What is a VA home loan? Who benefits this program and what are the advantages it offers that are unique from other mortgage programs?
As tribute to the bravery and dedication of our modern day heroes, the federal government devised a program that would help military service members, active or retired, an easy opportunity to fulfill their dreams of homeownership.
This aim is being fulfilled through the VA mortgage, a home loan program that specially caters to military members currently serving in the U.S. military, reservists, veterans, and select surviving spouses for the purchase of a home even without down payment.
The program provides ample benefits for eligible borrowers. With its 100 percent financing offer and lifetime guarantee advantage, the VA loan is easily one of the best mortgage programs available today.
Unfortunately, enduring misconceptions and lack of proper knowledge about the program’s full extent are preventing many from using the loan. To clear things up, here’s a quick refresher of the great benefits of a VA loan.Find a VA lender now.
VA loans offer 100 percent financing
One of the greatest perks of a VA loan is that it allows the eligible borrower to buy a home even without down payment. In the conventional way of home buying, the buyer typically spends a significant time saving for the traditional 20 percent down payment requirement.
For example, a veteran is interested in a home that costs $200,000 in the market. With a conventional mortgage, the veteran must at least shell out $40,000 dollars plus the costs of closing. Comparably, a veteran loan eliminates the need to spend years saving for that needed down payment.
VA loans require no mortgage insurance
Most mortgage programs require their borrowers to pay a mortgage insurance if they fail to pay 20 percent in down payment. This fee insures the lender in case you fail to pay your loan back.
Other low down payment mortgage options such as the FHA loans have their own insurance payment terms but with a VA loan, there’s no mortgage insurance payment with or without down payment.
The typical cost of a mortgage insurance is around 0.5 to 1 percent of the of the total loan amount, depending on various factors. Taking this cost out of the mortgage picture can help the homebuyer save thousands of dollars throughout the life of the loan.
VA loans offer appraisal assistance
One of the primary reasons why potential eligible borrowers refuse to take out VA loans is because of the notion that VA loan appraisals take too long. While this may be true in some cases, VA appraisals benefit the borrower in a way that other mortgage programs don’t.
For starters, there’s a good reason to some of the delays. Only VA approved appraisers can conduct the appraisal. They see to it that the property passes the minimum property standards set by the VA and make sure that the house is move-in ready and safe for the would-be homeowner.
Furthermore, before the appraiser makes a final determination of the market value of the home, they notify the lenders if there’s a huge chance that the determination would come in low. Anyone involved in the transaction (buyer, seller, or agent) is then given 48 hours to challenge the appraisal value. Known as Reconsideration of Value, this can be done by:
- supplying additional information on upgrades and improvements that might have been overlooked by the appraiser; or
- providing evidence of errors in the appraisal
VA loans have limited closing costs
The VA caps the lender’s compensation on VA loans to 1 percent of the loan amount. This fee already covers the cost of underwriting and originating the loan. Without the need for a down payment, a limited closing cost allows buyers to pay a smaller out-of-pocket cost for buying the home.
The most common fees that VA borrowers pay at closing include:
- Credit report
- Origination fee
- Recording fee
- Title insurance
VA loans have lenient qualifications
The US Department of Veterans Affairs established the guidelines for what and who qualifies for a VA loan. They aim to extend the VA guarantee benefit to as many eligible individuals as possible. With this, the VA does not set a strict requirement as to the borrower’s credit. A score of 620 which is lower than the average score of Americans is most likely going to land the borrower an approval. DTI limits are also flexible, and there is no asset or income verification required though lenders can choose to do so under certain circumstances.
The VA loan is a wonderful financial tool with plenty of benefits for those who meet its requirements. Before you pass on judgment based on rumors and hearsay, it’s wise to get to know the loan program first and what it can offer to serve your homeownership goals.Click to See the Latest Mortgage Rates»