What are the Benefits of a VA Loan?

You served. You sacrificed. Now, you deserve a place to plant roots and call home. The great news is that the U.S. Department of Veterans Affairs (VA) loan program offers unique advantages that make homeownership possible, and often more affordable than mortgage options available to civilians.

If you are an eligible service member, veteran, or surviving spouse, a VA home loan can be a big help in achieving the dream of owning a home. Today, we will explore 10 compelling benefits of a VA mortgage, dispel some of the most common misconceptions about them, and help you determine if a VA home loan is right for you.

Core VA loan benefits

When you are shopping for home loans, it is important to consider all of your options, especially if you qualify for a few different types of mortgages. Oftentimes it comes down to which type of home loan provides the better benefits for your unique situation.

You might be wondering, “What are the benefits of a VA loan?”. VA mortgages have quite a few advantages that other loans do not, including:

1. No down payment required

Saving for a down payment can prevent, or at least delay, your homebuying dreams from becoming reality. VA loans provide the rare opportunity to purchase a home with little or even no money down. This is a huge advantage over other mortgage types, which typically require at least 3.5% down.

Let us compare the potential down payment requirements for a $550,000 home:

VA Loan: 0%	FHA Loan: 3.5%	Conventional Loan: 3%
$0 (if qualified)	$19,250	$16,500

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 house you wish to purchase.

2. Competitive interest rates

VA home loans generally have lower interest rates than conventional or Federal Housing Administration (FHA) loans. These rates can be lower because the federal government backs the loans, which reduces risk for lenders. 

When researching your loan options, it is best to also compare payment amounts. For example, let us say you qualify for a conventional loan with a low rate, but cannot provide the 20% down payment. This means you will need to account for mortgage insurance costs. Even though a low rate typically reduces your monthly payment amounts, the need for mortgage insurance may negate those initial monthly savings.

3. No private mortgage insurance (PMI)

Private mortgage insurance is an added mortgage cost that protects your lender in the event you stop making payments or default on the loan. However, you do not have to pay for or worry about canceling PMI on VA home loans even if you have little or no money down.

No PMI is one of the benefits of VA loans that may save you money each month.

4. Reduced closing costs

Closing costs cover the time and expenses from activities like mortgage underwriting, title and record filings, application, and attorney fees, inspections, and more. The VA limits the total amount of closing costs or fees you pay. Instead, the seller pays these fees. The seller can also provide up to 4% of the purchase price in concessions, which may include things like prepaid taxes or insurance.

5. Flexible credit score requirements

VA home loan credit requirements can be slightly less restrictive than those for a conventional 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.

6. VA refinancing

Along with providing VA borrowers with loan options that extend beyond conforming loan limits, the VA also offers a refinancing option:

• The VA's Interest Rate Reduction Refinance Loan (IRRRL) offers low rates to current VA borrowers and and you can typically speed up the entire refinancing process because there is 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.

Available entitlement and property location will determine the loan amount. Also, if your loan amount is in the range of $806,500 to $1,500,000 or more—higher interest rates may apply. You will need to pay the VA funding fee and any refinance costs. These may include an appraisal, tax service, title, transfer taxes, and credit reporting fees. There may be more costs necessary for your specific loan.

7. No prepayment penalties

VA loans do not typically have prepayment penalties. Generally, you are free to contribute extra payments or pay off the loan before the end of its term without incurring any penalties. This flexibility is one of the advantages of VA loans.

8. VA funding fee flexibility

The U.S. government uses taxpayer dollars to guarantee VA loans, which provides protection for lenders if borrowers default on their loans. 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 pay even less money up front. Work with your loan officer to pursue this and other options, keeping in regular contact and an organized set of questions and information as you work through the financing process.

9. Loan assumability

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.

10. Reusable benefit

Last, but not least, a great aspect of your VA loan benefits is that they can be used multiple times over the course of your life. However, you will have to go through the process of restoring your entitlement before subsequent uses. VA loan entitlement is the specific amount that the VA pledges to repay your lender in the event of a default.

Once you have paid off your VA loan in full (and sold your VA-financed home), you can usually restore your entitlement by submitting a form for restoration.

Common misconceptions about VA loans

It is not hard to see why VA loans stand out amongst other mortgage products, especially if you are an eligible borrower. However, as you research, it is important to also be aware of the misconceptions that may be floating around on the internet. These myths or falsehoods include:

MYTH: The Department of Veterans Affairs is a loan lender.

TRUTH: No money is lent directly from the VA. All VA loans are provided by VA-approved lenders, whereas the VA makes the promise or guarantee to pay back a specified amount of the loan in the event a borrower defaults.

MYTH: VA loans take a long time to close.

TRUTH: The average time it takes to close on a VA home loan is between 40 to 50 days. However, in some cases, you may be able to close in as little as 30 days. Oftentimes, this rumor is spread due to the VA’s appraisal requirements. Sometimes, the appraisal will lead to the need for repairs before the sale can go through, but the VA loan process timeline is comparable to most other mortgage types.

MYTH: You are only able to utilize the VA loan benefit once.

TRUTH: You are able to use your VA loan benefits as many times as you need. As long as you have entitlement remaining or restore it after selling or refinancing a home, you can use it again.

You may come across even more misconceptions throughout the research phase of your homebuying journey. That is why it is important to have a trusted lender by your side who can give you the facts and help you avoid fiction as you work toward making your dream home a reality.

When a VA loan may not be your best option

VA home loans can be the means for achieving the dream of homeownership for a number of reasons, but are not always the right choice for everyone. This is especially true if you have savings for a traditional 20% down payment and favorable credit history. In that case, you may find better terms in a conventional mortgage.

It is important to take your time researching and comparing different home loan options that may be available to you before settling on which path to homeownership is right for you. One way to get started is by finding a lender who specializes in VA loans to guide you through the process and explain your mortgage options. 

Is a VA home loan right for you?

If you are a past or current service member, a VA loan can be a great option to purchase a home. These purchase loans offer a combination of no down payment, competitive rates, and no PMI.

Take time to compare rates and costs associated with different mortgage types and find a VA mortgage lender to help you review your options. When it comes to buying a home, an informed homebuyer is a confident one and the best choice looks different for each person.