11 Benefits of a VA Home Loan
This post is sponsored by Veterans United Home Loans
11 VA Loan Benefits for Veterans and Active Duty Service Members
The VA Loan program is one of the most amazing and beneficial programs ever created. From being backed by the government to no down payments and more lenient credit & debt ratio requirements, Va Loans provide veteran and military homebuyers the opportunity to buy, build, and repair their own dream homes. As you’ll see, the benefits of a VA loan vs conventional are uncomparable. These are 11 Benefits of VA Loans You Don’t Want to Miss.
1. VA Home Loans Are Backed by the Government
One of the best benefits of a VA loan is that the federal government “guarantees” or “backs” this type of loan. This means that a portion of the loan amount will be repaid to the lender even if the homeowner cannot make the monthly payments for a particular reason. The guarantee of VA loans encourages and allows private lenders to be more flexible.
2. Military Members Can Qualify for VA Loans Easier Than Other Loan Options
All mortgage types require acceptable credit history and adequate income to make your monthly payments. However, when comparing other loan programs with VA loans, the guidelines for VA loans tend to be more flexible for the homebuyer. This is because of the VA loan guaranty that was mentioned above. The Department of Veterans Affairs works hard to make it easier for veterans and military members and their families to buy or refinance a home.
3. Mortgage Rates on VA Loans Are Usually Lower and Fixed
Because the federal government guarantees VA home loans, lenders can charge competitively low interest rates. And in many cases, eligible veterans and service members find that the rates are usually lower with a VA home loan versus a conventional mortgage. Based on your unique financial situation, VA loan rates can be considerably lower because of a VA loan.
4. Their Closing Costs Are Often Lower Than You Can Get Anywhere Else
The VA prevents some lender costs! Veterans and military members have the right to research closing costs, rates, and mortgage terms with different lenders and choose which lender best fits their situation. Veterans and military members also have the flexibility to negotiate expenses with lenders, sometimes making costs much less with VA loans.
The VA also limits closing costs that lenders “typically” charge veterans and military. For example, the VA will prevent lenders from charging veterans for lawyer’s charges, brokerage charges, or inspection charges upon new construction supervised by the United States Department of Housing & Urban Development.
5. No Prepayment Penalties with VA Loans
Sometimes homeowners want to pay off their loans early, but often there are prepayment penalties if you wish to do so. Prepayment penalties were designed to protect lenders from the financial loss of losing years of interest payments on a loan. However, with VA loans, there are no prepayment penalties. VA homeowners can pay off a loan early without the fear of financial penalties.
6. VA Home Loans Don’t Require Mortgage Insurance
Another significant advantage of the VA home loan program is that because the loan is “backed” by the government, the risk of loss to the lender is much less. As a result, VA home loans do not have to have private mortgage insurance (PMI). PMI protects the lender if you stop making payments on your loan for some reason. However, since the VA home is “backed,” this is not additional insurance that needs to be added to the loan.
7. They Are More Lenient Credit & Debt Ratio Requirements
Even though the Department of Veterans Affairs oversees the VA loan program, it does not issue loans or set or enforce credit score minimums. However, most VA lenders such as Veterans United Home Loans use credit score benchmarks to determine rates for veterans and military members. For conventional loans, veterans will often need to meet a higher benchmark instead of a more competitive interest rate with relaxed credit score requirements with a VA loan.
8. VA Loans Are Extra Flexible
VA loans are very flexible. The VA allows veterans and military to buy several properties via a variety of financing options. For example, a VA homebuyer purchasing a house that requires energy-efficient improvements may have the quantity of the VA loan increased by $6,000 if the homebuyer expects to save money on utilities by adding in energy-efficient improvements like cooling and heating systems, solar energy insulation, or weather-proofing, according to the VA.
This program is known as the VA Energy Efficient Mortgage (EEM) program. This add-on program is made in conjunction with a VA purchase loan to add energy improvements to your newly purchased home.
9. It’s Easy to Qualify For & Avoid VA Loan Funding Fees
According to the Mortgage Reports, VA loans require a “funding fee,” an upfront cost based on your loan amount, your type of eligible service, your down payment size, as well as other factors. However, funding fees are not required to be paid in cash.
The VA provides the flexibility of the fee to be financed with the loan, so nothing is due at closing. Furthermore, not all VA homebuyers will have to pay it. Veterans who get VA disability compensation and unmarried surviving spouses of veterans who died in service or as a result of a service-connected disability can have the VA funding fees waived.
10. VA Loans Don’t Require a Down Payment
This is one of the most popular benefits of a VA loan. Qualified VA Loan homebuyers can purchase up to a county’s conforming loan limit without a down payment. Those limits can vary every year and are higher in more expensive areas.
For conventional and FHA home loans, potential buyers typically look at minimum down payment requirements of at least 5 percent and 3.5 percent. On a $200,000 mortgage, that’s a $10,000 down payment for conventional and a $7,000 down payment for FHA.
It can take military members and veterans many years to save for a down payment. Having the ability to buy a home with no down payment is definitely a huge perk to have.
11. Your BAH (Basic Allowance for Housing) Can Count as Income
Another great perk of a VA loan is that lenders can count your Basic Allowance for Housing (BAH) as income if you are a qualified active duty member. This, in turn, allows military members to qualify for a higher loan amount plus the ability to pay the monthly mortgage costs.
Eligibility for a VA Home Loan
Certificate of Eligibility: What You Need to Know
To take advantage of VA home loan benefits, homebuyers must qualify as veterans, service members, or surviving spouses. You must also have a Certificate of Eligibility (COE) from the VA that confirms you are eligible for VA loan benefits before you can get a loan.
Minimum Service Requirements
To get a Certificate Of Eligibility (COE) and qualify for a VA loan, there are several requirements you must meet with the Department of Veterans Affairs. The service requirements must meet any one of the following:
- You have served in the U.S. military for at least 181 days during peacetime.
- You have served in the military for at least 90 days during wartime.
- You have served at least six years in the National Guard or military reserves.
- You are a qualifying surviving spouse of a service member who died in the line of duty.
Veterans and military members who have found an approved VA lender can ask their loan officer to request their Certificate of Eligibility electronically. Borrowers just need to give the lender their proof of service. The lending agent then utilizes the VA’s Automated Certificate of Eligibility (ACE) portal to obtain the document in seconds.
Eligibility vs Qualification
It is important to remember that meeting the service criteria to qualify for a COE is not the same as qualifying for the mortgage loan you want. Verifying your eligibility for a VA home loan is just the first step in getting your loan approved. The property you intend to purchase or refinance must also meet specific criteria. You will also have to meet your lender sets’ qualifications to get the loan, such as income, debt level, and credit score.
Credit Score Requirements
Most VA lenders use credit score benchmarks. Applicants with scores below a lender’s standard usually can’t be approved for VA financing. That minimum will differ from lender to lender. At Veterans United Home Loans, they typically look for a credit score of at least 640.
When it comes to getting approved for a VA home loan, one of the important financial metrics for lenders is the debt-to-income (DTI) ratios.
The debt-to-income ratio is a guideline that looks at the correlation between your gross monthly income and your monthly debts.
This gives VA lenders like Veterans United Home Loans an insight into your ability to repay the debt of a home loan and your purchasing power. For VA loans, lenders consider only the back-end ratio, a ratio that considers all of your major monthly expenses.
A debt-to-income (DTI ) ratio above 41 percent for Veterans and military members means that they would likely encounter additional financial analysis. Even though the VA doesn’t mandate a maximum DTI ratio, it does set a dividing line for prospective borrowers.
For over 75 years now, millions of military service members and veterans have become homeowners with the aid of their VA loan benefits. The U.S. Department of Veterans Affairs not only backs VA loans, but this type of loan has many benefits, including the benefit of no money down. If you are a military member, veteran, or eligible spouse, it’s worth considering the many benefits of VA home loans.
This blog post is for informational purposes only and shouldn’t be seen as any kind of legal or financial advice. Please consult a professional to find out more about what you qualify for under a VA home loan.