What Is the VA Guarantee on a Home Loan?
The VA guarantee on a home loan refers to the U.S. Department of Veterans Affairs Loan Guaranty Home Loan Program. The program exists to help eligible service members, veterans, reservists and surviving spouses buy homes and refinance home loans. The actual amount of the guarantee varies according to the location of the home purchased and the purchase price.
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Purpose
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The purpose of the VA guarantee on a home loan is to help eligible active duty members, reservists and veterans to obtain a home loan by guaranteeing to protect lenders from loss if the borrower defaults and does not repay the loan. Because the guarantee is often called a VA Loan sometimes people to believe that the VA loans the money to service members, which is not the case.
Benefits to Lenders and Borrowers
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Qualifying for a home loan is sometimes difficult for a variety of reasons. The benefit of the VA guarantee on a home loan allows borrowers to become eligible for a home loan when they otherwise may not be because banks are assuming less risk, thus making them more willing to extend the loan. Banks also have increased confidence that they will recoup a portion of the money they lend to VA home buyers because of the guarantee. Borrowers also forgo the customary 20 percent down payment on a home, which makes home buying more accessible to income-limited military families.
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Loan Uses
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The VA home loan guarantee can be used to buy or build a home, condominium, cooperative housing unit or manufactured home; to repair, alter or improve a residence owned by the veteran; refinance an existing home; and install energy efficient improvements.
Eligibility
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Active duty service members and reservists as well as veterans and unmarried surviving spouses are eligible to receive the home loan guarantee. A Certificate of Eligibility is required and can be obtained by completing VA form 26-1880 or some cases, the certificate can be obtained by the lender. Other eligibility requirements include a good credit rating, satisfying periods of eligibility and agreeing to live in the home approved by a lender for a VA home loan guarantee.
Guarantee Amount
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The guarantee amount varies with the size of the loan and the location of the property. The VA will guarantee 25 percent of the principal loan amount up to $417,000 or 125 percent of the area median price for a single-family home for homes in the continental U.S.
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References
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