VA loans are endowed with aspects that make them a fine choice for mortgages. With so much dynamism in the U.S. mortgage market, it often requires going back and forth with various loan programs. VA loans, on the other hand, remain steadfast in clearing the path to homeownership for qualified veterans and service members.
No Down Payment
Down payment and saving for it has delayed about a quarter of first-time homebuyers from buying a home, according to a November 2016 report by Down Payment Resource.
Still, thanks to a good mix of low down payment schemes and related assistance programs from DAP (Down Assistance Programs), first-time homebuyers managed to represent 30% of the total home sales in 2015, the report noted, citing NAR’s Profile of Home Buyers and Sellers dated October 31, 2016.
And VA loans require zero down payments. Let’s look at the minimum down payment some popular loan programs:
- Conventional loans: generally 5% (could be 3% for HomeReady™ mortgages).
- FHA loans: as low as 3.5%.
- VA loans: 0%.
For a $150,000 home, a down payment on a conventional loan could easily mean $7,500 and $5,250 for an FHA loan. But with a VA loan, you need not deplete your savings account or take on additional debts for your down payment.
No Mortgage Insurance
With down payments come private mortgage insurance for conventional loans and mortgage insurance premium for FHA loans.
VA loans however don’t require paying for a mortgage insurance despite the lack of down payment.
PMI becomes a requirement if you put a down of less than 20% or refinance with below 20% equity in your home. You may discontinue making PMI payments if you have reached 78% loan-to-value ratio on your home.
There are two payment stages of FHA’s mortgage insurance premium: an upfront fee paid at closing and annual fee broken down into 12 monthly payments. While getting rid of a PMI is tedious but doable, dropping an FHA mortgage insurance often means paying off your FHA loan.
Saving From Foreclosure?
Lenders require mortgage insurance to protect themselves from losses in the event you fail to repay your loan.
VA offers assistance to veterans who repeatedly fail to meet their monthly mortgage dues on time, or nearing delinquency as a result of financial troubles. There’s a reason why VA strongly recommends that troubled borrowers seek help.
If you lose your home to foreclosure, the VA will pay a claim to the loan servicer as it is the guarantor of the loan. This claim will be a debt you owe to the U.S. government. This provision applies to loans originated before 1 January 1990.
As for loans that closed on or after that date, you will incur a debt to the government if you default on your loan because of bad faith, fraud or misrepresentation.