VA Guarantee

If you are interested in becoming a first-time homeowner, congratulations! This is a huge, important step in a person’s life, and can be a really exciting and rewarding experience. At the same time, it can also be confusing and stressful, especially when it comes to the details of obtaining a loan, and just how many costs will be involved. For veterans, the VA has created a loan guaranty program that helps alleviate costs and simplify the whole process. Before you get started with a VA Loan, it’s important to first understand what exactly the loan is comprised of.

A lot of people assume the VA issues the money for loans itself. This is not the case. In reality, private lenders issue the money and the VA guarantees up to half the total amount of the loan. Think of a VA Loan less like a loan and more like an insurance policy. Just as with regular citizens, when shopping for a house you have a choice about what lender you use. You can go through a bank, savings & loans or mortgage company. The most important thing to look for when comparing loans is if it is a reputable company and can offer competitive interest rates.

When you obtain a loan, the VA will guarantee up to half this total amount. This is essentially the money the VA will pay to the lender in the event you default on your loan. However, there are certain limits on how much the VA will insure. The loan limits vary from county to county, so it’s important to find out this number before you start house hunting. The VA doesn’t restrain you from getting a loan that is higher than your county limit, but you may have to pay some of the down payment on the house in order for the lender to agree to loan you the money.

Now you know the difference between a loan and a guaranty, you might wonder what the benefits of going through the VA are. For starters, because the VA makes it secure for lenders to give you money, you are not required to provide a down payment on the house. In addition, you won’t have to pay Premium Mortgage Insurance since the loan is already insured. Refinancing is also much simpler with a VA Loan. If you decide to refinance further down the road, you can apply for a VA Streamline Refinance loan which requires no additional paperwork and no out-of-pocket expenses.

When shopping around, be sure to ask your lender as many questions as you need in order to make the home buying process as easy and uncomplicated as possible.

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