Fact Sheet on VA Guaranteed Loans

What is a VA guaranteed loan?

VA guaranteed loans are those created by private lenders (these include banks and savings & loans) or mortgage companies for eligible veterans to purchase a house which they must personally occupy.

To be able to obtain the loan, a veteran should apply to a lender. If the loan is approved, the VA will guarantee the loan in the event of default. The said guaranty allows the lender to be protected against loss up to the amount guaranteed.

The fact that the VA guarantees a portion of the loan allows a lender to offer more favorable financing terms to the veteran. And in many cases a veteran can then qualify for a loan that would be out of reach with a conventional loan.

What are the Features of a VA Loan?

VA loans have the following important features:

  • It offers equal opportunity for every qualified veteran to obtain a VA loan.
  • Unless explicitly required by the lender or the purchase price is more than the reasonable amount of the house, it doesn’t need a down-payment.
  • The buyer is advised of the reasonable value.
  • The interest rate is negotiable.
  • The ability to take care of the VA funding fee (this is in addition to the reduced funding fees with a down payment of at least 5 percent and exemption for veterans who receive VA compensation).
  • Closing costs are at par, or may even be lower, with other types of financing.
  • There are no mortgage insurance premiums.
  • There’s an assumable mortgage.
  • Right to prepay without the need for penalty.
  • For houses that have been inspected by VA during construction, there’s a warranty from the builder and assistance from VA to get the cooperation of builder.
  • VA offers assistance to veteran borrowers in default because of temporary financial struggle.

VA, however, does not do the following:

  • Guarantee that a house is free from defects. What VA guarantees is only the loan. It should be the veteran’s responsibility to make sure that he or she is thoroughly satisfied with the residential property being bought.
  • If the veteran has a house already built, VA cannot require the builder to correct construction defects. Nevertheless, VA has the authority to suspend the builder from further participating in the home loan program.
  • VA cannot make a guarantee to a veteran that he or she is making a good investment.
  • Lastly, VA cannot offer legal services to a veteran.

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