What Most Borrowers Don’t Know About VA Loans
VA housing assistance is available to veterans, service members, and their surviving spouses to buy a home or refinance a loan. A VA home loan is substantially different from a standard home loan because it is backed by the US Department of Veterans Affairs. Understanding exactly how VA loans work and how they differ from regular mortgages can help qualifying home buyers and homeowners make one of the biggest financial decisions. Here, we’ll review some key VA loan facts.
Whether you’re just starting out and looking to buy your first family home or looking for an investment property like a duplex, the VA’s home loan program offers some distinct advantages that veterans and active-duty service members will want to take advantage of. Hero Loan can help you navigate the specifics of these benefits and how they apply to your individual situation.
VA Backing Means Lower Interest Rates
With a VA-backed home loan, the VA guarantees a portion of the loan you get from a private lender. If your VA-backed home loan goes into foreclosure, the VA’s backing allows the lender to recover some or all of their losses. Since there’s less risk for the lender, they’re able to offer borrowers the loan under better terms, including lower interest rates than conventional, private mortgages. Lenders of conventional loans have to rely more on borrowers’ credit history and debt-to-income ratio to determine their ability to pay and the risk involved for the lender.
No Down Payment
While conventional loans typically require a down payment, there is no down payment required for a VA loan. That’s a great advantage for the many interested home buyers who have not been able to accumulate the cash to pay for a down payment on a home. Most conventional loans require anywhere between 3% and 20% for a down payment. Depending on the local housing market, that can add up to a lot.
Easier Qualification Requirements
The VA’s guarantee on VA mortgages also means that lenders can be more flexible in terms of qualifying requirements. Often, veterans and active-duty service members who wouldn’t otherwise qualify for a conventional loan because they have too much debt or a lower credit score may be able to qualify for a VA loan.
Fewer Costs at Closing
In addition to not needing to pay a down payment on a VA loan, borrowers also face reduced closing costs, making a VA loan an excellent option for those who don’t have a lot of money saved up. The VA limits what closing costs lenders can charge people using a VA loan to finance a home. Plus, the VA’s funding fee, which is based on the loan amount and various other factors, doesn’t need to be paid up-front and can be rolled into the loan.
What’s more, some costs can be waived for veterans who receive disability compensation from the VA, as well as the unmarried surviving spouses of vets who died in the line of duty or due to a service-related disability. In addition, the funding fee can be paid by the seller if that is negotiated during the home buying process.
No Private Mortgage Insurance
Unless you’re putting at least 20% for a down payment on a conventional mortgage, you’ll need to carry private mortgage insurance (PMI). This policy protects the lender from risk if you default on the loan at any point. The PMI adds to your monthly housing payments, without reducing your principal. Because VA loans do not require a PMI, you’re not stuck with a payment that doesn’t contribute to the principal.
The VA loan benefit can be used multiple times. That means that as long as a homeowner has occupied a home financed with a VA loan at some point, they can then rent it out and use the benefit to purchase a second home. The rent collected on the first home could be counted as income to qualify for a second loan. The VA loan benefit can also be used to refinance a home loan in circumstances where meeting the monthly payment has become difficult. The VA is a lifetime benefit, so it never expires.
Loans guaranteed by the VA are “assumable,” meaning that they can be transferred to a new home buyer if that person meets specific qualifying criteria, even if they themselves are not a veteran or active-duty service member. When selling, if home prices or mortgage rates rise, giving potential home buyers the option to assume your VA loan can make your home a particularly attractive option.
How Can Hero Loan Help You?
Hero Loan is dedicated to helping those who are serving or have served our country by providing the best possible home financing options, whether to buy a first home, refinance an existing home, or invest in a second home. Our expert team can evaluate each individual’s unique circumstances to determine the benefits available to you through the VA and how to qualify for them, making the daunting step of home buying seem a bit more like “mission possible.” Contact us today to get started.