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Are you among the roughly 18 million Americans, or about 7 percent of the adult population who are veterans? The government acknowledges this selfless act which is why there are several programs for active-duty service members, veterans and eligible surviving spouses are designed to give them benefits.
Enter the VA loan. This option makes it possible for eligible people to finance a home with no down payment, no mortgage insurance and enjoy lenient credit requirements. Sound intriguing? Let’s take a look at VA loans are how they can benefit homeowners.
No Down Payment
Most home loan programs require a small down payment. However, the VA home loan is an exception. This means instead of paying 5%, 10%, 20% or more of the home’s purchase price upfront in cash, with a VA loan you can finance the purchase in its entirety. This can be appealing to buyers who are cash-strapped.
No Mortgage Insurance
You might have heard the term PMI before. It stands for PMI, or private mortgage insurance. Typically, lenders require you to pay for mortgage insurance if you make a down payment that’s less than 20%. This insurance would protect the lender should you default.
Bottom line: VA loans require neither a down payment nor mortgage insurance. That makes a VA-backed mortgage more accessible to buyers in certain situations.
VA Loans Have a Guarantee
VA loans make homebuying possible for cohorts of veterans who might not otherwise qualify in part because of one important distinction. The federal government guarantees these loans. In simple terms, this means a portion of the loan amount will be repaid to the lender even if you’re unable to keep up with payments. This point of difference encourages and enables private lenders to offer VA loans with accessible financing terms.
Shop Around for the Best VA Loan Rates
You might be surprised to learn that VA loans are neither originated nor funded by the VA. What’s more, they’re not direct loans from the government. Furthermore, mortgage rates for VA loans are not set by the VA itself.
So how do you get a VA loan then? VA loans can be obtained via U.S. banks, savings-and-loans institutions, credit unions, and mortgage lenders. Each of these institutions sets its own VA loan rates and fees. Just like with conventional loans, this means you can do research to compare loan offers and find the best option.
VA Loans Don’t Allow a Prepayment Penalty
A VA loan won’t restrict your right to sell the property when you’re still paying on the loan. Plus, there’s no prepayment penalty or early-exit fee no matter within what time frame you decide to sell your home.
Plus, there are no restrictions regarding a refinance of your VA loan. You can refinance your existing VA loan into another VA loan by way of the Interest Rate Reduction Refinance Loan (IRRRL) program, or switch into a non-VA loan at any time.
VA mortgages come in many varietiesA VA loan can have a fixed rate or an adjustable rate. In addition, you can use a VA loan to buy a variety of properties such as a house, condo, new-built home, manufactured home, duplex, etc.
Looking into refinancing? A VA loan can make that possible. You also might be able to use the financing to make repairs or improvements to your home, or make your home more energy-efficient.
It May be Easier to Qualify for VA LoansAs with all mortgage types, VA loan applications require applicants to furnish certain documents, have an acceptable credit history and have sufficient income to make monthly payments. Yet unlike other loan programs, VA loan guidelines tend to be less stringent. This is the case because of the VA loan guarantee. The VA wants to streamline the process for military members, veterans, and qualifying military spouses to buy or refinance a home.
VA Loan Closing Costs Can be LowerThe VA spells out specifics about how much in closing costs lenders can charge to VA loan applicants. This is another way that a VA loan can be appealing to buyers who are concerned they might be locked out of homeownership otherwise. Of course, money saved on closing costs can be used to pay for moving and home furnishing costs.
The VA Offers Funding Fee FlexibilityVA loans require a “funding fee.” This is an upfront cost based on the loan amount, type of eligible service, your down payment size, and other factors. The good news is that funding fees don’t need to be paid in cash, though. The VA allows the fee to be rolled into the loan, so you don’t have to open your wallet at closing.
Another thing to keep in mind is that not all VA borrowers will pay it. VA funding fees are normally waived for veterans who are eligible for VA disability compensation and for unmarried surviving spouses of veterans who died in service or as a result of a service-connected disability.
VA Loans are AssumableMost VA loans are “assumable.” When you assume a mortgage loan, you take over the current homeowner’s monthly payment. Buying a home via an assumable mortgage loan is even more appealing when interest rates are rising. Assumable loans can be used to your advantage when you sell your home.
In short, VA loans can help buyers who might not otherwise qualify for conventional financing. However, at the same time, eligibility requirements are strict. Borrowers might have to go through more intense vetting than with a conventional loan. Take the time to be sure you understand the qualification process, how a VA home loan works and what you will need for closing. That way, you won’t hold up the process and have to cut through additional red tape to unlock your dreams of homeownership.
If you’re unsure if a VA loan is right for you and your situation, know that we’re here as a ready resource. We love working with military and veterans! We’ll help guide you through the process and answer any questions along the way. Even if you can't purchase a home immediately, we're happy to craft a realistic plan to make homeownership a reality in the future.