The Veteran’s Administration loans, or VA loans, are a home-mortgage option available to veterans, current or former members of the national guard, an active reserve member, or a surviving spouse in the United States. They are issued by qualified lenders and guaranteed by the U.S. Department of Veterans Affairs. There are three types of VA loans: cash-out refinance loans, purchase loans, and interest rate reduction refinance loans. Due to the difficulty for military borrowers to build credit and assets for a conventional mortgage, veterans turn to the VA in assistance for homeownership. VA loans have grown in popularity in recent years due to big benefits for veteran Americans.
Benefits of a VA Loan:
No Down Payment
Qualified applicants with VA loans can purchase a home without a down payment. The minimum down payment for an FHA loan is 3.5%, and for a conventional loan it’s normally 5%. So, if a military borrower wants to get a $200,000 mortgage, they must have $7,000 cash for the FHA down payment or $10,000 for a conventional loan. However, the average VA borrower has just under $9,000 in total assets in hand. VA loans allow qualified borrowers to finance up to 100% of the home’s value without a down payment.
Negotiable and competitive interest rates
VA loans continue to have the lowest average interest rates among other types of mortgage loans. VA borrowers can get rates typically 0.5% to 1% lower than conventional loans. Interest rates are based on the financial situation of the borrowers and are negotiable with your lender.
No mortgage insurance
Unlike other loans, a VA loan does not include monthly private mortgage insurance premiums (PMI). FHA loans usually come with both an upfront and an annual mortgage insurance charge. Conventional buyers need to pay for private mortgage insurance unless they make at least more than 20% of down payment. With a VA loan, however, the federal government covers PMI for all military borrowers.
Low credit requirement
Lenders set very low minimum credit scores for VA loan applicants and veterans. Although the minimum credit score will vary from lender to lender, most VA loan lenders search for credit scores around 620.
Closing cost limit
VA loans limit the cost during the closing process for VA borrowers. Additionally, borrowers can ask sellers to pay all of their loan-related closing costs and up to 4 percent in concessions.
No prepayment penalties
Prepayment penalties are created to protect lenders from losing years of interest payments on issued loans. Fortunately for VA borrowers, there are no prepayment penalties. This allows borrowers to consider other home purchases and refinancing options.
The VA loan program not only helps veterans get a mortgage, but also provides them job opportunities and guidance to help them keep their homes. This has helped many veterans avoid foreclosure in the last decade.