The Difference Between a VA Guaranty and a VA Loan

Buying a home for the first time is confusing—there are many terms to learn, a great deal of paperwork and many little details. Buying a home with a VA guaranteed home loan is definitely more buyer-friendly, but if you have never purchased a home before, there are a few additional terms and details you’ll need to learn about the VA.

One of the most common misconceptions lenders must dispel about VA mortgages is where the funds come from. Private banks issue the actual VA mortgage—no money comes from the VA itself. The Department of Veterans Affairs comes in on the veteran’s behalf with a loan guaranty, making the loan more secure for the lender. The VA promises to pay a specific amount of the VA mortgage should the veteran go into foreclosure.

This leads to a second misconception—that the VA issues a guaranty for the entire loan amount. This isn’t true. The entire lending industry uses the phrase “VA home loan” as a blanket term and it’s easy to see why people might think the VA covers the whole amount on that basis. But in reality, your VA guaranty covers up to 50 percent of a home loan amount up to $45 thousand.

The VA also issues a 40 percent guaranty for loans valued higher than $45 thousand up to $144 thousand. The absolute maximum the VA will issue in a guaranty is $36 thousand.

That set of figures can be confusing for first-time home buyers. It’s common to mistake the amount the VA issues as a loan guaranty—that amount up to a maximum of $36 thousand—for the amount of the loan itself.

The $36 thousand is not the limit of how much you can borrow. It’s simply the maximum the VA promises to pay the lender should you default on the loan. Is there a maximum amount you can borrow on a VA home loan? Yes and no. The VA does not issue limits, but VA mortgage rules do state that you can only borrow; the purchase price of a home or the appraised value of the home. 

The VA says you can borrow whichever amount is lower for that property. Also, banks set a limit on how much they will lend without a down payment. Once you start learning about VA home mortgage loans, you’ll soon understand the logic behind these rules, but don’t be afraid to ask your lender for clarification if there are issues you still don’t understand.

Apply now for a VA Purchase loan.

Home Appraisals and Inspections for Your VA Loan

When you apply for a VA mortgage, an appraisal/inspection of the home is a common requirement. In these cases, before your VA home loan can be finalized, both the VA and the buyer should know about the specific condition of the property whether it's a brand new home or one that's stood the test of time for many years.

These inspections or appraisals do provide a valuable service, but they don't act as a guarantee that the home is completely free of defects. As the buyer, you owe it to yourself to completely examine the property yourself before you commit to your VA mortgage. If a VA fee appraiser comes to an existing home and certifies it so you can move forward with your VA guaranteed home loan, there are plenty of areas you'll need to inspect yourself. Did you know a fee appraiser doesn't necessarily state whether the plumbing works properly or perform a roof inspection? Those are just two of the areas where "hidden" problems could be lurking.

In addition to less obvious problems, a VA fee appraiser isn't obligated to recommend cosmetic repairs, and while the appraiser may be a trained observer, it's not possible to find every potential problem. You'll need to provide your own input on the condition of the property and make sure it's up to your standards before signing the VA loan agreement. If it's not, you'll need to negotiate further before agreeing to purchase the property.

When it comes to homes that are under construction or custom built as part of your VA mortgage agreement, there are slightly different issues and methods of recourse. For construction defects in homes that were given a VA-directed fee compliance inspection (carried out by a VA or FHA/HUD-assigned inspector) the government has a complaint system for home buyers. This system is meant specifically for buyers who have failed to get redress on their complaints from the builders, so you should try to get the builders to correct the problem before resorting to filing a complaint with the VA.

It's important to note this complaint system is meant for construction defects the VA determines were caused by the builders, who would then be obligated under VA regulations to repair or fix them. The VA cannot force compliance, meaning the builders could (in theory) walk away from the project with the defects still in place. But in cases like these, the VA revokes that construction company's right to do business with the VA, so the incentive to work with the buyer and the government is strong.

In some cases the buyer may have a complaint about the construction of the home they're purchasing with a VA home loan which the VA determines still falls within the government's minimum standards. These cases are not ideal, but if the VA determines the minimum standard has been met, the issue is settled from the government's point of view. In addition to this, you have a limited time to file your complaint--usually in the first year you own the new home.

If you are ready, apply now for a VA Purchase loan.