Yes, VA loans are guaranteed by the Department of Veterans Affairs, providing eligible veterans and active duty service members with more favorable loan terms
What is VA Loan Guarantee
A VA loan guarantee is a government-backed loan for the military populations, endorsed and protected by the VA. This backing and guarantee allows the lender to seek less stringent qualifications. Once the buyer is approved as a veteran who meets service length requirements, service members on active duty with the minimum service period, certain Reservist and National Guard members, and certain surviving spouses of deceased Veterans they can purchase a primary home using a government-backed VA loan.
What can you do with a VA Guaranteed Loan?
A qualified buyer can buy a primary residence with their VA loan which is government-backed. It is important to first check if you are suitable to use the VA loan benefits, but once you know that, you can capitalize on the benefits.
Different ways to utilize VA loans include:
- Purchasing and existing home
- Condos
- Manufactured homes
- Single Family homes
- Multi door homes
- Refinances
- Rehabilitation loans (once the work is completed)
Is there a loan limit for VA Guaranteed loans
Loan limits for first-time VA-guaranteed loans are nonexistent. In 2020 the Veterans Affairs removed the loan limits for veterans and qualified family members in the purchase of their first VA loan. The secondary use of a VA limit will come with some limitations depending on the veteran’s eligibility. Certificates of Eligibility (COE) are available through the VA. Lenders can also help you get the COE. Another limiting factor for the guarantee of the VA loan is when using it for rehabbing, that loan is a bit of a risk to the lender when the work is not complete. The lender does have to wait for the buyer to complete the work before the VA will back the loan. This means that lenders would lose whatever they gave the buyer if the buyer defaults before the work is completed and loan is VA backed!
VA Loan Guarantee Benefits
VA loan benefits are off the charts in some areas compared to conventional loan products. The VA loan allows qualified veterans to finance 100% of their loan amount. That means NO MONEY OUT OF POCKET in most cases. Some benefits will enable buyers to avoid Private Mortgage Insurance (PMI), which in many cases, is a fee placed on a loan when less than 20% of the loan is paid off. Let’s dig a little deeper into PMI. PMI is a fee that is not allowed on the VA loan. So that means you do not need to pay this, even when you do not put money down on your new purchase using the VA loan. Government backing is one of the tools the VA has come up with to take PMI away as they are making themselves the insurance plan for the lenders! There are some other associated fees such as a loan funding fee, that fee can be wrapped into the loan and added to your monthly payments.
Who is Eligible for VA Guaranteed Home Loans
The Veterans Affairs VA loan is an excellent option for one-time or multiple uses if desired! When using the VA loan for the first time, there will not be a cap on your purchase from the VA for your home loans. Still, you will need to talk to your lender to understand what you qualify for after an application is considered. Look for a lender who understands VA loans before jumping into a partnership. When the lender does the application for the buyer they will take into consideration that the VA partially guarantees the loan. Some lenders work with both conventional and VA loans. Be sure to ask educated questions. The info today will really help you scrape the surface and allow you to get smart quickly.
What Information and Documents You Need to Provide the Lender To Receive a VA Guarantee
Information and documents you will need to provide the lender to receive your loan approval will be specific to your current assets and liabilities requested by each lender. If you are ready to jump in and get qualified, a few documents to start the collection process would be:
- Copy of your government-issued ID card
- W-2s (usually 2-3 years back)
- Tax returns
- Bank statements (remember savings, checking TSPs, or retirement accounts)
- Your last 3-6 months’ LESs or pay stubs
- Rent Letter- show the potential rental income on the current property
Is a VA Guaranteed Home Loan Always the Best Option?
VA-guaranteed home loans should be looked at as an option for buyers. As with any purchase, shopping and comparing all loan options is the best case so your particular situation can be analyzed. Because you qualify for the VA loan doesn’t mean you don’t also qualify for conventional loans or even an FHA or USDA loan. Make sure to run all of the options when speaking with a lender. Talk to your real estate agent also to make sure they know what kind of loan you are using, as the property may need a specific type of loan or a conversation with the seller’s agent to ensure your loan will qualify you to buy the home.
ADPI Pro Tip
- Typically the seller will want a prequalification letter when you decide to put in an offer. Often referred to as a pre-qual, this letter can be obtained from a lender. Make sure to apply and get the pre-qual ready. I always request that the lender adjust the letter to show my offer amount vs. the amount I am qualified for. Why? I do this so the seller doesn’t know that I might qualify for a lot more. I offer them what I actually “want” to give for the property vs. what I “could” to give them.
