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Owning a home is a cherished American dream, and for our nation’s veterans, the VA-Guaranteed Home Loan program makes that dream even more attainable.
This unique government-backed loan offers a range of benefits designed to help veterans, service members, and eligible surviving spouses navigate the complexities of homeownership.
VA loans provide a pathway to financial stability and personal fulfillment from flexible financing terms to competitive interest rates.
In this guide, we’ll explore the ins and outs of VA-guaranteed loans, empowering you with the knowledge to make informed decisions about your homeownership journey.
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What is the difference between VA loans and VA-guaranteed loans?
Both terms refer to a mortgage option designed to assist U.S. veterans, active-duty service members, and eligible surviving spouses in achieving homeownership.
Offered by the U.S. Department of Veterans Affairs, these loans offer favorable terms, such as no down payment requirements and competitive interest rates, making them an attractive alternative to conventional mortgages.
But how do these VA loans work, and what is the “guarantee”? Keep reading to learn all the essential answers to what a VA-guaranteed loan is.
How VA-guaranteed loans work
Like many other types of conventional loans, VA loans are provided by private lenders—such as banks and mortgage companies.
The main difference from a conventional mortgage is that the VA itself partially guarantees these home loans.
What does a VA loan guarantee?
A VA loan guarantee means the U.S. Department of Veterans Affairs ensures a portion of the loan, offering protection to the lender if the borrower defaults.
A hefty guarantee like that has the great side effect of encouraging lenders to provide more favorable terms—usually more competitive interest rates and no down payment requirements.
The VA typically guarantees up to 25% of the loan amount, depending on the borrower’s remaining entitlement.
Guarantee amounts
The specific amount of the VA loan guarantee depends on the loan amount:
- For loans up to $45,000, the VA guarantees 50% of the loan amount
- For loans between $45,001 and $56,250, the guarantee is $22,500
- For loans between $56,251 and $144,000, the VA guarantees 40% of the loan amount, with a maximum of $36,000
- For loans over $144,000, the VA guarantees up to 25% of the county loan limit
Of course, this doesn’t eliminate the borrower’s responsibility to repay; it merely reduces the risk for lenders, allowing them to offer more affordable loan terms to the borrower.
By making homeownership more accessible to eligible veterans, service members, and surviving spouses, this guarantee has made VA loans one of the cornerstones of the mortgage market.
Benefits of VA-guaranteed loans
- No down payment: Qualified borrowers may purchase a home without a down payment, a significant advantage for those who may find saving for a large upfront payment challenging
- Competitive interest rates: The VA guaranty often enables lenders to feature lower interest rates compared to conventional loans, resulting in substantial savings over the loan’s lifespan
- No private mortgage insurance (PMI): Conventional loans require this insurance premium when down payments are less than 20%, but VA loans do not mandate this additional insurance, reducing monthly payment obligations
- Flexible credit requirements: VA loans typically have more lenient credit score criteria, making them accessible to borrowers with less-than-perfect credit histories
Eligibility criteria for VA-guaranteed loans
To qualify for all types of VA-guaranteed loans, applicants must meet specific service requirements:
- Veterans: Must have served a minimum period
- Typically, 90 consecutive days during wartime
- Or 181 days during peacetime
- And received an honorable discharge
- Active-duty service members: Currently serving members are generally eligible once they pass 90 days of continuous active duty
- National Guard and Reserve members: Eligibility is established after six years of service or 90 days of active-duty service
- Surviving spouses: Unremarried spouses of veterans may be eligible if their spouses:
- Died in service
- Died from a service-connected disability
- Are missing in action (MIA)
- Are prisoners of war (POW)
Applicants are required to confirm their eligibility status with a valid COE (Certificate of Eligibility). This document can be obtained through the VA or with the assistance of an approved lender.
VA funding fee
To help sustain the VA loan program, borrowers must pay a one-time funding fee, which varies based on factors such as:
- The loan amount
- Type of loan
- Down payment size
- Whether it’s the borrower’s first VA loan
For instance, as of April 7, 2023, the funding fee for a first-time VA loan user with no down payment is 2.15% of the loan amount. Certain individuals, such as those receiving VA disability compensation, may be exempt from this fee.
Property requirements
Homes purchased with a VA-guaranteed loan must meet specific standards to ensure they are safe, structurally sound, and sanitary.
They must also serve as the borrower’s primary residence and undergo a VA appraisal to assess their value and condition.
Important note: A VA appraisal is not a substitute for a comprehensive home inspection. This is recommended to any homebuyer to ensure they’re not inheriting major repairs or projects with the home.
VA loan limits and entitlement
While the VA does not set a maximum loan amount, it does limit the amount it guarantees.
Borrowers with full entitlement have no loan limits; however, those with diminished entitlement due to prior VA loans may face limits based on county loan limits. A down payment may be required if the loan amount exceeds the VA’s guarantee.
What is a VA-guaranteed loan, and how do you fit in?
VA-guaranteed loans provide a valuable pathway to homeownership for active-duty service members, eligible veterans, and surviving spouses.
These loans offer significant advantages over conventional mortgages when you add benefits like zero down payment, very competitive interest rates, and no PMI.
If you are or were a member of the U.S. Armed Forces and believe you would be eligible for this type of loan, the next step should be to connect with a VA loan lender.
Contact MyPerfectMortgage.com, and we can pair you up with a VA loan specialist in your area.
Together, we can set you toward the best home for you and your family’s future.
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
