Top 10 Reasons to Use
Your VA Home Loan Benefit
First Things First: What is a VA Loan?
The VA Home Loan benefit is the most powerful home loan program on the market for many Veterans, Service Members, and military families. These flexible, government-backed loans come with significant benefits that open the doors of homeownership to Veterans who might otherwise struggle to obtain financing.
A VA Home Loan is a mortgage loan issued and approved by private lenders and guaranteed by the U.S. Department of Veterans Affairs (VA). The program was created in 1944 by the United States government to help Servicemembers returning from combat in World War II purchase homes without needing a down payment or excellent credit. This historic benefit program has guaranteed over 22 million loans since its inception and is more important than ever for Veterans and Servicemembers when it comes to buying a home.
The main VA Home Loan benefit is that they do not require a down payment or private mortgage insurance.
They also feature competitive rates and terms and allow qualified buyers to purchase a home with little to no money out of pocket.
In 2016, the Department of Veterans Affairs guaranteed more than 707,000 loans, setting an all-time high. The increasing popularity has stemmed from the loan program’s signature benefits, which include:
- No down payment.
- No private mortgage insurance.
- No limit on purchase price.
- Competitive Interest rates.
- Relaxed credit requirements.
- Limits on fees closing costs.
- Lifetime benefit.
- No pre-payment fee or penalty.
- Foreclosure Avoidance Support
- No funding fee for service-connected disabled Veterans.
Let’s take a closer look at the top reasons to use your VA Home Loan Benefit.
1: No Down Payment
Qualified Veterans can obtain a VA loan without making any down payment. Compared to conventional and FHA loans, this benefit translates into significant savings. The minimum down payment amount on a FHA loan is 3.5 percent; for conventional financing, it’s often 5 percent or even 10 or 20 percent, depending on the program.
This benefit of being able to purchase a home with zero money down helps Veterans and active military members achieve the American Dream without having to spend years saving for a sizable down payment. They can get into homes NOW, not years down the road.
2: No Private Mortgage Insurance (PMI)
Many conventional lenders require borrowers to pay private monthly mortgage insurance (PMI) — unless they are able to put down at least 20 percent of the home’s purchase price. 20% down is a tall order for many Veterans and Servicemembers. With a VA Home Loan, PMI is not required. The federal government backs all VA loans and assumes the risk on behalf of the borrower. By not having to pay PMI as part of their monthly PITI, VA buyers build equity in their homes at a faster rate. It also saves them thousands of dollars over the life of the mortgage.
3: No Limit on Purchase Price
Many people do not realize that the VA loan limit is NOT a limit to the amount a Veteran can finance. In most parts of the country, the baseline VA loan guarantee limit is $424,100. In certain parts of the country, where real estate prices are higher (including the greater Washington DC area), the loan guarantee limit has been increased to $679,650 (for more on these recent changes, click here). Qualified VA borrowers can purchase a home above the loan limit. Any amount financed over the guarantee limit would require a 25% down payment.
Here are two examples of how a lender might factor the down payment amount for a VA loan in the Washington, DC area.
VA Home Loan
Purchase Price of the Home: $600,000
- VA Home Loan Guarantee Limit: $659,650
- Excess over VA Limit: $0
- Down Payment Required: $0
Purchase Price of the Home: $700,000
- VA Home Loan Guarantee Limit: $679,650
- Excess over VA Limit: $20,350
- Down Payment Required: $5087.50 (25% x $20,350)
This same purchase calculated using a conventionally financed (non VA) loan program could require the buyer to put 5%, 15% or even 20% down.
Purchase Price of the Home: $600,000
- 5% Down Payment: $30,000
- 15% Down Payment: $90,000
- 20% Down Payment: $120,000
Purchase Price of the Home: $700,000
- 5% Down Payment: $35,000
- 15% Down Payment: $105,000
- 20% Down Payment: $140,000
As you can see, there is a significant benefit for Servicemembers and Veterans when it comes to the amount of cash required for a down payment when purchasing a home.
4: Competitive Interest Rates
Since the VA guarantees a portion of every VA loan, financial institutions can offer lower interest rates to VA borrowers. Rates are based on the inherit risk assumed by the lender to finance the loan. The VA’s guarantee provides lenders with a sense of security that allows them to charge competitively lower rates.
On a 30-year $250,000 loan, the difference between paying a 4 percent and 4.75 percent rate can mean approximately $40,000 in savings over the life of the loan.
5: Relaxed Credit Requirements
Since the Department of Veterans Affairs only oversees the loan program and does not actually issue loans, the agency does not set or enforce credit score minimums. However, most VA lenders use credit score benchmarks to judge a borrower’s risk of default. Typically, lenders look for a credit score of at least 620. Additionally, VA Home Loans are typically are more forgiving when it comes to bouncing back after a bankruptcy or foreclosure.
For a conventional loan, Veterans will often need to meet a higher benchmark. The average conventional buyer had a FICO score about 50 points higher than the average VA buyer in 2016.
6: Limits on Fees and Closing Costs
All mortgages come with fees and closing costs. But the VA actually limits what Veterans can be charged when it comes to these expenses. Some costs and fees must be covered by other parties in the transaction. These safeguards help make homeownership more affordable for qualified homebuyers.
VA borrowers can also ask a seller to pay all of their loan-related closing costs and up to 4 percent in concessions, which can cover things like prepaid taxes and insurance, paying off collections and judgments and more. There’s no guarantee the seller will agree to that request, but Veterans can certainly ask during the negotiation process.
7: Lifetime Benefit
One of the most common misconceptions about the VA mortgage program is that it’s a one-time benefit. In fact, those who’ve earned it can use this program over and over again throughout their lifetimes. Despite what you may have heard, you don’t necessarily have to pay back your VA loan in full to get another one.
It’s even possible to have more than one VA loan at the same time. Using your home loan benefit decades ago does NOT mean you’re no longer eligible. Nor does it mean that because you have a VA mortgage at your current duty station, you can’t purchase again with a VA loan when you PCS across the country. If you have any questions about your VA loan entitlement or what might be possible, contact us and we will put you in touch with a VA-certified lender.
8: No Pre-Payment Fee or Penalty
Many people realize how much money they can save by paying off their loan early, but are often forced to pay prepayment penalties if they wish to do so. Prepayment penalties were created to protect lenders from the financial loss of losing years of interest payments on issued loans. Fortunately with the VA Home Loan benefit, you can pay off your loan early and without fear of of any prepayment penalties.
9: Foreclosure Avoidance Support
VA loans have been the safest loan on the market for most of the last eight years. That’s pretty remarkable considering that about 8 in 10 homebuyers don’t put any money down. The VA mortgage program has emerged as a safe harbor for several reasons, including the VA’s residual income guidelines. The VA itself has also done a tremendous job advocating for Veterans in jeopardy, working to ensure they stay in their homes. Its efforts have helped more than 500,000 veterans avoid foreclosure since the housing crisis.
10: No Funding Fee for Service-Connected Disabled Veterans
The VA Home Loan funding fee goes directly to the VA to ensure the program keeps running for future generations of military homebuyers. The fee varies depending on the borrower’s circumstances and does not apply for Veterans with service-connected disabilities. VA borrowers can roll the funding fee into their overall loan amount and pay it over time as part of their mortgage.
To learn more about how buy a home with your VA Home Loan benefit check eligibility, or to be connected to a VA certified lender, please reach out. We’ve helped many Servicemembers and Veterans successfully achieve the American Dream using their VA home loan benefit.
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