There are many benefits of VA home loans, and while some of them are well-known, there are also a few lesser-known benefits of VA loans that may be just what you need to be able to close on the home of your dreams. Take a look below at five benefits of VA home loans.
VA Home Loans Traditionally Offer Lower Interest Rates
VA loans are a great opportunity for home-seeking veterans or active-duty military personnel. The Department of Veterans Affairs regulates VA mortgages to the benefit of qualified borrowers. Likely due to the history of military personnel taking their responsibilities seriously, the default rate on VA mortgages has been lower than the default rates of all other types of mortgages. Because of this, great interest rates are available for VA loans. They’re almost always lower than conventional and FHA mortgage interest rates, which can enable veterans and active military personnel to get more bang for their home-buying dollars.
VA Home Loans Don’t Require Down Payments
Only two mortgage programs currently offer the ability for borrowers to put nothing down on a new home purchase. One of the programs is known as Rural Development (RD) and is overseen by the Department of Agriculture. However, RD loans have geographical restrictions and income limitations, so they are only available to a very small segment of homebuyers. On the other hand, VA loans have no geographic restrictions, no income limitations, and are available in some states for loan amounts as high as $1.5 million. Because of their flexibility, they’re a viable option for millions of veteran and military homeowners. Additionally, a VA mortgage can be used to refinance an existing mortgage.
VA Home Loans Are Easier to Qualify For Than Conventional Mortgages
Obviously, the first requirement for a VA loan is that the borrower or their spouse must have served in the military and either be active-duty or honorably discharged. Beyond this, the qualifications for VA mortgages are very flexible. For example, the VA accept credit scores as low as 580—whereas conventional mortgages require a minimum credit score minimum of 620. The total debt ratio for VA borrowers can be as high as 50%, which compared to conventional mortgages, is as much as 4–5% higher. Additionally, VA borrowers are allowed to get their down payment as a gift from a relative, but conventional mortgages have regulations surrounding down payment gifts. These are just a few of the more flexible benefits of VA loans.
VA Home Loans Don’t Require Monthly Mortgage Insurance (MI)
Did you know that VA loans are the only mortgage that do not require monthly PMI—even with less than 20% down? This offers a substantial savings to veterans or active-duty military personnel. On a $250,000 conventional mortgage, with 5% down, the monthly mortgage insurance (MI) can be as high as $190 per month. For a $250,000 FHA mortgage, the MI would be $177 per month. For a VA mortgage, the monthly MI is always ZERO! Instead of monthly mortgage insurance, the VA charges a one time guarantee fee (funding fee). The funding fee for a first-time use scenario typically is 2.15% of the loan amount, with $0 down. However, disabled veterans can get this fee waivedm and for non-disabled veterans, there are some lenders who will pay it on their behalf—Homesite will always work with you on eliminating your funding fee.
VA Home Loans Restrict Fees That Lenders Charge
One of the many benefits of VA home loans are the restrictions on charges that conventional mortgages typically include. VA loans allow for sellers on a purchase transaction to pay up to 4% of the buyer’s closing cost. In addition, the Veteran’s Administration prohibits lenders from charging veterans and active military personnel some specific fees as well as limiting lenders on total lender charges. Specifically, VA disallows charging VA borrowers pest-inspection fees, exorbitant-appraisal fees, title charges that benefit the lender, and limit the cost of the credit report to name a few.
VA loans were created to reward current and former military personnel for serving our country. However, not all VA lenders are created the same—many lenders would rather avoid the regulatory red tape and simply not offer VA loans and financing. VA borrowers should do their homework when it comes to picking their VA lender. Choose a VA lender who has a lot of experience with providing VA loans. You should also ask your VA lender if they have certified VA underwriters on staff, in order to avoid delays in the underwriting process. Lastly, don’t be afraid to ask your VA lender if they will help you eliminate your VA funding fee. This is something we at Homesite Mortgage view as the least we can do to say “thank you!” to our veterans and active military personnel.