Many borrowers think a VA loan is just a direct loan from the government. In reality, the VA generally guarantees only parts of the loan to a separate lender, often a bank, credit lender, or mortgage company. The lender offers its own loan terms while the VA serves as a backer, guaranteeing at least a partial payoff if the loan were to default. With the backing of the VA, lenders feel more comfortable offering borrowers cost-saving loan terms.
After qualifying, eligible borrowers receive a Certificate of Eligibility (COE) from the VA. This COE is then included in a portfolio with other information usually given to a private mortgage lender when submitting a loan application, such as income, debts, and credit reports.