Buying a home can be a challenging task considering the attitude of lending agencies in 2010. Money is tight and lenders have much more stringent requirements than in the past. Veterans have an advantage in applying for a home loan. They can obtain a VA loan, which is guaranteed by the government.
VA Loan Guaranty Program
The Department of Veterans Affairs, a branch of the federal government, oversees the activities of the VA Loan Guaranty Program, which offers lenders the security of a guaranty for a portion of the loan amount in the event a loss occurs. This security, in turn, encourages lenders to provide more favorable lending terms to veterans.
Borrower Requirements
The borrower must have served on active duty, under honorable conditions, with a branch of the United States military. The length of active duty service time required to qualify for a VA loan depends on when the veteran served in the military. The borrower must apply and be approved for a loan by a private lender, such as a bank, credit union or mortgage company. The borrower must also use the loan to purchase a home that will be the primary residence.
What Is Covered
For a VA loan, The Department of Veterans Affairs will guarantee protection against loss by payment of a portion of the loan. There is no limit to the amount of a VA loan. However, the VA currently places a limit of the amount it will pay out in case of loss, based on the area of the country in which the home located. For most areas, the limit is $417,000. If a loss occurs and the lender has complied with all laws and regulations regarding the VA Loan Guaranty Program, it can request reimbursement for the amount approved by the guaranty. The amount is typically 25 percent of the loan amount for loans over $144,000.
What is Not Covered
The VA only guarantees the loan and does not guarantee that a home is defect free. Nor can it force a builder to correct any defects in a newly built home. The aid does not guarantee the investment the buyer is making. In the event that loss of the property is imminent, the VA cannot offer the veteran any legal services.
Benefits
The purpose of the VA loan guarantee program is to help veterans obtain affordable housing. Because the guarantee protects the interests of the lender, the lender will be more inclined to provide the veteran with financing. Some advantages of the program are: no down payment requirements, a more negotiable interest rate, closing costs that are comparable or even lower than other financing opportunities, the right to pay without penalty; and the mortgage can be assumed by a future buyer of the home.
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