12 Benefits of VA Loans
• No down payment
• No mortgage insurance premium (MIP)
• Low credit scores may be approved
• Flexible borrower requirements
• Low interest rates
• Lower closing costs
• Up to 50% debt-to-income ratio
• VA negotiates with the lender if you are facing foreclosure
• No loan limits
• The seller can pay 6% of closing costs
• Lower monthly payment than other loan types
• No Prepayment Penalty
1. Zero Down Payment
Down payments can often be a limiting factor for prospective homebuyers. Unfortunately, it is a MUST on most home loan programs. Not on the VA home loan program anyway. You get financing for 100% of the purchase price with no strings attached.
2. No Mortgage Insurance Premiums
No mortgage insurance premium is one of the most overlooked VA loan benefits. VA borrowers can save thousands of dollars per year by not having to pay MIP.
3. Low credit scores may be approved
There is no minimum credit score requirement for the Veteran’s Administration to guarantee a home loan. Lenders set their own credit requirements, so the minimum score you need to qualify will depend on the lender.
While many VA lenders require a minimum credit rating of 620, there are lenders across the country that can work with credit scores as low as 500.
4. Flexible borrower requirements
As described already, the rules are more flexible for VA loan borrowers than borrowers of other types of loans. This makes qualifying for a VA loan relatively easier. Accordingly, this significantly reduces the barrier to homeownership.
5. Low Interest Rates
VA Loan Rates (October 2020)
30-year fixed-rate mortgage
15-year fixed-rate mortgage
5/1 adjustable-rate mortgage
As low as a quarter of a point in interest can cost you tens of thousands of dollars on a mortgage. So getting the lowest rate is very important.
As you can see on a 30 year fixed rate loan, a VA mortgage has about a 0.35% lower rate than a conventional loan. It may not seem like a lot but the savings are significant over the life of the loan.
The best way to ensure you get the lowest interest rates on your Va loan is to compare loan offers with multiple lenders. Get a rate quote from at least 4 different mortgage companies.
6. Lower Closing Costs
Closing costs are considerably lower compared to other loan types because the VA places caps on how high they can get. Savings made could be directed towards other housing-related expenses, such as home improvements or moving costs.
On. average closing costs on VA loans are between 1%-4% of the loan amount.
7. 50% Maximum Debt-to-Income Ratio
VA loans allow borrowers debt-to-income ratio to be as high as 50%. This is higher than most other types of home loans which require a maximum DTI ratio of 43%. This makes qualifying for a VA mortgage easier for veterans with low income, or a lot of debt.
8. VA negotiates with the lender if you are facing foreclosure
If you are facing financial hardship the Veteran’s Administration will contact the lender on your behalf to work with them in getting you a lower monthly mortgage payment.
9. No Loan Limits
As of January 1st, 2020 VA loans no longer have loan limits. The borrower’s debt-to-income ratio will determine how much of a loan they qualify for.
10. Seller Can Pay the Closing Costs
VA loans allow 100% of the closing costs to be covered by the seller. You can negotiate seller-paid closing costs into the purchase agreement when you submit your home offer.
11. VA Mortgage Payments are Lower than other Home Loans
VA loans are the only type of home loan program that offers 100% financing AND no mortgage insurance. Coupled with the low interest rate and the monthly payment for a VA mortgage is lower than it would be with other types of home loans.
12. No Prepayment Penalty
Say, a borrower decides to sell the home shortly after taking a VA purchase loan. He or she is at liberty to go ahead and not be bothered about a prepayment penalty or early-exit fee. The time frame doesn’t matter.
Furthermore, refinancing a VA loan does not have any restrictions. A borrower can refinance via a VA Streamline Refinance Loan, a VA cash-out Refinance Loan, or even a non-VA refinance loan at any time.
VA Eligibility and Requirements
Basic Service Requirements:
VA Loan Service Requirements
• Served 90 consecutive days of active service during wartime, OR
• Served 181 days of active service during peacetime, OR
• 6 years of service in the National Guard or Reserves, OR
• Are a spouse of a service member who died in the line of duty or service-related disability.
These minimum terms of service requirement may be waived for veterans in certain circumstances. If they were discharged due to government convenience, hardship, reduction in force, certain medical conditions or a disability connected to military service.
Who else is eligible:
VA Loan Eligibility Requirements
• Active-duty service member
• Current or former activated National Guard or Reserves
• Surviving spouse
• Discharged member of the National Guard or Reserves and never activated
• Discharged member of the National Guard and were never activated
Members of the Reserves and National Guard who have served for at least six years in the Selected Reserve or National Guard and continue to serve or were transferred after honorable service to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve, were placed on the retired list, or were honorably discharged.
VA Funding Fee
Buying a home comes with multiple associated “fees.” A lot of them are wrapped up into closing costs. One of these fees is called the VA funding fee. It’s an upfront cost tied to the loan amount, down payment, eligible service and a host of other factors.
VA Funding fee not required if:
- Receiving VA payments for a service-connected disability, OR
- Entitled to receive compensation or if didn’t receive retirement or active duty pay, OR
- Surviving spouses of Veterans who died in service
Fee (first-time buyer)
Fee (subsequent use)
National Guard and Reserves and Chart
Fee (first-time buyer)
Fee (subsequent use)