The U.S. Department of Veterans Affairs (VA) is dedicated to helping military families, and they offer many excellent financial programs for active-duty service men and women, veterans and surviving spouses. One of the best programs they offer is the VA mortgage loan. You served your country with honor and diligence. You deserve extra help when buying a home. VA loans are designed specifically to help military families achieve the American Dream of homeownership. Whether you are buying your first home or getting ready to move up to a bigger property, you should consider applying for a VA home loan.
A veteran loan is backed by the VA and offers many unique benefits that you won’t find with conventional mortgage loans and other “discount” government-backed loan programs such as FHA loans. VA loans are only available to qualified service members, veterans and surviving military spouses. Here are 5 of the most important benefits of a VA mortgage loan:
- No Down Payment
FHA loans require a minimum down payment of 3.5%. Some conventional home loans may require down payments as high as 10-20%. A VA loan, on the other hand, provides 100% financing for eligible borrowers. This means no down payment is required to buy your home. If you do have money to put down toward your home loan, you should still consider as much down payment as you can comfortably afford. A higher down payment can lower your VA mortgage rate and monthly mortgage payments.
- Lower Mortgage Rate
VA loans generally offer lower mortgage interest rates compared to conventional loans and other loan programs. The rates are always changing, but a qualified VA borrower can qualify for a home loan with a mortgage rate that’s as much as 0.25% lower. This is assuming the same qualification standards such as credit score, debt-to-income (DTI) ratio, income and other factors. We will cover the VA loan qualification requirements a little later.
- No Mortgage Insurance
Conventional loans, FHA loans and USDA loans all require monthly private mortgage insurance (PMI) payments until the borrower has paid off at least 20% of the loan value. This is simply an extra fee that you won’t get back. VA loans do not require PMI payments, which provides a significant savings advantage over time.
- Peace of Mind
Because VA loans are backed by the U.S. Department of Veterans Affairs and the program is designed to help military families, you will have more peace of mind. Mortgage lenders are assuming less risk and will generally offer more attractive rates and terms. There is typically a funding fee associated with VA loans to provide this added protection against default. However, the VA will generally work with you to find a positive solution if you do happen to fall behind on payments. Ideally, you never find yourself in that situation. It’s just nice to know that VA loans offer more built-in protections for both borrowers and lenders.
2 Generous Qualification Requirements
Most VA lenders are looking for credit scores of 620 or higher. A higher FICO score could lead to a lower fixed mortgage rate. The VA also claims that there is no maximum debt-to-income (DTI) ratio* associated with VA loan approval. Then again, having a lower DTI will definitely be advantageous. Most VA-approved lenders will be looking for a DTI of 41% or lower. If higher, there may be other “compensating factors” required in order to approve your mortgage loan.
*Debt-to-income ratio is calculated by adding up all your monthly debt payments and dividing that total by your average monthly income.
“A VA loan is an excellent mortgage option to consider if you meet the necessary loan qualification requirements, as well as the VA’s standards for eligible active-duty service members, veterans and surviving spouses, ,” says Alvaro Moreira, President of Moreira Team | MortgageRight in Atlanta, GA. “Talk with your lender and make sure they are VA-approved. Ask them more about VA loans and see what it will take to get pre-approved for your mortgage.”
Other than the additional funding fee (which can usually be rolled into the final loan amount), there really aren’t many downsides to VA mortgage loans. You can qualify easily with a healthy financial situation. You can get a lower interest rate and avoid PMI payments, thus lowering your monthly mortgage payments. Lastly, you can buy a home with zero down.
If you are a military individual or family buying a home, find a VA-approved lender near you to see if a VA loan is right for you.