It can be difficult to find the right loan program. Between rates, private mortgage insurance, and shopping for a home, there is a lot that goes into finding the perfect space. However, if you are an American military veteran, current military, reservist, or surviving spouse, you can qualify for a mortgage loan from the Veterans Administration (VA).
VA loans are fixed-rate loans backed by the US Department of Veterans Affairs. They can be utilized as a home purchase or a home refinance. VA mortgage loans pack a powerful punch with some financial benefits that set them apart from other mortgage types. Some of the most significant include the following:
1. No Down Payment
One of the largest benefits of the VA loan is that qualified Veterans can purchase without a down payment. This is a huge advantage considering the minimum down payment on an FHA is around 3% and often 5% for Conventional financing. This means that on a $450,000 home purchase, a military borrower would need to come up with $13,500 down for an FHA mortgage loan or $22,500 for a Conventional loan. VA loans allow qualified borrowers the ability to finance 100% of the home’s value without putting a penny down.
2. No Private Mortgage Insurance
Private mortgage insurance protects lenders in case a borrower defaults on their loan. Many lenders require this on loans where borrowers put less than 20% down. Unlike conventional and FHA loans, VA loans don’t require monthly mortgage insurance which allows Veteran borrowers to stretch their buying power and save.
3. Relaxed Credit Requirements
Since the Department of Veterans Affairs only oversees the loan program and does not issue loans, the agency does not set or enforce strict credit score minimums. Credit score cutoffs can vary, but are typically lower than what is needed for conventional mortgages.
4. Competitive Rates
VA loans typically have the lowest interest rates on the market. They come in at roughly 1% lower than conventional rates. While this doesn’t sound like much, this amounts to money saved every month and adds up to a lot over the life of the loan. For example, on a $450,000 loan, a 1% reduction in interest would amount to a savings of $86,400 for a standard 30-year, fixed-rate mortgage.
5. Lifetime Benefit
A popular misconception about the VA mortgage program is that it’s a one-time benefit. This program is actually open to Veterans who qualify for a VA loan to use more than once, and the benefit never expires. In addition, VA borrowers don’t always have to pay back the entire VA loan in full to use their benefit again. This available benefit is outlined in the veteran’s DD-214 form or Certificate of Eligibility which can be found in their VA benefits portal.
6. Closing Cost Limits
While most mortgages come with fees and closing costs, the VA actually limits what Veterans can be charged when it comes to these expenses. In fact, some costs must be covered by other parties in the transaction.
7. No Prepayment Penalties
With some types of mortgages, paying off a home loan before it matures results in a pre-payment penalty since the lender misses out on opportunities to collect interest payments. The VA loan, however, allows borrowers to pay off their loan at any time without any repercussions.
If you think you may qualify for a VA loan and would like to discuss your options, please contact Bluefire Mortgage Group at (760) 930-0569 and one of our loan officers will assist you