The Department of Veterans Affairs (VA) provides guarantees to lenders for eligible borrowers to obtain better loan terms—such as lower interest rates or smaller down payments—when purchasing, constructing, or refinancing a home. VA typically pays lenders up to 25 percent of the outstanding mortgage balance if a borrower defaults on a guaranteed loan. Military personnel and veterans who have served at least 90 days on active duty or six years in the Selected Reserve are eligible for those loan guarantees. If a borrower defaults and the lender forecloses on the property, VA may purchase the property from the lender and resell it rather than pay the guaranteed portion of the loan if the department estimates that action will reduce the subsidy cost of the loan guarantee.
