38 U.S.C. § 3703 — Basic provisions relating to loan guaranty and insurance

**(a)** (1) (A) Any loan to a veteran eligible for benefits under this chapter, if made for any of the purposes specified in [section 3710 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3710&num=0&edition=prelim) and in compliance with the provisions of this chapter, is automatically guaranteed by the United States in an amount not to exceed the lesser of— (i) (I) in the case of any loan of not more than $45,000, 50 percent of the loan; (II) in the case of any loan of more than $45,000, but not more than $56,250, $22,500; (III) except as provided in subclause (IV) of this clause, in the case of any loan of more than $56,250, the lesser of $36,000 or 40 percent of the loan; or (IV) in the case of any loan of more than $144,000 for a purpose specified in clause (1), (2), (3), (5), (6), or (8) of [section 3710(a) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3710/a&num=0&edition=prelim), 25 percent of the loan; or (ii) the maximum amount of guaranty entitlement available to the veteran as specified in subparagraph (B) or (C). (B) With respect to loans described in subclauses (I), (II), or (III) of subparagraph (A)(i), the maximum amount of guaranty entitlement available to a veteran for purposes specified in [section 3710 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3710&num=0&edition=prelim) shall be $36,000, reduced by the amount of entitlement previously used by the veteran under this chapter and not restored as a result of the exclusion in [section 3702(b) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3702/b&num=0&edition=prelim). (C) (i) With respect to loans described in subclause (IV) of subparagraph (A)(i) made to a veteran not covered by clause (ii), the maximum amount of guaranty entitlement available to the veteran shall be 25 percent of the loan. (ii) With respect to loans described in subclause (IV) of subparagraph (A)(i) made to a covered veteran, the maximum amount of guaranty entitlement available to the veteran shall be 25 percent of the Freddie Mac conforming loan limit, reduced by the amount of entitlement previously used by the veteran under this chapter and not restored as a result of the exclusion in [section 3702(b) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3702/b&num=0&edition=prelim). (iii) In this subparagraph: (I) The term “covered veteran” means a veteran who has previously used entitlement under this chapter and for whom the full amount of entitlement so used has not been restored as a result of the exclusion in [section 3702(b) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3702/b&num=0&edition=prelim). (II) The term “Freddie Mac conforming loan limit” means the limit determined under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act ([12 U.S.C. 1454(a)(2)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1454/a/2&num=0&edition=prelim)) for a single-family residence, as adjusted for the year involved. (2) (A) Any housing loan which might be guaranteed under the provisions of this chapter, when made or purchased by any financial institution subject to examination and supervision by any agency of the United States or of any State may, in lieu of such guaranty, be insured by the Secretary under an agreement whereby the Secretary will reimburse any such institution for losses incurred on such loan up to 15 per centum of the aggregate of loans so made or purchased by it. (B) Loans insured under this section shall be made on such other terms, conditions, and restrictions as the Secretary may prescribe within the limitations set forth in this chapter. **(b)** The liability of the United States under any guaranty, within the limitations of this chapter, shall decrease or increase pro rata with any decrease or increase of the amount of the unpaid portion of the obligation. **(c)** (1) Loans guaranteed or insured under this chapter shall be payable upon such terms and conditions as may be agreed upon by the parties thereto, subject to the provisions of this chapter and regulations of the Secretary issued pursuant to this chapter, and shall bear interest not in excess of such rate as the Secretary may from time to time find the loan market demands, except that in establishing the rate of interest that shall be applicable to such loans, the Secretary shall consult with the Secretary of Housing and Urban Development regarding the rate of interest applicable to home loans insured under section 203(b) of the National Housing Act ([12 U.S.C. 1709(b)](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section1709/b&num=0&edition=prelim)). In establishing rates of interest under this paragraph for one or more of the purposes described in clauses (4) and (7) of [section 3710(a) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3710/a&num=0&edition=prelim), the Secretary may establish a rate or rates higher than the rate specified for other purposes under such section, but any such rate may not exceed such rate as the Secretary may from time to time find the loan market demands for loans for such purposes. (2) The provisions of the Servicemen’s Readjustment Act of 1944 which were in effect before April 1, 1958, with respect to the interest chargeable on loans made or guaranteed under such Act shall, notwithstanding the provisions of paragraph (1) of this subsection, continue to be applicable— (A) to any loan made or guaranteed before April 1, 1958; and (B) to any loan with respect to which a commitment to guarantee was entered into by the Secretary before April 1, 1958. (3) This section shall not be construed to prohibit a veteran from paying to a lender any reasonable discount required by such lender, when the proceeds from the loan are to be used— (A) to refinance indebtedness pursuant to clause (5), (8), or (9)(B)(i) of [section 3710(a) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3710/a&num=0&edition=prelim) or [section 3712(a)(1)(F) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3712/a/1/F&num=0&edition=prelim); (B) to repair, alter, or improve a farm residence or other dwelling pursuant to clauses (4) and (7) of [section 3710(a) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3710/a&num=0&edition=prelim); (C) to construct a dwelling or farm residence on land already owned or to be acquired by the veteran except where the land is directly or indirectly acquired from a builder or developer who has contracted to construct such dwelling for the veteran; (D) to purchase a dwelling from a class of sellers which the Secretary determines are legally precluded under all circumstances from paying such a discount if the best interest of the veteran would be so served; or (E) to refinance indebtedness and purchase a manufactured-home lot pursuant to section 3710(a)(9)(B)(ii) or 3712(a)(1)(G) of this title, but only with respect to that portion of the loan used to refinance such indebtedness. (4) (A) In guaranteeing or insuring loans under this chapter, the Secretary may elect whether to require that such loans bear interest at a rate that is— (i) agreed upon by the veteran and the mortgagee; or (ii) established under paragraph (1). The Secretary may, from time to time, change the election under this subparagraph. (B) Any veteran, under a loan described in subparagraph (A)(i), may pay reasonable discount points in connection with the loan. Except in the case of a loan for the purpose specified in section 3710(a)(8), 3710(b)(7), or 3712(a)(1)(F) of this title, discount points may not be financed as part of the principal amount of a loan guaranteed or insured under this chapter. (C) Not later than 10 days after an election under subparagraph (A), the Secretary shall transmit to the Committees on Veterans’ Affairs of the Senate and House of Representatives a notification of the election, together with an explanation of the reasons therefor. **(d)** (1) The maturity of any housing loan at the time of origination shall not be more than thirty years and thirty-two days. (2) (A) Any loan for a term of more than five years shall be amortized in accordance with established procedure. (B) The Secretary may guarantee loans with provisions for various rates of amortization corresponding to anticipated variations in family income. With respect to any loan guaranteed under this subparagraph— (i) the initial principal amount of the loan may not exceed the reasonable value of the property as of the time the loan is made; and (ii) the principal amount of the loan thereafter (including the amount of all interest to be deferred and added to principal) may not at any time be scheduled to exceed the projected value of the property. (C) For the purposes of subparagraph (B) of this paragraph, the projected value of the property shall be calculated by the Secretary by increasing the reasonable value of the property as of the time the loan is made at a rate not in excess of 2.5 percent per year, but in no event may the projected value of the property for the purposes of such subparagraph exceed 115 percent of such reasonable value. A loan made for a purpose other than the acquisition of a single-family dwelling unit may not be guaranteed under such subparagraph. (3) (A) Any real estate housing loan (other than for repairs, alterations, or improvements) shall be secured by a first lien on the realty. In determining whether a loan is so secured, the Secretary may either disregard or allow for subordination to a superior lien created by a duly recorded covenant running with the realty in favor of either of the following: (i) A public entity that has provided or will provide assistance in response to a major disaster as determined by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act ([42 U.S.C. 5121](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title42-section5121&num=0&edition=prelim) et seq.). (ii) A private entity to secure an obligation to such entity for the homeowner’s share of the costs of the management, operation, or maintenance of property, services, or programs within and for the benefit of the development or community in which the veteran’s realty is located, if the Secretary determines that the interests of the veteran borrower and of the Government will not be prejudiced by the operation of such covenant. (B) With respect to any superior lien described in subparagraph (A) created after June 6, 1969, the Secretary’s determination under clause (ii) of such subparagraph shall have been made prior to the recordation of the covenant. **(e)** (1) Except as provided in paragraph (2) of this subsection, an individual who pays a fee under [section 3729 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3729&num=0&edition=prelim), or who is exempted under [section 3729(c) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3729/c&num=0&edition=prelim) from paying such fee, with respect to a housing loan guaranteed or insured under this chapter that is closed after December 31, 1989, shall have no liability to the Secretary with respect to the loan for any loss resulting from any default of such individual except in the case of fraud, misrepresentation, or bad faith by such individual in obtaining the loan or in connection with the loan default. (2) The exemption from liability provided by paragraph (1) of this subsection shall not apply to— (A) an individual from whom a fee is collected (or who is exempted from such fee) under [section 3729(b)(2)(I) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3729/b/2/I&num=0&edition=prelim); or (B) a loan made for any purpose specified in [section 3712 of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title38-section3712&num=0&edition=prelim). **(f)** The application for or obtaining of a loan made, insured, or guaranteed under this chapter shall not be subject to reporting requirements applicable to requests for, or receipts of, Federal contracts, grants, loans, loan guarantees, loan insurance, or cooperative agreements except to the extent that such requirements are provided for in, or by the Secretary pursuant to, this title.