The Benefits of a VA Loan
First and foremost, if you’re a veteran, active-duty military, or surviving spouse of someone who has served our country, thank you for your sacrifice. Your commitment and service are seen and valued. If you fall into these categories and are looking to buy a home, a VA loan may be the right option for you.
This guide will help you understand the basics of one of the most popular mortgage options in the industry and help you make an informed and confident decision.
What is a VA Loan?
A VA loan is a specific mortgage option geared to help veterans and active-duty military experience homeownership. A VA loan has financial benefits that can’t be found in traditional mortgages, and are backed by the federal government, but issued through private lenders. You may be eligible for a VA loan if you meet the following requirements:
- You have served 90 consecutive days of active service during wartime, OR
- You have served 181 days of active service during peacetime, OR
- You have 6 years of service in the National Guard or Reserves, OR
- You are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.
Types of VA Loans
There are a few different types of VA loans that veterans and active-duty military members can take advantage of. Here is a breakdown of some of the most common finance options:
A VA-backed purchase loan allows eligible borrowers to get better terms on their mortgages than a traditional private-lender loan.
Native American Direct Loan (NADL) program
If you are a Native American Veteran or a veteran married to a Native American, you may qualify for the NADL program. This financing option makes it easier for Native Americans and their families to buy, build, or improve a home on federal trust land.
Interest Rate Reduction Refinance Loan (IRRRL)
An interest rate reduction refinancing loan reduces monthly payments on existing VA-backed loans. If you’re looking for a way to modify the terms of your loan, you may be eligible for this kind of refinancing option.
Cash-out refinance loan
If you’re looking to pay off debt or you need a large sum of money to pay for something like school or health-related issues, you may have considered a cash-out refinance loan. This financing option allows you to take cash out of the equity you have in your home so you have access to the funds when you need them. This is also a popular option for those looking to refinance a non-VA loan into a VA-backed loan.
Benefits Of A VA Loan
There are many benefits to a VA loan and has helped millions of veterans since the start of World War II afford homeownership. Some of the most significant benefits include:
No Down Payment
This benefit is arguably the single most beneficial aspect of this kind of loan. It is practically unheard of for buyers to purchase a home without a down payment first. For some, it can take years to save up enough money for a significant down payment, especially one large enough to avoid PMI. Through traditional mortgage options, buyers are expected to come to the table with at least 3.5% as a down payment. On a $300,000 home, that’s $10,500 in cash upfront just to get started! With VA loans, buyers aren’t required to put down a down payment, which makes home buying easier for the military borrower.
No PMI (Private Mortgage Insurance)
If you don’t have a significant down payment on FHA loans, you’ll end up paying PMI, or private mortgage insurance. These extra fees are protection (insurance) for the lender, not you, if you stop paying on your mortgage. According to NerdWallet, “The average cost of private mortgage insurance, or PMI, for a conventional home loan ranges from 0.58% to 1.86% of the original loan amount” VA loans don’t add PMI to the money you’re borrowing, significantly reducing what you owe at the end. Not having to pay PMI allows military borrowers to make the most of their mortgage.
Looser Credit Requirements
Another benefit of a VA loan is the relaxed credit requirements. Veterans don’t have to worry about having a high credit score to qualify, and can expect more leeway when it comes to borrowing after foreclosures, bankruptcies, and short sales. Where traditional loans have strict rules about credit scores and eligibility, VA loans offer more freedom and flexibility to qualify.
Lower Closing Costs
The cost of the home is only a portion of what a buyer can expect to pay when buying a house. There are property taxes, real estate commissions, and utilities. There are also closing costs to consider, which are traditionally between 2-7% of the home’s sale price. With a VA loan, there is a max on how much buyers are charged when it comes to these additional expenses. With a VA loan, some of the fees that a buyer is traditionally responsible for are passed onto other parties. This cuts costs and makes homeownership more affordable.
Other Benefits Of A VA Loan
Other benefits of a VA loan include no prepayment penalties and the ability to use the program over and over throughout a lifetime, not just once. This means that borrowers can pay off their mortgage early if they want to, allowing them to move onto other investments. Borrowers can have more than one VA loan at a time, and the first loan doesn’t have to be fully paid off to take out a second one. Many VA lenders accept multiple sources of income for eligibility, including retirement income and disability pay. Many veterans are exempt from paying the funding fees that are standard on most FHA loans, and there are no down payments.
If you’re a veteran, active-duty military member, or a military family, we’re thankful for you. There are services and programs in place to help you reach your dream of homeownership, and the VA loan is a prime example.