The VA loan program is actually one of the most widely misunderstood of all the veteran benefits the government offers. The most misunderstood portion of the VA loan program is the nature of the VA’s involvement. In this article, we’ll go over some of the common misconceptions people have about the VA guaranty, we’ll explain exactly what the guaranty is and isn’t, and we’ll talk about the benefits available to you as a result of the VA guaranty. Whether you’re looking for general information or trying to decide if you want to get a VA loan, this is a good article to read.
Common Misconceptions About the VA Loan Program
The first one that comes to mind that is directly related to the VA guaranty is that people are under the impression that the loans themselves are being offered by the VA. This is an easy mistake to make; since the VA’s health care benefits are exactly that. The VA provides hospitals, doctors, and clinics for those utilizing their health care benefits, so it’s easy to assume that the VA is also doing the actual lending of money. This is not the case; the VA does not loan money. Another common misconception is that borrowers using the VA loan program are not subject to credit or income qualifications, or that being eligible for a VA loan means that you are guaranteed to get one. This is also not the case. The VA bases eligibility off of time served and discharge status, not credit and income. That is done by the lender, and the VA cannot force a lender to approve a loan application.
What the VA Guaranty is – What the VA Does for the VA Loan Program
The VA guaranty is at the heart of the VA loan program. It’s what makes everything tick. Instead of offering loans, the VA lets the private sector do that, and just offers a guaranty on a certain percentage of the loan. Usually, the VA guaranty is of 25% of the loan amount. This provides no direct benefit to you as the borrower, because the loan is guaranteed to the lender in case you default on your payments. In other words, if you aren’t able to make your mortgage payments, the VA will pay the lender money up to the percent they guaranteed. They do not pay you anything, nor will the VA guaranty make payments on your behalf if you cannot make them. While you don’t personally receive any of the VA guaranties, all of the benefits of the VA loan program stem from its presence.
The Benefits That Come as a Result of the Guaranty
The biggest thing that the VA guaranty does is lower the amount of risk the lender is taking on. This means that lenders offering VA loans can offer lower interest rates, more flexible credit requirements, and not demand a down payment. Now, it’s all about expectations. Some people go into the VA loan program thinking that it’s going to make the impossible easy, and the difficult effortless. This is not the case. The VA loan program can make the impossible possible, but not awesome. For example, if you have very low credit, the VA loan program might make it possible for you to get a loan, but you’re not going to get a super-low interest rate as well. You’re going to get a relatively high-interest rate. If you have great credit and money for a down payment, you are going to have better options through the VA loan than you would through conventional. The VA loan program makes good better and bad acceptable.
So, to recap: the VA does not guarantee any loans; they let private lenders and banks do that. The VA also does not guarantee that any VA-eligible borrower will be able to obtain a VA loan through a lender
The VA loan program is not going to make all your problems go away, but it can make your problems smaller.