VA loan

Key Takeaways

• The government does not lend the money on a VA loan. A private lender makes the loan and the U.S. Department of Veterans Affairs guarantees part of it, which is what lets the lender relax its terms.
• An eligible borrower can buy with no down payment as long as the sales price is not higher than the home's appraised value, and no private mortgage insurance is charged.
• Eligibility is proved with a Certificate of Eligibility from the VA, and most borrowers pay a one time VA funding fee at closing.
• In Washington, honorably discharged veteran or military status is a protected class in real estate transactions, and RCW 49.60.222 names loan guarantees among the practices it covers.

What It Means

A VA loan is a home mortgage made by an ordinary lender, a bank, a credit union, or a mortgage company, and guaranteed in part by the U.S. Department of Veterans Affairs. The guarantee is the whole mechanism. Because the VA stands behind a share of the debt, the lender is protected against part of any loss, so it can offer terms it would never write on the same file otherwise. Older course notes call the agency the Veterans Administration, which was its name before 1989.

The benefits are concrete. An eligible borrower can buy with no Down Payment as long as the sales price is not higher than the home's appraised value. There is no private mortgage insurance and no mortgage insurance premium, which strips out a monthly cost that a low down payment conventional or FHA borrower carries for years. In exchange, most borrowers pay a one time VA funding fee at closing, which the VA describes as lowering the program's cost to taxpayers.

Eligibility is a service question rather than a credit question. The borrower proves it with a Certificate of Eligibility issued by the VA. The lender still underwrites income, credit, and the property itself.

How It Works in Washington

Washington does not run a VA program of its own, but state law shapes how brokers handle VA financed offers. RCW 49.60.222(1) makes it an unfair practice to discriminate in a real estate transaction because of honorably discharged veteran or military status, and it lists that status alongside sex, marital status, sexual orientation, race, creed, color, national origin, citizenship or immigration status, families with children status, and disability. Subsection (1)(j) reaches the money side of the deal. It is an unfair practice to discriminate in the course of negotiating, executing, or financing a real estate transaction, including the issuance of title insurance, mortgage insurance, or a loan guarantee. A VA loan is a loan guarantee, so that language points directly at this financing type.

The working rule for a Washington broker is short. A seller may compare offers on price, terms, and how solid the financing looks on that specific file. Neither the seller nor the broker may treat a buyer worse because the buyer is a veteran or is using a veteran's benefit. A blanket instruction to reject VA offers as a category is hard to separate from the buyer's military status, and RCW 49.60.222 is the statute a complaint would be filed under. Treat it as a Protected Class question, not a matter of seller preference.

Example

Staff Sergeant Alicia Ramos and her husband Tomas offer $540,000 on a house in Lakewood using a VA loan with no down payment. They pull a Certificate of Eligibility, get a preapproval from Rainier Mortgage, and the lender orders the Appraisal. It comes back at $522,000, which is $18,000 under the contract price.

The no down payment benefit is tied to the appraised value, so the guarantee supports a $522,000 loan rather than $540,000. The Ramos family has three workable moves: bring the $18,000 difference in cash at closing, ask the seller to drop the price to $522,000, or split the gap. The listing broker instead advises the seller to take a lower conventional offer because, in his words, VA files are slow. That advice puts the seller in a bad spot. Price and terms are fair grounds for choosing between offers, but steering away from a veteran's financing is the conduct RCW 49.60.222 addresses. The parties settle at $528,000 with the buyers covering $6,000 in cash, and the sale closes.

Common Mistakes and Exam Traps

• The VA does not lend money. It guarantees part of a loan a private lender makes, which is why the program is properly called a VA guaranteed loan.
• No down payment is not the same as no cash to close. Most VA borrowers still pay a one time funding fee.
• VA and FHA are different programs. FHA insures loans through HUD and charges a mortgage insurance premium, while VA guarantees loans and charges no mortgage insurance.
• The zero down benefit is capped by the appraised value, not by the contract price. If the appraisal comes in low, the buyer covers the gap or the price is renegotiated.