VA home loans offer veterans many benefits. There isn’t another loan program that provides the same financial benefits for veterans making it easy for them to own a home with little money down.
If you’re unsure how the VA loan can benefit you, here are the top 10 benefits.
1. No Down Payment Required
The only other loan that doesn’t require a down payment is the USDA loan and that’s only for low-income borrowers living in a rural area.
The next closest loan would be the FHA loan which requires a 3.5% down payment, which is $3,500 for every $100,000 you borrow.
The VA loan never requires a down payment. You can get the loan with no money down and you may even get the seller to pay your closing costs, allowing you to come to the table with no money out of your own pocket.
2. Easier Credit Requirements
The VA doesn’t have minimum credit requirements because they don’t underwrite or fund the loans. They leave the credit score minimums to each VA-approved lender. Most lenders, however, have lower credit score thresholds than would be required for a conventional (traditional) loan.
You don’t need perfect credit and we’ll look at the big picture when qualifying you for a loan. Your credit score alone wouldn’t make you ineligible. We look at your overall financial picture to decide what you can and cannot afford.
3. Income Flexibility
You must prove you have adequate income to get a VA loan, but the VA doesn’t require only standard income from a 9 to 5 salaried job. You can have standard income, but you can also have military pay including basic allowance for housing, disability pay, or retirement pay.
The key to any income is proving the income is consistent and will last for the foreseeable future. Because a VA loan lasts for the next 15 to 30 years, we must make sure you can afford it beyond a reasonable doubt.
We can be flexible with the type of income you receive as long as there is ample proof of the income. If you have any questions about your income and whether or not it will qualify you, we are always happy to answer your questions.
4. No Mortgage Insurance
This is probably the one benefit most people enjoy the most. Conventional loans require Private Mortgage Insurance which you must pay until you owe less than 80% of the home’s value. If you put down the minimum 3% as a first-time homebuyer, you’ll pay PMI for a few years before you can cancel it.
FHA and USDA loans require mortgage insurance for the life of the loan. It doesn’t matter how much (or little) you put down or how much you owe on the loan. As long as you have an FHA or USDA loan outstanding, you pay mortgage insurance.
VA loans never change mortgage insurance. Your payment consists only of your principal, interest, and escrow payment (real estate taxes and home insurance).
5. Low-Interest Rates
VA loans have had the lowest interest rates on the market for the last 5 years. In the low-interest-rate environment we’ve had over the last year or so, VA loans offer even better rates, making it easier for veterans to secure financing.
On average, VA loans have interest rates below conventional rates, and when combined with the no down payment requirement and flexible underwriting requirements, makes it a great loan option for veterans.
6. Government Guarantee
Lenders can have relaxed guidelines because of the VA loan guarantee. VA lenders won’t be left out in the cold if a veteran defaults on his/her loan. While this doesn’t mean anyone can qualify with less than optimal qualifications, it does mean lenders can accept lower credit scores, and higher debt ratios and still allow the loan.
The focus is on a borrower’s disposable income for the most part because the VA deems this a better measure of a borrower’s ability to afford the loan than credit scores and debt-to-income ratios.
7. No Prepayment Penalty
VA loans don’t have a prepayment penalty. This means you can pay the loan off as early as you want, and you won’t pay a fee. Whether you pay the loan off because you decided to move or you came into some money and could afford to pay it off, it won’t cost you anything extra to pay it early.
8. Flexibility Paying the Funding Fee
Most VA borrowers pay a funding fee equal to 2.3% of the loan amount the first time they use their benefit. This fee goes directly to the VA, not the lender, and is non-negotiable.
However, you have multiple ways to pay the funding fee – it doesn’t have to come from your pocket only. If you can afford the fee, that’s the easiest way to go about it, but you can also:
- Ask the seller to pay the fee for you (some will agree to this)
- Wrap the fee into your loan amount
9. No Loan Limits
Most loan programs have a limit regarding how much you can borrow. Conventional loans and FHA loans both have a maximum amount you can borrow to fit within the loan’s guidelines. VA loans don’t have a limit, though.
As long as you prove you can afford the loan and meet lender guidelines, you can borrow as much as you need to buy a home. The home’s value must match the loan amount, though. If the home is worth less than the loan amount, you’d have to make up the difference with a down payment.
10. VA Loans are Assumable
VA loans are assumable, which can be beneficial when you try to sell the home. If another veteran wants to buy your home, he/she can assume your loan or take over where you left off. This is up to approval, of course, the buyer must prove he/she can afford the loan, but it can make it easier to sell your home.
Non-veterans can assume your loan too, but if they do, it doesn’t release the entitlement you used on the loan which means you couldn’t turn around and use it on another home if you’re buying another property.
11. Closing costs are limited
The VA limits the closing costs veterans can pay. You’ll pay the typical closing costs, but the seller may have to cover some or you’ll pay a lower amount than borrowers with other loan types pay.
If you want the seller to pay some of your closing costs, make sure you work it into your contract. It must be noted in the contract so all parties agree on who is paying what so your loan can be properly underwritten.
