VA home loans are one of the most powerful loan options on the market for veterans and active military. It’s becoming difficult for many military borrowers to build the credit and assets necessary to move forward with conventional home financing.
The advantages of the VA loan program over other loan types are a big reason why VA loan volume has continually increased over the last five years.
VA financing comes with significant financial benefits for those who have served our country. The requirements to secure them are often looser than what would be needed for a conventional or even FHA loan.
For a lot of active military and veterans, the VA home loan program is their only real path to homeownership. The increasing popularity has stemmed from the main advantages of VA loans. Let’s take a deeper look at the great benefits of VA mortgages:
No Down Payment
The VA loan program offers service members and veterans incredible benefits, from zero dollars down to no PMI and more.
Qualified veterans can get a VA loan without making any down payment. Compared to FHA and conventional loans, this gets converted into significant monthly savings.
The minimum down payment amount on an FHA loan is three and a half percent. In conventional financing, it’s oftentimes five percent. On a quarter million dollar mortgage, a military borrower would need to come up with eighty-seven hundred dollars in cash for an FHA loan and twelve thousand five hundred dollars for the conventional loan. These are significant and insurmountable sums for the average military borrower. The average VA borrower has just under nine thousand dollars in total assets.
The great benefit of being able to buy a home with a zero dollar down payment helps veterans and active military members get a slice of the “American dream” without having to spend years scraping and saving for a sizable down payment. This means those who serve our country can get into homes in the present, not in the future years down the road.
No Mortgage Insurance
Unlike FHA and conventional loans, a VA loan does not require monthly mortgage insurance. FHA loans come with both annual and upfront mortgage insurance charges. On a quarter million dollar mortgage, the FHA annual mortgage insurance can add about one hundred seventy dollars per month to your monthly mortgage payment.
According to VA estimates, veterans who secured a VA loan last year will save more than forty billion dollars in private mortgage insurance costs over the life of their loans.
Conventional borrowers who cannot put down twenty percent usually have to pay for private mortgage insurance.
This is an additional monthly fee that is tacked on to your monthly mortgage payment until you build twenty percent equity. The cost would vary by the loan amount, but it is not uncommon to pay more than one hundred dollars per month for PMI.
Competitive Interest Rates
Since the VA guarantees a portion for every VA loan, financial institutions could offer lower interest rates to VA borrowers that are typically one half to one percent lower than conventional interest rates. Rates are based on the inherit risk considered by the lender to finance the loan. The VA’s guarantee brings lenders a sense of security that allows them to charge competitively lower rates.
On a thirty-year quarter million dollar loan, the difference between paying a four percent and four and a half percent rate can mean approximately forty thousand dollars in savings over the life of the loan.
Closing Cost Limits
Closing costs and fees are included in all mortgages. But the VA actually limits how much veterans could be charged when it comes to these expenses. Some fees and costs need to be covered by other parties involved in the transaction. These safeguards assist in making homeownership affordable for homebuyers that are qualified.
Do you have a question on a VA loan for a home in the San Clemente, Dana Point, or Laguna Beach area? We recommend you talk to the Ryan Grant Team, OC’s top mortgage lender!