What is the $42,000 mortgage reduction for veteran homeowners?
The average VA home loan benefit amount is $40K — are you claiming all of your VA mortgage benefits?
When you’re looking for help making mortgage payments on your VA home loan, you may come across news about a new relief program — one that claims to pay down your loan balance by $42,000.
It’s true that many vets can lower their VA loan’s monthly mortgage payments. Some can qualify for a pandemic forbearance program.
But you should access these benefits through the U.S. Department of Veterans Affairs or your VA-authorized loan servicer and not from a third party you came across in an online or TV ad.
Benefits of a VA loan
If your military service qualifies you for the VA loan program, you have access to a valuable benefit: The ability to get a mortgage loan with no money down and no ongoing mortgage insurance payments.
In fact, veterans and active military members who partner with the right lender will save an average of $40,000 over the life of the loan compared to other types of mortgages.
In addition to savings over time, VA home loan benefits allow more lenient credit guidelines when compared to other loan types. And now there are no loan limits imposed by the VA. It’s no surprise then, that Fannie Mae reported 5% of loans closed in September 2021 were VA loans.
Borrowers must use these loans to buy a primary residence. And the home purchased must meet the VA’s minimum property requirements which ensure homes are safe and sound.
Mortgage reductions for veteran homeowners
Even with savings from VA mortgage benefits, many homeowners fall behind on their monthly payments and face foreclosure. If you’re worried about foreclosure, you’ve probably been looking into VA loan relief programs.
Before applying for any kind of relief program, check out the VA’s Interest Rate Reduction Refinancing Loan, or IRRRL. It may provide all the relief you need while simultaneously setting you up to save thousands of dollars over the life of the loan.
About the VA IRRRL
The IRRRL is a streamline refinance which means you could lower your interest rate and your monthly payment without diving deeper into debt to cover expensive closing costs.
The IRRRL requires closing costs, but they’re less expensive because you shouldn’t need a credit score check or a home appraisal. Plus, the VA funding fee is only 0.5% of the loan instead of 2.3%. (Disabled veterans can often get a funding fee exemption.)
Some of the “click-bait” style ads you’ll come across online when searching for mortgage relief will, in reality, connect you to the IRRRL program. But you don’t need to go through an unknown third party when you can get this loan directly from a VA-authorized lender.
Qualifying for the VA IRRRL
To qualify for a VA IRRRL which can lower your monthly payments, you’ll need a recent history of on-time payments. You may get approved if you’ve missed one payment in the past year, but you won’t get approved if you’ve missed one in the past six months.
Your existing VA mortgage loan has to be at least six months old, too. And, you’ll need to certify that the home is your primary residence.
But there’s usually no credit check and no home appraisal. Since you and your home have already qualified for a VA loan, the VA knows you’re good.
Other mortgage relief options for VA loan borrowers
The VA streamline (IRRRL) won’t be able to help every veteran homeowner. The loan must provide a net tangible benefit such as a lower interest rate or lower monthly payment. You also must have a six-month history of on-time payments.
So if you already have a low interest rate or you’ve fallen behind on your payments, you’ll need another solution.
Here are a few other strategies to help qualified veterans stabilize their loans:
- Partial Claim Payment Program: The VA itself can give you an interest-free loan which you’d use to make back payments on your existing mortgage loan. You wouldn’t need to repay this second mortgage loan until you sell or refinance your home
- COVID-19 Refund Modification Program: The VA can intervene with your lender on your behalf, encouraging your lender to stretch out the loan term which will lower payments. This will likely cost you more long term, but it can also provide the relief you need now
- Lender-specific programs: Check with your loan servicer or lender about your lender’s specific forbearance programs
Ask your VA loan officer or contact your regional VA office to find out more.
VA mortgage eligibility requirements
If you’re a veteran who has a conventional loan or an FHA loan, you can still take advantage of the VA home mortgage program and save money on your existing loan.
To be eligible for a VA loan you must meet:
- Service requirements: Most former and active members of the U.S. Air Force, Army, Marines, and Navy — along with Coast Guard, National Guard members, and Reservists — can use a VA loan. Surviving family members of deceased veterans may also qualify
- Credit qualifications: The VA itself doesn’t place many restrictions on borrowers, but the lenders who underwrite VA loans can. Expect to need a credit score of 620 to qualify and a debt-to-income ratio of 41%
- Residency requirements: Homes must be located in the U.S., and your new home must be your primary residence
- Closing cost requirements: Closing costs for VA loans are low compared to other loan types, but you still may feel some sticker shock. Expect to pay 2% to 5% of your loan amount at closing. Some costs, including the VA funding fee, can be rolled into the loan amount. If you receive disability compensation for a service-related injury you could get the funding fee waived
If you want to turn your FHA or conventional loan into a VA loan, you’ll need to refinance your existing loan through VA cash-out refinancing. Doing this can eliminate your ongoing mortgage insurance fees, lower your interest rate, and help you borrow against any existing equity in your home.
You can use the equity for any purpose, including for consolidating other debt to make more room in your budget. You could also use the money to fix up your home, adding more value to your investment.
VA home loan benefits checklist
Borrowing money for a home purchase feels overwhelming to many home shoppers. This quick recap of the VA loan program can help answer your questions about VA loans:
I am a veteran and want to BUY a home.
The VA helps active-duty service members, veterans, and eligible surviving spouses with mortgage benefits. Here are some of the benefits:
1. No down payment
It would take an average of 12 years to save up the 20% down payment required for a mortgage insurance-free conventional home loan.
Eligible Veterans and active-duty service members can skip that step and become homeowners without waiting to save up thousands of dollars. In fact, the VA home loan program allows veterans to purchase a home with as little as 0% down.
With interest rates remaining at the lowest levels in two years, it just makes good financial sense to purchase a home.
2. Lower monthly payments
Because the federal government backs all VA mortgages, there is no need for private mortgage insurance (PMI) on VA home loans with low or no down payment like other loan types.
The average time it takes to eliminate PMI on a conventional mortgage is 10 years — eliminating this requirement means a savings of almost $200 per month and $24,000 savings over the life of the loan.
3. Easy pre-qualification
In many real estate markets across the country, there is stiff competition between home buyers. One of the best ways to set yourself apart from other buyers is to get a VA pre-qualification letter.
Not only will you know exactly how much you can afford and which VA home loan benefits you actually qualify for, but home sellers and real estate agents consider you a more serious home buyer than those without.
I am a veteran and currently OWN a home
Even if you already own a home, there are substantial savings that veterans and active-duty service members shouldn’t pass up.
VA home loan benefits vary depending on your home purchase history. Check the benefits below based on your mortgage history:
1. I already have a VA mortgage.
With a current VA mortgage, you have access to one of the greatest benefits of a VA home loan — the ability to reduce your existing rate by refinancing easily and with little or no out-of-pocket expenses.
A VA streamline refinance (also known as an Interest Reduction Refinance Loan or IRRRL) can be completed with minimal documentation requirements and often within 30 days. This can be especially helpful for veterans who may have experienced a significant change in circumstances such as the loss of a job, bankruptcy, or a significant decrease in home value.
2. I own a home but did NOT use my VA benefits.
If you don’t currently have a VA-backed mortgage, you’re in a position to refinance with a VA cash-out refinance which gives you all the benefits of a standard VA home loan, plus some added advantages.
Depending on the lender, veterans and active-duty service members can tap into their home equity for up to 100% of their home’s value. This means any amount above the current mortgage balance and below the current home’s value can be withdrawn as cash.
There are also no restrictions on what the cash can be used for. One common use is paying off high-interest credit cards because the interest you pay on your VA mortgage is tax-deductible — with credit cards, it’s not.
VA mortgage reduction FAQs
Will the VA help pay my mortgage?
The Department of Veterans Affairs insures home loans so qualifying vets can borrow at lower costs. The VA does not typically lend money or pay mortgages on behalf of veterans. But, as an insurance provider, the VA has an interest in the health of the loans it insures. That’s one reason the VA backs streamline refinances with no credit checks. The VA can also help you get caught up on past-due payments through a silent second mortgage.
Can you defer a mortgage payment on a VA loan?
Yes, many VA loan servicers have launched deferment and forbearance programs during the COVID-19 pandemic. Contact your loan servicer as soon as possible if you’d like to apply. Keep in mind taking this step could cost you more in the long run. If you can continue making payments, you should do so. Refinancing with an IRRRL to lower payments is a good option, too.
What benefits do veterans get when buying a house?
VA-insured loans lower barriers to homeownership for veterans and active-duty service members. With the VA’s backing, borrowers can buy homes with no down payment and no annual mortgage insurance premiums while still getting competitive interest rates. Now the VA no longer enforces loan limits. This means veterans can qualify for loans based solely on their credit qualifications.