VA Loan Benefits - Why Using a VA Loan is Better than Other Types of Mortgages
Published on JANUARY 27, 2023 by ROB HASTINGS
CATEGORIES: Military HomeBuyers | Mortgages and Financing
VA loans are a type of mortgage loan available to active duty service members and veterans in the United States. These loans are backed by the Department of Veterans Affairs (VA) and offer a number of benefits to eligible borrowers. As a veteran myself, I would argue that the VA Loan is the best benefit we receive in return for our service.
In this article, we will explore the advantages of using a VA loan to purchase a home.
One of the most significant benefits of a VA loan is the lack of a down payment requirement. Unlike conventional loans, which typically require a down payment of at least 5% of the purchase price, VA loans do not require a down payment. This can be a major advantage for veterans and active duty service members who may not have the savings or resources to make a large down payment.
No Mortgage Insurance
Another advantage of VA loans is the lack of private mortgage insurance (PMI) (for conventional loans) or mortgage insurance premium (MIP) (for FHA loans). PMI and MIP are types of insurance that are typically required for conventional loans with a down payment of less than 20% and on all FHA loans. The insurance is in case the borrower defaults on the loan. However, VA loans do not require PMI or MIP, which can save borrowers hundreds of dollars each month.
According to Rocket Mortgage, PMI generally costs 0.1 to 2 percent of your loan amount per year. As a result, if you purchase a $300,000 home, at the worst, it's $6,000 more per year for PMI.
Aren't you glad the VA Loan doesn't have PMI?
Less Stringent Requirements
VA loans also offer more lenient credit requirements than conventional loans. While conventional loans typically require a minimum credit score of 620, VA loans have no minimum credit score requirement. Additionally, VA loans may be more forgiving of past credit issues, such as a bankruptcy or foreclosure, than conventional loans. This can make it easier for veterans and active duty service members to qualify for a VA loan, even if they have less-than-perfect credit.
Another advantage of VA loans is the cap on closing costs. Closing costs refer to the various expenses associated with obtaining a mortgage, such as the origination fee, appraisal fee, and title insurance. VA loans have a cap on closing costs, which means that borrowers are not required to pay more than a certain amount in closing costs. This can save veterans and active duty service members hundreds or even thousands of dollars when purchasing a home.
VA loans also offer the advantage of being assumable, which means that the loan can be transferred to the new owner if the house is sold. This feature can be a major advantage for veterans and active duty service members who may need to move frequently due to their military service. It also can be a valuable tool for buyers who are looking for a better interest rate, as the new buyer can assume the existing interest rate of the loan.
VA Interest Rate Reduction Refinance Loan
Finally, VA loans offer the benefit of the VA Interest Rate Reduction Refinance Loan (IRRRL) program. This program allows veterans and active duty service members to refinance their existing VA loan into a new VA loan at a lower interest rate. This can save borrowers thousands of dollars over the life of their loan. Additionally, the IRRRL program does not require a credit check, and does not need an appraisal in most cases, making it a simple and easy process.
The Bottom Line
In conclusion, VA loans are a great option for veterans and active duty service members who are looking to purchase a home. The benefits of no down payment, no PMI, more lenient credit requirements, capped closing costs, and being assumable make VA loans a great choice for those who are eligible. Additionally, the IRRRL program allows veterans and active duty service members to refinance their loan to a lower interest rate, which can save thousands of dollars over the life of the loan. If you are a veteran or active duty service member looking to purchase a home, consider a VA loan as an option to make your dream home a reality.
Are you a veteran or active duty service member looking to use your VA Loan? Read our quick overview on buying a home to get more tips and information on how to purchase your first home.
5 Things You Probably Didn't Know About a VA Loan
ABOUT THE AUTHOR:
Rob Hastings is a top-producing real estate agent in Jacksonville, Florida and helps buyers, sellers, and investors of homes and property throughout all of Northeast Florida. He works with his wife Nancy as a husband-and wife-team with Keller Williams Realty Atlantic Partners. When not helping his clients navigate the real estate process, Rob enjoys working on old Corvettes and playing music (guitar and piano). A U.S. Naval Academy graduate and former Naval Officer, he also loves boating and simply spending time on the water.