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Facts About VA Loan Amortization

The Department of Veterans Affairs has specific guidelines that cover amortization of VA home loans. These rules are necessary so that lenders know what is required to participate in the VA insured loan program, and so borrowers know how their monthly mortgage payments are to be applied to the principal and interest on the loan.

Wikipedia defines amortization as “the process of decreasing, or accounting for, an amount over a period….When used in the context of a home purchase, amortization is the process by which your loan principal decreases over the life of your loan. With each mortgage payment that you make, a portion of your payment is applied towards reducing your principal and another portion of your payment is applied towards paying the interest on the loan.”

VA requirements for home loans include the following:

“All VA loans must be amortized if the maturity date is beyond 5 years from the date of the loan.  Loans with terms less than 5 years are considered term loans and need not be amortized.”

Since typical VA home loans for new purchase properties are 15- or 30-year mortgages, they must be amortized. This means that a VA borrower’s monthly mortgage payments are “approximately equal” and that the principal of the loan is required to be “reduced at least once annually”. An important factor when considering VA loan amortization is the final payoff amount. VA rules state that a borrower must not be required to pay a final installment on the VA loan that exceeds “two times the average of the preceding installments.”

But the VA does make exceptions to these requirements for certain types of loans such as VA Graduated Payment Mortgages. Exceptions can also be made when approved by the Department of Veterans Affairs.

The rulebook for VA lenders states, “certain amortization plans which do not meet the requirements described in section a above may be used if approved in advance by VA.  A lender may submit an amortization plan to VA for prior approval if the plan…is generally recognized; that is, is used extensively by established lending institutions, but…does not meet the requirements of approximately equal periodic payments and a reduction in principal not less often than annually.”

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About Joe Wallace

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association.

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