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Since Congress created the VA Loan program in 1944, more than 18 million people used it to help purchase a home. Expressly designed for honorably discharged veterans and active-duty personnel, the VA loan program includes favorable borrowing terms, refinancing options and underwriting procedures.
Financing your home with a VA loan comes with a number of advantages. The immediate and future financial benefits of the Veterans Affairs Home Loan Guaranty program dwarf of those of any conventional loan.
Not every veteran is eligible for a VA loan. Those who may qualify include:
- Military members who served on active duty for 90 days during war time, or 181 days during peacetime
- National Guard or Reserves personnel who served for six years
- Spouses of service members who died in the line of duty
Completing a Certificate of Eligibility (COE) is the first step in getting a VA loan. COEs verify your eligibility with the VA and/or a VA-certified lender.
Immediate benefits
For qualifying borrowers, VA loans come with no down payment. That means you could buy a residence worth up to $417,000—or higher in certain markets—without spending a cent. Few borrowing programs can boast this major advantage, thanks to the mortgage crisis and credit crunch.
On top of that, there’s the likelihood that sellers pay up to 6 percent of closing and concessions costs. Again, this is a way to let those who served our country keep some money for life’s other expenses.
From the start, choosing a VA mortgage over a conventional one will likely save you money. With conventional loans requiring down payments as high as 20 percent and expecting borrowers to pay appraisal fees and origination costs, it’s obvious how VA loans help borrowers save. Other monthly costs and borrowing terms add up quickly with conventional options, but the VA loan program eliminates several of these to ease the home-buying process.
Future benefits
Interest rates on VA mortgages tend to compare well to conventional loans’ interest rates. Since the VA insures up to one-quarter of every loan, lenders are willing to offer VA mortgages with lower rates. Active-duty members get the added perk of interest rate caps.
Even though interest rates hover around record lows, conventional loan borrowers struggle to meet the credit expectations that qualify them for those low rates. Although VA guidelines for credit scores don’t exist, VA loan lenders usually look for scores no lower than 620.
With a lower interest rate comes a lower monthly payment. Throw in the absence of a private mortgage insurance (PMI) and monthly payments shrink even further. Should these monthly payments for your VA loan become so small that you can prepay, don’t fear a prepayment penalty, another cost eliminated by the VA loan program. Instead of paying the small VA funding fee, borrowers could contractually get sellers to cover that in the closing costs.
Refinancing a VA loan is also a benefit of sorts. The VA Streamline (a.k.a. interest rate reduction refinancing loan) lets borrowers refinance to a lower interest rate or switch from an adjustable-rate to fixed-rate mortgage. To get a VA Streamline, borrowers need to be current on mortgage payments, and cannot have made more than one 30-day late payment in the last year.
Qualifying made easy
Even with a bankruptcy in your past you can still qualify for a VA loan. It is required that you wait one year after the date of discharge for Chapter 13; two years after Chapter 7. Prospective homebuyers with a foreclosure in their history may still qualify, too. As mentioned, credit scores don’t need to be perfect to get a VA loan, but lenders’ expectations may vary.
For those who qualify, now is a great time to capitalize on the great rates, instant and future benefits of a VA loan.
