The U.S. Department of Veterans Affairs (VA) administers several programs that assist individual veterans in purchasing and/or rehabilitating homes. The specific ways in which the VA assists veterans include (1) guaranteeing home mortgages from private lenders (through the Loan Guaranty Program, a form of insurance) to help veterans obtain financing for home purchases, improvements, or refinancing; (2) providing direct loans for home purchases to Native American veterans and to purchasers of homes that are in the VA inventory due to default and foreclosure; and (3) extending grants and loans to veterans with service-connected disabilities so that they can adapt housing to fit their needs through the Specially Adapted Housing Program. This report discusses some of the legislative history behind each of these housing programs, and provides details about how the programs currently operate. There is a separate section on funding for VA loan programs, and the final section of the report discusses VA efforts to assist borrowers who face default and foreclosure. While the VA also provides housing assistance for homeless veterans, this report does not address these programs. For more information about homeless veterans and programs that assist them, see CRS Report RL34024, Veterans and Homelessness . The VA Loan Guaranty Program is a mortgage insurance program through which eligible veterans enter into mortgages with private lenders, and the VA guarantees that it will pay lenders a portion of losses that may be suffered as a result of borrower default. VA-guaranteed loans are available for the purchase, construction, or repair/rehabilitation of a dwelling —defined to include homes with up to four units, single condominium units, and manufactured homes classified as real property —or a farm and farm residence. The guaranty is also available to finance the purchase of a manufactured home not classified as real property, and to refinance an existing loan. The VA loan guaranty came about as an alternative to a cash bonus for veterans returning from World War II, considered less expensive than a bonus, but still a way to provide benefits to veterans. Credit was seen as one of the areas where veterans were at a disadvantage compared to their non-veteran counterparts because they had not had the time to establish a career or credit history that would allow them to obtain a mortgage without a guaranty. The Servicemen's Readjustment Act of 1944 (P.L. 78-346) created the loan guaranty as part of a package of benefits for returning veterans. The act also included educational benefits (the 1944 act introduced the GI Bill), employment counseling and placement services, and payments for unemployed veterans. The package of benefits was meant to help veterans reintegrate into the civilian economy. The law provided that the VA would guaranty loans for veterans to purchase or construct a home, purchase a farm or farm equipment, or purchase a business. The guaranty was limited to the greater of 50% of the loan or $2,000, and loans could not have an interest rate above 4%. The VA paid the interest on the guaranteed portion of the loan during its first year. Veterans had the greater of two years from the termination of the war, or two years from their date of separation from the military, to apply. Within a year, Congress amended the loan guaranty to address some of the aspects of the program that did not seem to be working (P.L. 79-268). The maximum guaranty was raised to $4,000 (prices of homes had risen), the maximum maturity was increased from 20 to 25 years (the shorter maturity period had resulted in higher payments), and veterans were given 10 years from the end of the war to apply (two years had been too short a time frame). Over time, the loan guaranty has been expanded to include all veterans who served on active duty from World War II on, with varying length of service requirements, as well as those who served in the selected reserves; the amount of the guaranty has grown; business purchases are no longer eligible and farm purchases have been limited; and the uses have expanded to include refinancing, energy efficiency improvements, and the purchase of manufactured homes. This section of the report describes eligibility for the loan guaranty (" Borrower Eligibility "), ways in which it can be used (" Uses of the Loan Guaranty "), coverage (" Amount of Coverage Provided by the Loan Guaranty "), and how the VA loan guaranty differs from the Federal Housing Administration (FHA) mortgage insurance program (" How the VA Loan Guaranty Differs from FHA Insurance "). Veteran eligibility for the VA loan guaranty started narrowly, targeted to individuals who served during World War II. As additional conflicts arose, veterans of those conflicts, as well as peacetime eras, were made eligible for the program. Further, the loan guaranty statute defines the term veteran broadly to include the following categories. Veterans who served or are serving on active duty . To be eligible for VA loan benefits (and most other VA benefits), veterans must fulfill specific time period and duration of service requirements. See Table 1 for more details. Members of the Selected Reserve. 8 Reservists need not have served on active duty, unlike what is required for some other veterans' benefits, as long as they serve for at least six years. S pouses of veterans . Spouses of veterans who died in action, died of a service-connected disability, or who are missing in action, captured, or forcibly detained are eligible for the loan guaranty. In addition, spouses of veterans who die while receiving compensation (or who were eligible to receive compensation) for a service-connected disability rated totally disabling for a specified duration are eligible. Prior to 2012, only surviving spouses of veterans who died from their service-connected disabilities were eligible for the loan guaranty. See Table 1 for a complete list of eligibility categories. In addition to length of service requirements, the VA loan guaranty has underwriting criteria designed to ensure that veterans have the financial means to make mortgage payments. The statute gives the VA Secretary the authority to set underwriting standards in regulation, which are further supplemented by the VA Lenders Handbook . The underwriting standards consider a veteran's income, expenses, and credit history in determining whether he or she qualifies for a guaranteed loan. In seeking to balance income and expenses, a veteran must meet requirements established via a debt-to-income ratio standard and a residual income analysis. Debt-to-Income Ratio: In the debt-to-income analysis, a lender is to look at the ratio of a veteran's anticipated housing expenses and other long-term monthly obligations compared to his or her stable and reliable monthly income. To be stable and reliable, income is to be expected to continue "for the foreseeable future." Examples of unreliable income include VA education benefits, unemployment compensation, and irregular overtime pay. A veteran's total debt-to-income ratio should not exceed 41%, although there are provisions to allow for exceptions to this requirement in cases where a lender is able to justify the loan to the VA. Residual Income: The residual income test is used to determine whether a veteran's income after payments for shelter expenses and other debts is adequate to meet living expenses. Unlike the debt-to-income ratio, the residual income test looks at additional expenses such as food, clothing, health care, and gasoline that are not captured as part of debt. The loan guaranty regulations contain a guide to sufficient residual income by region. The Loan Guaranty Program does not require veterans to have a specific credit score to qualify for a loan, but the underwriting guidelines require lenders to analyze a borrower's credit history. Lenders must be able to explain decisions to extend credit to borrowers who have an adverse credit history, and certain situations, such as an unpaid court-ordered judgment or a bankruptcy within the previous one or two years, may disqualify a borrower from obtaining a guaranteed loan. A previous foreclosure is not a bar to obtaining a VA-guaranteed loan, but borrowers who had previous VA-guaranteed loans that were foreclosed upon may have to repay the government for any losses suffered prior to obtaining a new loan. Loan guarantees are available for the purchase or construction, or to make improvements (including energy efficiency improvements) to either a "dwelling" or farm residence. A dwelling is defined as a building primarily used and occupied as a home (defined as a "place of residence"), and that consists of no more than four single family units (under most circumstances), one of which will be occupied by an eligible veteran. While a daily physical presence is not necessary to occupy the property as a home, occupancy of the property must be more than intermittent. For example, the property should be near a borrower's place of employment, and if his or her job requires an absence for a "substantial amount of time," there must be a history of continuous presence in the community prior to the absence, and there should be no attempt to establish a principal residence elsewhere. Use of a property as a vacation home would not qualify for the VA loan guaranty. An exception exists for instances where veterans are called away for active duty—their spouses or dependent children may satisfy the requirement by occupying the property as a home. VA-guaranteed loans can be used to purchase a dwelling. A range of housing qualifies as a dwelling for VA loan guaranty purposes. A single condominium unit qualifies as a dwelling, and a manufactured home may also be a dwelling if the veteran owns the land to which it is affixed and the state classifies it as real property. Note, however, that a manufactured home that does not meet these requirements may qualify separately under the manufactured housing section of the law (for more information, see the next section of this report entitled " Loan Guaranty for Manufactured Housing "). The loan guaranty can also include the purchase of land for both the construction of a single-family home or for placement of a manufactured home.