What Does the VA Do for the Borrower?
What does the Department of Veterans Affairs do for those who want to get a VA guaranteed mortgage?
Newcomers to the VA lending process sometimes assume the VA issues the loan itself, but every good lender and RE agent knows how to set the buyer straight in the opening five seconds of that conversation—the VA only guarantees the loan, making it more attractive for the lender to issue credit.
But what does that guarantee entail?
One common misconception—again, easily cleared up in the first part of the conversation about VA home loans—is that the VA guarantees the entire loan amount. The VA’s actual basic entitlement is $36,000. That’s how much the lender is guaranteed to get from the VA should the buyer default on the mortgage.
That amount, $36,000, is guaranteed for loans up to $144,000. (There are VA loan limits by state and county, which we’ll cover again in another blog post.) We all know there are plenty of housing markets where $144,000 won’t buy much in the way of a home, which is why the VA also makes provision for an additional entitlement for qualifying borrowers.
That entitlement is for loans above $144,000 and equals up to 25% of the VA county loan limit for a single family home. Qualified veterans are allowed to borrow these amounts without a down payment.
And what about that down payment? One of the perks of a VA home loan is the ability to prepay without a penalty. The buyer can save the money that normally would have gone towards a down payment, collect the interest, and use it to help pay down the loan early. Some conventional loans have penalties if you pay more than a certain percentage of the loan down within the first five years. With a VA home loan there is no such penalty.
These are just a couple of the advantages veterans have with VA home loans. I’ll cover a few related topics about VA mortgage basics in my next few blog posts.