The Department of Veteran’s Affairs was first established back in 1930. Implementing and overseeing multiple programs and benefits to those who have served in the Armed Forces. One of the more popular programs is the VA Home Loan Benefit. This financing option provides multiple benefits that other mortgage programs simply cannot provide. For those who qualify, it can be the ideal option to finance an owner-occupied home for those wanting to come to the closing table with as little cash to close as possible. What are the advantages VA home loans have that others do not?
First, there is no down payment needed. It’s a true zero-down home loan program which dramatically reduces the amount of cash brought to the settlement table. There is only one other financing option that does not require a down payment but that program is reserved for rural areas and can’t be used to finance a home in urban or suburban environments. Conventional loans offer low down payment programs but not a zero-down program. Further, conventional loans with less than 20% down typically require mortgage insurance, which is an additional fee borrowers must pay. Most such policies are paid monthly reducing the overall amount of home the borrower can qualify for.
VA loans do have a form of mortgage insurance but the policy comes in the form of an upfront fee that does not have to be paid for out of pocket but instead is rolled into the final loan amount. This fee is referred to as the Funding Fee. If a VA loan goes into default, which is rare for VA loans, the lender is compensated at 25% of the loss. This compensation helps lenders approve a loan knowing that in the instance of a default they’ll be refunded a portion of the outstanding loan balance. Plus, there is no monthly mortgage insurance premium which enhances affordability. The funding fee can vary based upon the number of times eligibility has been granted and the amount of any down payment but for most first time buyers is 2.3% of the loan amount and up to 3.6% for subsequent use.
Another unique advantage is the treatment of closing costs. Borrowers are only allowed to pay certain types of fees. These fees include an appraisal, credit, title, origination and recording fees. All other fees must be paid for by others involved in the transaction. The sellers for example are allowed to pay for some or all of the borrower’s closing costs. Lenders can also offer a credit to be applied toward closing costs at the settlement table. This credit can be created with an adjustment of the interest rate on the loan.
Another plus comes when those with an existing VA home loan want to refinance. VA loans can be refinanced with a ‘streamline’ method. This means there is a significant reduction in the amount of documentation needed for a refinance. No minimum credit score, no appraisal and no income or employment documentation is required.
We mentioned earlier about eligibility. VA loans are available for veterans of the armed forces but are also available to others. Active duty personnel may also be eligible with at least 181 days of service. National Guard and Armed Forces Reserve members can also qualify for the program with at least six years of service in addition to unremarried surviving spouses of those who have died while serving or as a result of a service-related disability.
Interest rates for VA loans are extremely competitive compared to other low down payment programs. For some conventional loans, the interest rate can be adjusted higher to compensate for the lack of sizable down payment. Not so with a VA loan. Interest rates for VA loans are competitive across the board and are not adjusted based down payment.
Finally, the VA recently removed the maximum loan amount requirement. Historically, the loan amount followed current conventional loan limits but today, the VA does not have a limit. Individual lenders can institute their own maximum loan limits should they choose but the VA no longer mandates it.
If you’re eligible this is an ideal loan program. If you’re not sure you’re eligible, contact me directly and we’ll work over the program guidelines together including current VA home loan rates, closing costs and qualifying.