The VA home loan benefits program first began helping military service members with home buying in 1944. As part of the “GI Bill,” the Servicemen’s Readjustment Act was signed into existence in 1944, shortly before the end of WWII. Since then, VA home loan benefits have helped countless eligible military families achieve the dream of homeownership.
It can be challenging for military service members to collect the necessary financial assets and credit necessary to qualify for conventional home financing. That’s why, with today’s historically low interest rates, the VA loan program is arguably more important than ever before.
There are numerous veteran’s mortgage loan benefits available to borrowers. We’ll dig into 9 of the most popular features.
1. Zero Downpayment
Eligible military service members and surviving spouses can qualify for a VA loan without having to put any money down. Compared to conventional and FHA loans, this can translate into significant upfront savings.
Typically, homebuyers may save up 5% of the home’s value as the down payment with a conventional loan or a minimum of 3.5% with certain FHA-backed loans.
As an additional savings, in situations where a home’s asking price exceeds its assessed value, a borrower may be asked to pay the difference between the two prices.
2. No Private Mortgage Insurance
Another one of the most popular VA home loan benefits is not having to pay private mortgage insurance (PMI). In most instances, homeowners who do not provide 20% of the home’s value as a down payment are required to pay for PMI. For example, to avoid paying PMI with a conventional mortgage of $150,000, a borrower would need to have $30,000 for their down payment.
And compared to FHA loans, which carry both annual monthly mortgage insurance plus an upfront mortgage insurance premium, there is no mortgage insurance with a VA mortgage loan.
3. Reduced Closing Costs
Regardless of which mortgage product you choose, there will be associated closing costs. The VA has put a limit on closing costs that borrowers can be charged. For example, lenders are prohibited from charging borrowers lawyer’s charges or inspection or brokerage charges associated with select new United States Department of Housing & Urban Development (HUD) builds.
Other ways the VA limits costs for military families include asking sellers to pay all of the loan-related closing costs or up to 4% of the home purchase price for items such as insurance and prepaid taxes.
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4. Use It Again and Again and Again and...
VA home loans are not a "one and done" program. With VA loans, eligible military service members and select surviving spouses can use the program repeatedly throughout their lives. And service members aren't necessarily required to fully pay off one loan before applying for another one.
In certain instances, eligible military service members can have multiple VA loans at the same time.
5. Streamlined VA Loan Refinance Option
Homeowners who purchase their homes using a VA home loan can use a streamlined refinancing option to lower their monthly payments through VA-backed refinancing programs.
The VA Interest Rate Reduction Refinancing Loan program (VA IRRRL) offers borrowers the opportunity to refinance their existing VA home loan to take advantage of lower interest rates and lower monthly mortgage payments.
6. No Prepayment Penalties
Homeowners who use VA loans to buy their homes can pay off their mortgage early without paying additional penalties.
Many conventional home loans charge additional penalties for homeowners who want to pay off their mortgage early. These prepayment penalties are designed to protect lenders against the damage of lost interest payments when borrowers pay off loans months or years early. With VA home loans, there are no prepayment penalties.
7. Funding Fee Options
VA home loans carry a mandatory funding fee. The fee is a one-time payment added to VA home loans. It does not go to the lender but instead goes directly to the VA itself and is used to help reduce the impact of the loan program for taxpayers since the VA loan program doesn't ask borrowers to pay PMI or down payments.
The VA funding fee can range between 1.4% and 3.6% of the home's purchase price. Borrowers can opt to pay the funding fee in cash at the time of the mortgage or roll it into the total amount of the home loan and avoid paying anything at closing.
Eligible borrowers living with a service-related disability are exempt from the funding fee.
8. VA Can Help You Avoid Foreclosure on Veteran’s Mortgage Loans
Another of the VA home loan benefits popular with borrowers is its safety. VA home loans have been among the most reliable loans on the market in recent history. Because the VA focuses on helping military service members not just buy a home but also stay in their home, they have dedicated substantial efforts to advocating for veterans experiencing financial difficulties. The VA helped almost 120,000 homeowners stay in their homes and avoid foreclosure last year alone.
9. VA Loans Offer Homeowners Flexibility
In addition to buying a single-family home, eligible military service members can use their VA loan to best suit their needs and the needs of their families.
Whether building a new or manufactured home, condo (must be VA-approved project), or lot, or looking to make energy-efficient changes, improvements, or additions to your home and more, VA home loans offer borrowers the flexibility to create the home of their dreams.
Are you eligible for VA benefits and interested in buying a home with a veteran's mortgage loan? Do you have questions about qualifying for VA home loan benefits? The VA home loan specialists at River City Mortgage can help walk you through all aspects of the VA loan program. We look forward to working with you to help you find the best mortgage product for you and your family. Get in touch today.