VA home loans are available thanks to a program established by the U.S. Department of Veterans Affairs (VA), but the VA doesn’t hand out the actual loans. As Investopedia explains, the department sets qualifying standards and terms for these mortgages. It also stands behind the loans by insuring a portion of each VA loan. However, it doesn’t actually provide the financing. Instead, it leaves that task to private lenders. While it may seem complicated, it’s a process that’s worked effectively for decades. What are the benefits of a VA mortgage loan?
The Benefits of a VA Mortgage Loan
What does the VA’s backing meaning for VA loans? For lenders who participate in the program, it means that offering a VA loan carries a reduced risk. For VA borrowers, that reduced risk mean lenders are more willing to work with you and to offer you better loan terms. As the VA notes, using a VA loan does come with certain restrictions. For example, you’ll need to be able to obtain a Certificate of Eligibility, be planning to use the home as your primary residence, and be able to meet both the VA’s and the lender’s standards for credit and income to qualify for the loan. However, if you can meet the requirements and qualify for this type of loan, then using a VA loan can really pay off. The benefits of a VA mortgage loan are significant.
No Down Payment
Saving up for a down payment can be tough. That’s not a concern for borrowers who use a VA loan. As Military.com indicates, VA loans offer 100-percent financing, so there’s no down payment needed as long as the home’s sales price isn’t higher than its appraised value.
No Mortgage Insurance
Mortgage insurance protects your lender if you default on your loan. As the VA reports, you’ll be required to pay for private mortgage insurance if you get a conventional loan and make a down payment of less than 20 percent. The FHA also requires you to carry its own form of mortgage insurance if you use an FHA loan. VA loans are different. There’s no mortgage insurance needed with a VA loan.
Relaxed Credit and Income Requirements
Qualifying for the best interest rates and loan terms can be tough. As Military.com explains, VA loans make it easier with relaxed credit and income requirements. With a VA loan, there’s no formal credit score minimum, but many lenders look for a credit score of around 620, which is considered “Fair.” Meanwhile, a debt-to-income ratio of 41 percent is preferred, but lenders will go as high as 55 percent if you meet other benchmarks because the VA encourages lenders to be flexible when evaluating borrowers for VA loans.
Better Interest Rates and Terms
As NerdWallet reports, VA loans generally come with lower interest rates and better terms than comparable home loans. Even a small difference in interest rate can result in substantial savings over the course of a 30-year mortgage. Plus, VA loans come with benefits like no penalty fee if the loan is paid off early and the promise of assistance if you have trouble making your loan payments.
Strong Borrowing Power
Purchasing power is important when you’re trying to snag the house of your dreams. As the VA explains, qualifying borrowers who are using a VA loan can borrower up to the conforming loan limit in most areas without making a down payment. In high-cost areas the amount available rises. Borrowers who are willing to make a down payment can also increase the amount of their loan. That means a VA loan can be a source of strong borrowing power.
Capped Closing Costs
Are you concerned about closing costs? These expenses are less of a worry for homebuyers using VA loans. As Military.com reports, the VA limits the amount buyers can be charged for closing costs. In some cases, the fees are negotiated down. In other situations, the seller picks up more of these costs.
Would you like to have a deeper discussion about the benefits of a VA mortgage loan? Connect with the loan experts at PrimeLending: Manhattan, Kansas. Whether you’re interested in purchasing a home, refinancing, or planning for the future, we’re happy to talk with you about your housing goals. Contact us today.