October 23, 2020
VA loans were created to open up the prospects of home ownership to more potential buyers. If you qualify for a VA loan, it can provide you with several benefits not available with other mortgage options. We’ve compiled the top 10 (with a bonus benefit — because at PenFed, we go above and beyond).
- You don’t need a down payment with a VA loan. While most loan options require a down payment, a VA loan allows you to get into a home with $0 down. If you are eligible for a VA loan, you can finance 100% of the purchase price. To learn more about VA loans, visit the U.S. Department of Veterans Affairs.
- VA loans generally have better interest rates. In general, VA loans have the lowest interest rates of all mortgage types. One reason the rates can be so attractive is that these loans are backed by the federal government.
- VA loans never require mortgage insurance. With a conventional loan, if you don’t have the funds for a 20% down payment, you’ll usually have to take out private mortgage insurance (PMI). Federal Housing Administration (FHA) loans have mortgage insurance requirements regardless of the down payment amount. Your mortgage insurance premium, whether private or FHA, is generally paid monthly on top of your mortgage payment. Both of these insurance options are to protect the lender. A VA loan, on the other hand, is backed by the federal government, so no mortgage insurance is necessary. That can potentially save you thousands of dollars over the life of the loan.
- You can use your VA loan benefits more than once — with restrictions. You can use your VA loan benefit more than once, as long as you restore your entitlement. You can consider your VA loan entitlement to be a specific amount the VA pledges to repay your lender if you default on your VA loan. You can generally restore your entitlement by submitting a form for restoration after paying off your VA loan in full and selling your VA-financed home. There may be a higher funding fee involved — a higher percentage of the loan price — but you can work with your loan officer to determine what works best for your situation.
- VA loans are fairly easy to refinance. VA loan refinancing has a few different options. With an Interest Rate Reduction Refinance Loan (IRRRL), you can typically speed up the entire refinancing process, as there’s less paperwork than with conventional refinancing. There may also be no appraisal necessary, and you can roll all of your refinancing costs into the new loan.
- There is more than one type of VA loan. Different types of VA loan options include fixed rate and adjustable rate options (VA ARM).
- VA loan closing costs are similar to those of other loans. The VA limits the total amount of closing costs or fees a lender can charge for a VA loan.
- There are no prepayment penalties with VA loans. If you have the ability to pay off your VA loan, there is no prepayment penalty involved.
- The process to qualify for a VA loan can be easier than for a typical loan. VA guidelines can be slightly less restrictive than those for a typical loan. Yes, you will still need to qualify based on credit, income, and ultimately be eligible for a VA loan, but overall the process can be easier than that for a conventional or FHA loan.
- VA loans can be assumed by another VA eligible buyer. If you are looking to sell to another VA eligible buyer, the entire loan can be assumed by the new buyer, which that can make the process of buying and selling a lot easier. This is particularly valuable if interest rates are on the rise, as your assumable loan interest rate could be preserved for the new buyer, offering them a lower interest rate than they can get on their own. This can offer a buyer additional incentive to purchase your home.
Bonus Benefit for VA Loans
- The VA funding fee can be rolled into the overall loan. You may be able to roll your VA funding fee into the total loan, requiring you to put out even less money up front. Work with your loan officer to pursue this and other options, keeping in regular contact and keeping an organized set of questions and information as you work through the financing process.