dislocation Allowance: a temporary partial reimbursement to a military member, with or without dependents, for expenses incurred in relocating the member’s household on a PCS, housing moves ordered for the Government’s convenience, or incident to an evacuation.

Eligibility: means the Veteran meets the basic criteria of length of service (LOS) and character of service (COS) for the home loan benefit.

Energy Efficient Mortgages (EEMs): VA loans to cover the cost of making energy-efficient improvements to a dwelling.

Entitlement: VA loan entitlement refers to the amount the Department of Veterans Affairs will guarantee on a given borrower’s VA loan. In other words, it’s the maximum amount the VA will repay your lender if you default on your loan. There are two types of VA loan entitlements, basic and bonus or secondary entitlement.

Escrow Holdback: an amount of money held in an escrow account owned by a neutral party such as a title company. The money in the holdback escrow account is taken from the seller’s portion of the funds they would receive at closing.

Equal Credit Opportunity Act (ECOA): established in 1974, the act bans lenders from discriminating against borrowers based on race, religion, national origin, sex, marital status, or age.

Farm Residence Loan: A loan for the purchase, construction, repair, alteration, or improvement of a farm a residence that is occupied or will be occupied by the Veteran/borrower as a home that meets VA’s guaranty eligibility requirements.

Federal Housing Authority (FHA): in connection with the Department of Housing and Urban Development, the FHA works to stabilize the mortgage market, improve housing standards and conditions, and provide adequate financing for struggling families.

Federal Housing Finance Agency (FHFA): was established by the Housing and Economic Recovery Act of 2008 (HERA) and is responsible for the effective supervision, regulation, and housing mission oversight of Fannie Mae, Freddie Mac (the Enterprises), and the Federal Home Loan Bank System, which includes the 11 Federal Home Loan Banks (FHLBanks) and the Office of Finance. Since 2008, FHFA has also served as conservator of Fannie Mae and Freddie Mac.

Federal Reserve Regulation: the truth-in-lending law that requires disclosure of finance charges and the annual percentage rate.

Forbearance: a temporary postponement of mortgage loan payments. Lenders grant forbearance as an alternative to forcing a property into foreclosure or leaving the borrower to default on the loan.

Funding Fee: a one-time payment that the Veteran, service member, or survivor pays on a VA-backed or VA direct home loan, which can be financed into the loan. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance.

Full Exclusion: related to Program participation, in which a participant who is fully excluded may not conduct any type of VA loan guaranty business or have another party conduct such business on his or her behalf.

Mergers and Acquisitions: Changes in ownership or corporate structure of a lender may impact its continued qualifications for VA automatic authority. Lenders must notify the VA whenever a merger, acquisition, or change in ownership of the lender occurs. More on lender mergers and acquisitions are discussed in section 8 of the Chapter 1.
Minimum Property Requirements (MPR): VA established requirements to protect the interests of Veterans, lenders, servicers, and the VA. Properties must meet these requirements prior to VA issuing their guarantee on the loan.

Negative Amortization: an increase in the principal balance of a loan caused by a failure to cover the interest due on that loan. A loan in which unpaid interest is added to the balance of unpaid principal.

NGB-22 (National Guard Bureau Form 22): National Guard Bureau equivalent of DD Form 214, used to submit proof of service and evidence of serving long enough to qualify for a VA home loan.

Non-Conforming Loans: a mortgage loan that doesn’t meet the guidelines for a conforming loan set by Fannie and Freddie Mac, i.e., a loan that exceeds the set conforming loan limit.

Non-Contiguous Areas: the functional utility and contributory value of any non-contiguous areas should be considered by the appraiser and listed separately from the GLA on the market data grid.

Non-supervised automatic lender: a lender who has applied for authority to close loans on an automatic basis and has been formally granted such authority by VA.

Non-supervised lender: a lender that is not a supervised lender.

Notice of Value: issued by a Staff Appraisal Reviewer (SAR) or VA staff, the NOV informs the Veteran about the results of the appraisal report and any conditions that must be met for the VA to issue the guarantee of the loan for the lender. The NOV explains how appraisal reports differ from home inspections and suggest that the Veteran may wish to obtain a new home inspection.

One Percent Flat Fee: VA lenders may charge a flat fee, referred to as the loan origination fee, not to exceed one percent of the loan amount. The flat charge is intended to cover all the lender’s costs which are not reimbursable as itemized fees.

One-Time Restoration occurs when entitlement previously used for a VA loan has been restored without the Veteran disposing of the property.

Partial Exclusion: related to Program participation, may involve limitations on the role the participant may play or how the participant conducts VA loan guaranty business.

Pay Grade: military administrative classifications are used primarily to standardize compensation across military services. For example, Army E-1, “E” stands for Enlisted while “1” indicates the pay grade for that position.

Permissive Leave: an allotted ‘time-off’ for a military member to conduct house-hunting upon assignment to a new duty location. Approval is dependent on organization leadership and mission needs, typically 10 days permitted depending on military status i.e., married with dependents, etc.

PITI: represents Principle, Interest, Taxes, and Insurance; the sum of a veteran’s mortgage payment which is used by lenders to establish the front-end housing ratio, as well as determine a veteran’s total DTI ratio.

Prior Approval Lender: is neither a supervised nor non-supervised automatic lender. All prior approval loans must be submitted to VA for underwriting and approval prior to closing the loan.

Protected Veteran: status established by the Vietnam Era Veteran’s Readjustment Assistance Act of 1974(VEVRAA) that establishes four categories of protected Veterans based on their status (Disabled Veterans, Recently separated Veterans, Armed Forces Service Medal Veterans, and Active Duty wartime or campaign badge Veterans) and outlines certain regulations to prevent discrimination against them and applies to all companies that do business with the federal government.

Rank: a system of hierarchical relationships within the armed forces, a badge of leadership that increases with time, experience, knowledge, and capability. Do not confuse Pay Grades, which are administrative classifications used for compensation purposes.

Reconsideration of Value (ROV): an option a borrower can take if the appraised value is not enough (below the asking price) to complete the loan. The lender or real estate agent can provide valid sales data to the lender to support the opinion. VA staff will then review the appraisal report and additional data provided to make a further recommendation of the final appraised value.

Release of Liability (ROL): An ROL releases a borrower from responsibility for making payments on their loan. If the buyer defaults and VA must reimburse the lender for any loss, the borrower won’t owe anything to VA. The borrower still must contact their lender and ask to be released from liability. VA has no authority to require that the lender release a borrower from their responsibility to repay the loan.

Residual Income: is the amount of net income remaining (after deduction of debts and obligations and monthly shelter expenses) to cover family living expenses.

Servicemembers Civil Relief Act (SCRA): law passed by Congress to provide protection to military members that include mortgage relief, termination of leases, protection from eviction, 6% cap on interest rates, stay on proceedings, and the reopening of default judgments. https://legalassistance.law.af.mil

Servicer Appraisal Processing Program (SAPP): authority granted to servicers of VA loans to review liquidation appraisals and issue the Notice of Value (NOV) without VA involvement.

Specially Adapted Housing Assistive Technology Grant Program (SAHAT): a program authorized by the VA to award grants of up to $200,000 per fiscal year to persons or entities to encourage the development of specially adapted housing assistive technologies.

Specially Adapted Housing Grant: a grant offered by the VA for veterans and service members with certain service-connected disabilities so they can buy or change home to meet their needs and live more independently.

Sponsor: a term used or the primary military member responsible for their household. Also, used as a mentor assigned to newly assigned veterans upon arrival to a new duty station.

Sponsoring Lender: a lender that uses an agent to perform any portion of the work involved in originating and closing a VA-guaranteed loan is the “sponsoring lender” for that agent.

Statement of Service: a memorandum or form from a military member’s chain of command that is provided to the lender as proof of service for Veterans on active duty.

Supervised Lender: a lender that is subject to mandatory periodic examination and supervision by an agency of the US or any State or territory, including the District of Columbia.

Supplemental Loan: a loan for the alteration, improvement, or repair of a residential property. Property must secure an existing VA-guaranteed loan, and be owned and occupied by the Veteran, or the Veteran will reoccupy upon completion of the major alterations or repairs.

Suspension: see Debarment, has the same impact as debarment but is imposed on a temporary basis, pending the outcome of investigative, legal, or debarment proceedings.

Temporary Duty: temporary work assignment to another location other than where the veteran’s permanent duty station. Veterans may receive short-term increases in pay and benefits based on location and duration of temporary assignment.

Tidewater Procedure: an appraiser function where the Appraiser allows two business days for the appraisal requester or representative to provide additional sales data when it appears that the estimated market value of the property is below the sales price.

Title 10: Title 10 orders, allows the President to temporarily ‘federalize’ also known as ‘call to active duty the reserve component of the Armed Forces (National Guard/Reservists).

Title 32: Title 32 orders, allows the Governor of a State, with the approval of the President or Secretary of Defense, to temporarily order a member to duty for operational Homeland Defense activities.

Uniformed Services Employment and Reemployment Rights Act (USERRA): is a federal law, passed in 1994, that protects military service members and veterans from employment discrimination based on their service, and allows them to regain their civilian jobs following a period of uniformed service. This applies to members of the Armed Forces, Reserves, National Guard, and other “Uniformed Services” including the Disaster Medical System and the Commissioned Corps of the Public Health Service. U.S. Office of Special Counsel.

VA Disability Compensation: a monthly tax-free payment to Veterans who got sick or injured while serving and to Veterans whose service made an existing condition worse. Veterans have rated a percentage based on ailments and are awarded a dollar amount after discharge/separation from service.

VA Escape Clause: a clause that must be contained in the sales contract for all VA-guaranteed loans. The lender is responsible for ensuring that the paragraph is in the sales contract prior to closing. This clause states that the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise or be obligated to complete the purchase of the property described herein if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs

VA Home Loan Guaranty: this is an agreement that the VA will reimburse a lender (such as banks, credit unions, mortgage companies, etc.) in the event of loss due to foreclosure. The guaranty takes the place of a veteran’s down payment.

VA Lender’s Handbook: VA guidebook for lenders and VA home loan program participants that contains all the requirements for participation in the program.

VA Partial Claim Payment (VAPCP): a temporary program intended to assist Veteran borrowers specifically impacted by the COVID-19 pandemic to resume making their regular (pre-COVID) mortgage payments after exiting forbearance. The program was previously available until 28 October 2022.

VA Program Participants: any person or entity conducting business related to the VA loan guaranty program is considered a program participant.

VA Regional Loan Center (RLC): administrative centers established to help veterans understand their home loan benefits, obtain eligibility documents, and prevent foreclosures.

VA Vendee Loan: VA loan program that offers qualified borrowers the option of purchasing VA Real Estate Owned (REO) properties with little to no money down. The program is available to Veterans, non-Veterans, owner-occupants, and investors.

Veteran’s Mortgage Life Insurance: VA program that provides insurance coverage on home mortgages for certain severely disabled Service members and Veterans.