6 Biggest Benefits of a VA Loan
Of all the mortgage programs available, it’s difficult to beat the VA loan program. This home loan program, available to millions of veterans, active-duty service member and their families, this loan program offers tons of benefits that other mortgage programs just can’t match.
And yet, plenty of VA eligible borrowers don’t know much about VA loans — they may not even know the program exists.
Here are some of the biggest benefits of VA home loans.
VA Home Loan Benefits
No down payment
Perhaps the biggest benefit of VA loans is that they don’t require a down payment.
Other popular loans, like FHA or conventional, require a down payment of at least 3.5%, and some may require even more down. Down payments are one of the biggest factors that keep home buyers from being able to afford a mortgage.
With a VA loan, you can finance up to 100% of the total purchase price.
That’s because this program is backed by the U.S. Department of Veterans Affairs, which offers extra assurance to your mortgage lender. In case of a foreclosure, the VA will help offset your lender’s loss. As a result, your private lender can offer a no down payment or low down payment loan.
No private mortgage insurance
Unless you make a down payment of 20%, most mortgage loan programs require you to pay monthly mortgage insurance. This adds to the total cost of the new home, and it can be difficult to get rid of.
If you make a low down payment, conventional mortgages will require private mortgage insurance (PMI) and FHA loans will require mortgage insurance premiums (MIP).
But the VA takes care of this by backing the home buyer, and this means no monthly mortgage insurance payments. These costs are typically upfront and monthly, so you can save money in the short and long run with a VA loan.
Avoiding mortgage insurance can save you hundreds — maybe even thousands — of dollars on your monthly payment.
Flexible credit requirements
The VA doesn’t explicitly require a minimum credit score, meaning anyone can be eligible. However, mortgage companies will want to see credit scores of 620 or higher before they approve a VA loan.
But a VA home buyer still tends to get more leeway with credit scores. In January 2018, the average FICO score on closed VA loans was over 40 points lower than conventional loans.
On top of that, VA loans tend to be easier to qualify for than other loan programs. This is thanks to the VA guaranty, meaning the Department of Veterans Affairs assumes a lot of the risk to make it easier for you to buy a home.
Lower than average mortgage rates
Another way home buyers can save money with a VA loan is because of their competitive interest rates. Lower interest rates mean a lower monthly payment.
According to the Ellie Mae Origination Report, in January 2018, VA home loans closed with an average mortgage rate 26 basis points (0.26%) lower than the next closest (FHA loans).
VA loan rates are some of the most competitive on the market, which could save you thousands of dollars — maybe tens of thousands — of dollars over the life of your loan.
No prepayment penalties
Most loan programs will charge you a penalty if you pay off your mortgage early. For VA loans, this isn’t a problem.
So, if you happen to come into some money, or you’ve saved up and want to get rid of your monthly mortgage payments, you can pay off your VA mortgage without any type of financial penalty.
A common myth with VA loans is that you can only ever get it once in your life. This is far from true, and many home buyers who are VA eligible buy more than one home through the program.
For example, a veteran can get a VA loan for themselves, and if they pay it off and decide to move and buy a different home, they can use the VA again to get the benefits.
Also, those who are eligible for a VA loan are also eligible for VA refinancing, just another type of loan program that can save veterans and active military members money.
Who is eligible for a VA home loan?
If you’ve served in the Army, Navy, Air Force, Marine Corps, Coast Guard, Reserves or National Guard, you’re likely eligible for the VA home loan program. That’s provided you were not dishonorably discharged and that you served long enough to meet the minimum service requirements.
Surviving spouses are also eligible.
Get more information on VA home loan eligibility here.
What about the VA funding fee?
One unique aspect of the VA home loan program is you’ll need to pay a VA funding fee on closing. The VA funding fee allows the VA home loan program to be self-sustaining, and to continue to offer valuable benefits to VA borrowers and make homeownership accessible to military families.
The VA funding fee is typically 2.3% to 3.6% of the total loan amount, and can be financed into your loan and paid down over time. It’s a small price to pay compared to the valuable VA benefits that the fee gives you access to.
Certificate of Eligibility (COE)
Your lender can help you get the VA home loan process started by requesting your Certificate of Eligibility (COE). Your COE indicates your military service and will give you detailed information about your VA entitlement and the amount of your VA funding fee.
Is VA the best loan option?
All things considered, VA loans tend to have much better benefits than other loan programs. For qualified veterans and service members that want to make a low down payment (or avoid it entirely), VA loans beat out FHA loans.
However, every home buying situation is different, and depending on a number of factors, different mortgage options can make more sense.
Before deciding for or against a VA loan, talk with lenders to find out more about the VA program and see if it’s the right fit for you.