Buying a home is an exciting endeavor but the task can seem daunting because there are so many decisions to make. You must even make some decisions before finding the home of your dreams. One such decision is choosing the type of loan you will use to secure funding for your new home. There are many different types of loans you can use for a home purchase including conventional loans, FHA loans, USDA loans, and others. Additionally, military families even have one more choice to add to the mix: VA Home Loans.
VA Home Loans are designed to allow military families, including active duty service members, retired members, honorably discharged members, and surviving spouses to purchase a home sooner than they would without the VA home loan benefits. These loans are offered by traditional lenders but are backed by the Department of Veterans Affairs. Therefore, they carry less risk for lenders and have more flexible qualifications.
There are many benefits to buying a home with a VA Loan. But, understandably, you may need some more information to be convinced. When asked about the top reason for choosing a VA Home Loan, data from the 2023 Veteran Homebuyers Report analyzes that there are thirteen benefits most commonly given by those who chose a VA Loan.
Here is a brief explanation of the top 10 reasons we think you could benefit from buying a home with a VA Home Loan.
1. No Required Down Payment
Undoubtedly, the most common reason that military members choose to use a VA Home Loan for their home purchase is that there is no required down payment. This is a huge benefit because saving a lump sum for a down payment can be very pricey and can take years to accomplish. With conventional loans, you are required to pay a percentage of the home purchase up-front. When using a VA Loan, you can put down as much as $0 upfront which means you do not have to put off your homebuying journey until you are able to save up 3-10% of the home’s value. This places you in your own home and in a position to build equity much quicker.
2. No Private Mortgage Insurance
With other types of loans, if you put down less than 20% as a downpayment, you are required to purchase Private Mortgage Insurance (PMI). This insurance protects lenders in case buyers default on a loan. PMI is a required monthly payment on top of your mortgage payment that does not go toward the cost of your home. You will typically pay this fee until you have made enough payments to equal 20% equity in your home. But when you purchase a home with a VA Loan, even if you put down a low down payment or no down payment at all, you are exempt from this private mortgage insurance. This saves you money each month and means you can put this additional savings into an interest-earning account, or put more money towards your home purchase each month and pay off your loan sooner.
3. Flexible Funding Fee
One requirement to using a VA Loan is that you are required to pay a VA Funding Fee. This fee is typically between 2.15-3.3% of the total loan amount and is paid directly to the VA. These fees help to keep the VA Loan program running so that other families can take advantage of VA Home Loan Benefits. But, the way you pay this fee is flexible. You can either choose to pay it all upfront or roll it into your mortgage payment so that you pay a percentage each month. In some cases, you may even be exempt from the funding fee if you qualify for compensation due to a service-connected disability, are a surviving spouse, or are an active-duty Purple Heart recipient.
4. Lower Credit Requirements
The Department of Veterans Affairs does not require any set credit score to borrow with a VA Loan, but lending companies will set their own credit requirements, as there is always a credit requirement when purchasing a house. Though, most lenders will allow for lower credit scores when using a VA Loan vs a conventional loan and may be more flexible with credit score requirements if you do not quite meet their standard. Additionally, VA loans are easier to secure with a foreclosure, bankruptcy, or short sale on record.
5. Options for Loans
With VA loans, there is not simply only one option. You have a variety of loan types to choose from. Standard VA Purchase loans are straightforward and have variable interest rates determined by the market, your credit history, and how much you plan to put down, if any. VA Interest Rate Reduction Refinance Loans (IRRRL) are available for those who already have an active VA loan and would like to lock in a lower interest rate or move away from an adjustable interest rate. Additionally, a VA cash-out refinance is available for those who wish to take cash out of the equity of their home to pay for debts, repairs, remodels, or emergencies.
6. No Pay Off Penalties
With some conventional loans, lenders will not allow you to pay the home off early because they will lose out on collecting some valuable interest if you do so. With a VA Loan, this is not a worry. There are no prepayment penalties if you choose to make extra payments or larger payments through the term of your mortgage. You are free to pay off your mortgage as early as you please, or refinance, without concern. This is a great way to save costs in the long run and allows you to own your home outright much sooner.
7. VA Appraisals
To purchase a home, the home must undergo an appraisal to ensure that the home is worth the amount being paid. In cases where you are using a VA home loan though, the VA requires a VA appraisal to be completed. A VA appraisal has stricter standards than a conventional appraisal because Veterans Affairs wants to ensure that military families live in a safe and structurally sound home. Some requirements are that the home must be free from pests, and major structural damage, and cannot have a roof with defaults. Therefore, you cannot use a VA loan to purchase a home that is partially demoed and in need of major repairs. This appraisal ensures that your new home is move-in ready and is free from damage that you will have to pay for.
8. No VA Loan Limits
If your Certificate of Eligibility (COE) signifies that you are eligible for full VA loan entitlement then you are not subject to loan limits and can borrow as much as you can afford. In the past, limits applied based on county, and if you wished to purchase above the limit you would be required to pay a down payment, but this requirement no longer applies. It is still wise to only borrow as much as you can afford in monthly mortgage payments, but this loan limit removal ensures that you can purchase your dream home when you find it without jumping through hoops or coming up with a down payment.
9. Lower Closing Costs
When you meet to close on your new home, there are some required payments you must make. With a VA loan, you typically won’t be required to bring a down payment, but you will need to bring payment for other costs such as your funding fee (if applicable) and closing costs. Closing costs are fees paid to the lender for their underwriting and loan origination services. There may also be other fees such as appraisal fees, attorney fees, tax fees, and more. The VA sets limits on how much the lender can charge you as the buyer for closing costs, therefore in some cases, the seller must agree to pay a portion of the closing costs.
10. Lifetime Benefit
Using a VA Loan for your home purchase is not a one-and-done deal. You can use the VA Home loan benefits multiple times throughout your life with each home purchase you make. There are certain requirements, such as that the home must be your primary residence unless you’re using second-tier entitlement, but with each move you make, you can use a VA loan to secure your new home if you wish.
Want to Hear More About VA Home Loan Benefits?
Do you qualify for a VA loan but have more questions about VA mortgages or VA loan rates? Call our team at Desert Heroes. Each of our team members has personal experience with military life and benefits and can walk you through the process of selecting the correct loan type for you.