The VA Loan is known to be one of the best benefits for current and retired military members and their families. Let’s dive a little deeper into what makes the VA Loan so special.
A VA or Veterans Affairs Loan is a home loan designed to help finance homes for Veterans, eligible members of the military, and some surviving spouses. To be eligible to apply for a VA Loan, a military member must serve 90 consecutive days on active duty during a time of war, 181 days during peacetime, or six years in the Selected Reserve or National Guard. A VA Loan is guaranteed by the government but made by qualified lenders such as banks or independent mortgage companies. Because the loan is guaranteed by the government, lenders can approve borrowers with more flexible lending standards.
Loans Start at Zero Down
Qualified VA buyers can put nothing down on their home loan. The VA loan is one of the few loan programs available that does not require a down payment, allowing an easier entry to homeownership for military members and veterans*. VA buyers are required to pay a funding fee at closing time, which ranges from 0.5 percent to 3.3 percent of the loan, depending on the veteran’s service and loan type. Unlike closing costs, which are an out-of-pocket expense, you’re able to finance the VA Funding Fee and wrap it into your monthly mortgage payments. If you are retired or discharged on disability, you might be eligible to have your funding fee waived.
*A smaller down payment will result in a higher monthly mortgage payment.
No Need to Pay Private Mortgage Insurance
One reason that the VA loan remains one of the best benefits available to service members and veterans is that borrowers are not required to pay costly private mortgage insurance, which is typically required when putting less than 20% down on a loan. Private mortgage insurance typically costs between 0.5 percent and 1 percent of the loan amount. That means on a $100,000 loan, you could be paying as much as $83.33 per month in private mortgage insurance. The elimination of private mortgage insurance saves VA borrowers up to hundreds of dollars per month alone.
Competitive Rates and Flexible Credit Requirements
Typically, VA loans have lower interest rates than conventional loans because the mortgage is backed by the government, which makes the loan less risky for lenders. The reduced risk also allows for more flexible credit requirements. So if your credit score is less than perfect, don’t panic. Plus, VA loans are more forgiving when bouncing back after a bankruptcy, foreclosure or short sale.
Your Basic Allowance for Housing (BAH) Could Cover Your Mortgage Payments
In many cases, your mortgage could be less expensive than the money you get from your BAH, so you could potentially even end up with more money in your pocket by purchasing a home with a VA loan. Additionally, if you’re an Active-Duty military family receiving BAH, that money could count toward your qualifying income for a VA Loan, giving you more purchasing power.
Of course, this will depend on where you live, your rank, and your years in service.
It’s really the only loan program that could potentially cost you nothing upfront because you don’t have the hurdle of a down payment. Your monthly payment will depend on the overall cost of the home as well.
Sellers Can Pay Borrower Closing Costs
VA loans allow the seller to pay closing costs, which further reduces the out-of-pocket costs for the buyer. This program is also the only loan program that will enable your seller credit to pay down a credit balance, such as a credit card debt or car loan.
If you’re an active-duty, reservist, or retired military member looking to take advantage of your VA Loan benefit, start by calling one of our loan officers. As a local lender, we’re here to guide you through the VA Mortgage process from start to finish.