August 31, 2023
You served. You sacrificed. Now, you deserve a place to plant roots and call home.
You’re in luck: The Department of Veterans Affairs (VA) loan program offers unique advantages that make homeownership possible, and often more affordable, than mortgage options available to civilians. Here are 10 compelling VA mortgage benefits.
1. Low down payment
Do VA home loans require a down payment? Saving for a down payment can separate the home buying dream from reality – or at least push it back a few years. VA loans provide the rare opportunity to purchase a home with little, and sometimes no, money down. This is a huge advantage over other mortgage types, which typically require at least 3.5 percent down.
Let’s compare the potential down payment requirements for a $550,000 home:
VA Loan: 0%
FHA Loan: 3%
Conventional Loan: 3.5%
$0 (if qualified)
Eliminating the need for a down payment can be the determining factor between being able to purchase a home or not, as well as influencing the affordability of the desired property.
2. Better interest rates
A lower interest rate can reduce monthly payments and save you thousands of dollars over the life of your loan. VA home loans generally have lower interest rates than conventional or Federal Housing Administration (FHA) loans. One reason the rates can be so attractive is because the loans are backed by the federal government, reducing risk for lenders.
3. No mortgage insurance
Other home loans may require you to pay mortgage insurance if you have a low down payment, which protects your lender if you stop making payments. Because VA loans are backed by the federal government, no insurance is required – lowering your monthly payment and allowing you to save or put more money toward the principal each month.
To avoid mortgage insurance with a conventional loan, your down payment must be at least 20 percent of the home purchase price. Continuing with our example of a $550,000 home, that would mean a $110,000 up-front payment. That’s out of reach for many aspiring homebuyers.
4. Fewer closing costs
Who pays closing costs on a VA loan? Closing costs cover the time and expenses from activities like the mortgage underwriting, title and record filings, application, and attorney fees, inspections, and more. The VA limits the total amount of VA closing costs or fees you can pay. Instead, the seller pays these fees. The seller can also provide up to four percent of the purchase price in concessions, which may include things like prepaid taxes or insurance.
5. Easier loan qualifying
Do you need good credit for a VA loan? VA home loan credit requirements can be slightly less restrictive than those for a typical mortgage. You will still need to qualify based on credit, income, and VA eligibility – however, the overall process can be easier than it is for a conventional or FHA loan.
The VA does not require a minimum credit score, but your lender will – often a minimum of 620. In most cases, a higher credit score equals a lower interest rate.
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.
No prepayment penalties
VA loans do not typically have prepayment penalties. You are generally allowed to make extra payments or pay off the loan early without incurring any penalties. This flexibility is one of the advantages of VA loans.
Funding fee can be rolled into loan
We already mentioned that VA loans are insured by the U.S. government, which provides protection for lenders if borrowers default on their loans. That means, ultimately, U.S. taxpayers fund the VA home loan program. The VA collects a funding fee from most VA borrowers to help reduce costs for taxpayers and make the program possible.
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.
VA loans are assumable
If you sell to another VA eligible buyer, they can assume the entire loan, making the buying and selling process easier. This is valuable when interest rates are rising because the new buyer can keep your assumable loan interest rate, which may be lower than what they can get independently – providing added incentive to purchase your home.
Use it again and again
You can use your VA loan benefit more than once, as long as you restore your entitlement. Think of 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.
Are VA loans good?
If you’re a past or current servicemember, a VA loan can be a great option to purchase your first or forever home. These purchase loans offer a combination of no down payment, competitive rates, and no PMI. Yet, they aren’t the right choice for everyone, especially if you have savings for a traditional 20 percent down payment and favorable credit history. In that case, you may find better terms in a conventional mortgage.
Take time to compare rates and costs associated with different mortgage types and find a VA mortgage lender to help you review your options. The best choice looks different for each person.