Veterans put their lives on the line to keep us safe and protect our freedom. Every veteran is deserving of our appreciation and support. It’s no wonder that we offer veterans social benefits and opportunities in exchange for their service to the country.
One of the most useful government programs available to veterans are home loans offered by the Veterans Administration. Home loans offered by the VA are specifically designed to provide unique perks to veterans who are buying property.
Many veterans are unaware of all the benefits that VA home loans provide, so let’s explore some of the most exciting perks these loans offer to veterans.
VA home loan interest rates are lower on average than conventional home loans, as well as FHA mortgage rates. The exact interest you will pay as a veteran varies depending on many variables including your credit score, debt-to-value ratio, income, and several other factors. However, VA home loans generally tend to be around .25 to .5 percent lower than conventional home loan interest rates.
Some VA loans can offer interest rates that are 1 percent lower than what typical borrowers would pay, and that decreased interest rate can add up to sizable savings over time.
It’s important to note that to secure a VA home loan, you need to work with a private bank or lender. So, your interest rate will vary depending on which bank or private lender you get the home loan from as well.
It’s important that veterans remember to discuss a VA home loan when working with a private lender, since many banks will push home loans that are best for the bank and not for the borrower.
VA home loans offer veterans the chance to buy a home without making a down payment to their bank or lender. That means veterans can buy a home without saving up for years in order to make a large, lump-sum down payment. This is a huge difference compared to the minimum 5 percent down payments of conventional financing and the minimum 3 percent down payment of FHA loans.
This is not to say that all VA home loans are zero money down or that veterans can’t choose to make a down payment if they wish. However, as long as the price of the home is not higher than its appraised value, a down payment will usually not be necessary for a VA home loan.
This is because the VA offers veterans both a basic and secondary entitlement that effectively backs the loan for up to 25 percent of its value. This means that the VA effectively provides assurance to the lender that they will cover up to a set portion of the loan in the case of default.
The VA’s basic entitlement offers up to $36,000 of protection for lenders, but remember that the VA typically covers a quarter of the loan amount. For loans greater than $144,000, the secondary entitlement kicks in to cover a quarter of the loan’s value. It is important to note that most VA home loans do charge a VA funding fee, although the amount of this fee depends on the specific loan and lender.
VA home loans give veterans a better chance of being accepted for a loan. Often, lenders will relax credit requirements for home loans, which is a big deal for veterans that might not have the time to build their credit scores.
Most VA lenders look to conventional credit benchmarks to evaluate an applicant’s credit scores, and lenders typically have minimum credit scores that they will accept.
However, lenders will have more relaxed credit expectations for issuing VA home loans than conventional or FHA home loans. In large part, this is because the VA will back up to a quarter of the loan’s value in the case of default.
The relaxed credit expectations offer borrowers a better shot of securing a home loan after bouncing back from prior bankruptcy or foreclosure, serving as a lifeline which makes a massive difference in the lives of many veterans.
VA home loans give veterans a chance to procure a home loan without purchasing mandatory private mortgage insurance.
Most borrowers that use conventional financing to buy a home will need to make monthly mortgage insurance payments until they have earned 20% equity in the home.
That’s a big benefit since paying off 20% of a home’s value can be a major challenge for many veterans. This is a perk that isn’t available to other borrowers, whether they are approved for conventional financing or a FHA loan. That’s because even FHA loans require buyers to make monthly MIP insurance payments to protect the lender until 20 percent of the home’s value is paid off.
Forgoing mortgage insurance means that veterans can put a larger amount of their monthly income towards savings and investments.
There is no maximum VA home loan amount. That means that veterans can obtain as large a loan as a bank or lender is willing to offer them without making a down payment.
VA conforming loan limits are higher in expensive regions such as New York, San Francisco, and Hawaii. That means that veterans can use their basic and secondary loan entitlements even in these high-cost areas, provided that they qualify for the loan from a lender.
It is important to note that veterans with more than one VA home loan or veterans who have foreclosed on a home in the past will encounter limits to the entitlements they can access. However, this doesn’t mean they’re subject to a maximum loan amount as long as their lender is willing to offer loan terms that include a zero money down payment.
In the case of veterans with multiple VA home loans, the dollar amount of the entitlement used to buy previous properties is deducted from the entitlements they are eligible for when taking out a new loan. It is only in this situation that a veteran would encounter loan limits that pertain to the value of a property they’d be able to purchase with no money down. These loan limits vary by county, but for veterans that wish to purchase expensive, secondary properties, a down payment might be necessary depending on the lender.
The above are only a few of the many benefits of VA home loans. Some other benefits include lower closing costs, lifetime eligibility, and assumability. Veterans should speak to a qualified lender to get a full picture of the many perks that they can enjoy with a VA home loan.
Are you a United States military veteran applying for a mortgage or interested in learning more about your options and the benefits available to you?
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