Guaranty v. Guarantee: Does Every Veteran Automatically Get a VA Home Loan?

When considering a VA loan, there is some confusion between the VA Guaranty and the word guarantee.

A guaranty is issued when someone other than the borrower agrees to pay  for the borrower’s debt in the event that person defaults. It is similar with VA loans, the guaranty is the VA’s promise to repay a portion of the loan if you, the Veteran defaults. That financial pledge helps gives lenders the confidence to extend financing to qualified veterans with no money down.

But the VA guaranty doesn’t mean veterans and active military members are guaranteed a home loan. There is nothing guaranteed when it comes to qualifying for a mortgage, even for those who have proudly served our country.

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No Guarantee

The VA program is an incredible benefit meant to honor the service and sacrifice of military members and their families.  For nearly 70-years, the VA loan program has helped open the doors of homeownership to more than 20 million military borrowers.  Some of the major benefits of VA loans include:
1.  The ability to purchase with no money down
2.  No need for private mortgage insurance, which is required for other loan types unless you put down at least 20 percent
3.  More flexible and forgiving credit and income requirements
4.  Competitive interest rates that are often lower than conventional and FHA rates
5.  Fewer closing costs than other loans
These benefits are possible because the VA promises to repay at least a quarter of the loan amount if one of its borrowers defaults on the mortgage. The VA itself does not actually make home loans. It relies on private mortgage lenders to extend financing to military borrowers who meet both lender guidelines and the VA’s requirements.
Despite the VA guaranty, lenders are still responsible for the majority of the loan should the veteran default. As a result, VA-approved lenders will have their own requirements for a mortgage, many of which go beyond what the VA wants to see.

Credit scores are perhaps the most common example. The VA doesn’t require borrowers to hit any specific credit score in order to participate in the program. You simply need to be deemed a “satisfactory credit risk”.  This is demonstrated by a history of making on-time payments. But lenders are going to have a minimum qualifying score, in part because credit scores are indicators of your willingness and ability to repay debt.

Best Available Loan Program

Mortgage lenders would like to repay every service member or Veteran with a mortgage loan, but as much as they might like to extend credit to veterans and military families, mortgage lenders can’t simply give loans to everyone wants one.

A mortgage is a significant financial outlay, and lenders who make loans to borrowers whom can’t pay them back don’t stay in business very long.
It’s important to remember that even though there’s no guarantee when it comes to VA loans, these government-backed mortgages are often the only way veterans and military borrowers can make homeownership a reality. FHA and Conventional loan types will require some manner of down payment and often have higher credit score requirements than VA lenders.
So while there’s no guarantee, VA loans often represent the best available loan program for military borrowers looking to purchase a home.

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Todd McManigal   505-918-1028                     NMLS # 267557

tmcmanigal@houseloan.com

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