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What is a VA Guaranteed Loan?
A VA Guaranteed Loan is a loan issued by a bank, savings & loan, or a mortgage company to eligible veterans for the purchase of a home which must be for their own personal occupancy.
To qualify for a VA loan, a veteran must first apply to a lender. If the loan is approved, the VA guarantees a portion of the loan to the lender. This guaranty provides the lender favorable financing terms and protects them against losses up to a determined amount.
There is no maximum amount for a VA loan. However, lenders typically limit a VA loan to $417,000 because VA loans are sold in secondary markets, which currently place a limit restriction at $417,000. For loans up to this amount, qualified veterans usually can obtain financing without a required down payment.
A veteran's basic entitlement is $36,000 (or up to $104,250 for certain loans over $144,000.) Lenders generally will loan up to 4 times a veteran's available entitlement without a required down payment, provided the veteran is income and credit qualified and the property appraises for the selling price.
VA Loans offer the following important features:
- Equal opportunity for all qualified veterans
- No down payment (unless required by the lender or the purchase price is more than the reasonable fair-market value)
- Ability to finance the VA funding fee (Funding fees may be reduced with a down payment of at least 5%, and for veterans receiving VA compensation)
- Closing costs are comparable (or lower) when compared to other financing options
- No mortgage insurance premiums
- Assumable mortgage
- Right to prepay without penalty
- VA assistance to veteran borrowers who are in default due to temporary financial difficulty
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