VA Loan Advantage
The VA Loan program is the most powerful home loan program on the market for many veterans, service members and military families. These flexible, government-backed loans come with significant benefits that open the doors of homeownership to veterans who might otherwise struggle to obtain financing.
VA loans require no down payment or private mortgage insurance. They feature competitive rates and terms and allow qualified borrowers to purchase a home with little to no money out of pocket.
The increasing popularity has stemmed from the loan program's signature benefits, which include:
1. No Down Payment
Saving money and building credit can be difficult for service members who are constantly on the move. With the VA Loan, qualified borrowers can finance 100 percent of the home's value without putting down a dime. Take a look at the chart below to see how much you can save through the no-money-down benefit of the VA Loan.
2. No Private Mortgage Insurance
Many conventional lenders require borrowers to pay private monthly mortgage insurance unless they're able to put down at least 20 percent, which is a tough task for many veterans. Private mortgage insurance (PMI) is an insurance that protects lenders in case of a borrower default.
With a VA Loan, however, there is no PMI. This is because the federal government backs all VA Loans and assumes the risk on behalf of the borrower that is typically covered by the PMI.
This VA Loan advantage allows you to build more and more equity in your house, effectively saving you thousands of dollars over the life of your mortgage.
3. Competitive Interest Rates
Interest rates on home loans are based on the risk assumed by the bank to finance the loan. Because the VA backs each VA Loan with a guaranty, financial institutions carry less risk and can offer interest rates that are typically 0.5 to 1 percent lower than conventional interest rates.
Pair that lower interest rate with the ability to purchase a home with no money down and no private mortgage insurance and the savings start adding up significantly.
Basic Allowance for Housing
Basic Allowance for Housing (BAH) is a significant benefit for qualified active military members. Lenders can count your Basic Allowance for Housing as effective income, which means you can use BAH to pay some or all of your monthly mortgage costs.
BAH varies based on your pay grade, your geographic location and your number of dependents. Learn more about Basic Allowance for Housing.
No Pre-Payment Penalty
With many different types of loans, paying off a home loan before it matures results in a pre-payment penalty. This is because lenders miss out on additional opportunities to collect interest payments. The pre-payment penalty is a way for financial institutions to recoup some of that money.
The VA Loan allows borrowers to pay off their home loan at any point without having to worry about a pre-payment penalty. With the absence of a pre-payment penalty, borrowers are free to consider future home purchases and refinancing options.
VA Mortgage Rates
Because VA Loans are backed by the federal government, lenders have the luxury of charging competitively low interest rates. Service members who are eligible find that rates are generally lower with a VA home loan than a conventional mortgage.
Your interest rate is influenced by a variety of factors, including:
Because of the risk involved in issuing a loan, a good credit score almost always means a lower rate. However, even if your credit report isn't in perfect shape, you may still have an easier time qualifying for a low rate due to the VA Guaranty.
Once you've identified the house you wish to purchase and have entered a contract for that property, we'll help you figure out what the rate will look like. In most cases, we will have a better forecast of your rate after an underwriter has reviewed your loan and you have a general idea of your closing date.
VA Loan Eligibility Requirements
To be eligible for a VA Loan, veterans, active duty service members, National Guard members and reservists must meet the basic service requirements set forth by the Department of Veterans Affairs. Spouses of military members who died while on active duty or as a result of a service-connected disability may also be eligible.
It's ultimately up to the VA to determine eligibility for the home loan program, but prospective borrowers can get a good idea by looking at the VA's basic eligibility guidelines.
You may be eligible for a VA Home Loan if you meet one or more of the following conditions:
While you don't need your VA Certificate of Eligibility in hand to start the loan process with Veterans United, this certificate is a very important part of your loan application. Your COE verifies that your length and character of service make you eligible to use the VA home loan benefit.
Homebuyers interested in the VA Loan aren't required to reach any kind of income threshold to use their home loan benefits; however, borrowers are expected to have stable, reliable income that will cover monthly expenses – including their new mortgage payment.
Additionally, the VA requires that borrowers maintain a certain amount of income left over each month after all major expenses are paid. The excess is meant to cover typical family needs, such as food, transportation and so forth and is referred to as residual income. Residual income is a large reason why the VA Loan maintains one of the lowest foreclosure rates of all major lending options.
By enforcing residual income requirements, the VA increases the chances of its borrowers earning sufficient income to meet all financial obligations, and also ensures borrowers have a cushion in the event of an emergency.
Although the VA determines the guidelines for those who are eligible for the VA Loan benefit, private lenders who finance the home purchases have an additional set of criteria a potential borrower must satisfy, including debt, income and credit requirements
When you apply for a VA Loan, your Mortgage Specialist from Veterans United will pull your credit score from the three leading credit agencies, as well as examine your debt-to-income ratio.
Finally, a veteran applying for a VA Loan must not have been discharged under dishonorable conditions.
In most parts of the country, veterans who qualify for the VA Loan can purchase a home worth up to $424,100 without putting any money down; however, with the 2017 VA Loan Limits, borrowers in high-cost counties may be able to purchase homes far exceeding that amount without a down payment.
The VA Funding Fee goes directly to the VA to ensure the program keeps running for future generations of military homebuyers by removing any additional burdens off tax payers and veterans. The fee varies depending on the borrower's circumstances and does not apply for veterans with service-connected disabilities. For example, if this is your first time using the VA Home Loan Program, the funding fee is typically 2.15 percent of the purchase price of the home. For subsequent use of your VA Loan benefit, the fee is 3.3 percent.
VA borrowers can roll the funding fee into their overall loan amount. The VA also limits closing costs for veterans and allows sellers to pay most or all of those expenses. Many of our borrowers purchase a home with no money due at closing.
A home loan for an amount that exceeds conforming loan limits established by regulation, greater than $726,525 in most of the United States.
A traditional, fixed-rate mortgage protects you from rising interest rates, a popular choice for those who plan to live in their home long-term.
The lower initial interest rate is fixed for a period of time, after which it resets periodically, often every year or even monthly.
Non-QM loans would typically be useful for borrowers with sporadic income, but a large amount of assets.
Guaranteed by the U.S. Department of Veterans Affairs, it's designed to offer long-term financing to eligible American veterans or their surviving spouses.
Insured by the Federal Housing Administration, FHA loan is designed for low-to-moderate income borrowers with down payment as low as 3.5%.
A USDA home loan is a zero down payment mortgage for eligible rural and suburban home buyers, issued by the US Department of Agriculture.
HARP is a federal program to help underwater and near-underwater homeowners refinance their mortgages.