If you are active or retired military, serious benefits may be available to you through the Department of Veterans Affairs home loan program. VA loans are designed to help active military personnel, veterans and certain spouses of veterans obtain very favorable mortgages, and they arguably offer the best mortgage benefits available today.
While Veterans Affairs does not itself issue these loans, it’s VA Loan Guarantee does insure the mortgages that lending institutions offer to active and retired military. In turn, this guarantee allows these lenders to offer mortgage loans with three extraordinary benefits.
Three Big Benefits of VA Loans
1. No down payment
The biggest benefit of a VA home loan is no down payment on your house. That’s right. If your home’s purchase price is the ‘reasonable value’ of the property, you will not be required to make a down payment because VA loans are 100% financing home loans. Conventional mortgages often require a down payment of 20% of the home’s value, so the up-front savings of no down payment can be significant. Even though VA mortgages are a zero down mortgage program, they still carry the lowest foreclosure rate of any loan choices today.
VA loans are also offered for current homeowners to refinance. VA refinance loans can be used to either lower the interest rate and payments of a veteran’s mortgage or to get cash out of the home’s equity for any purpose they want. VA currently offers the following loan programs for qualified veterans to use:
- VA Purchase Loan – 100% Financing
- VA Cash-Out Refinance – Up to 90% LTV Financing
- VA Streamline Refinance – 100% LTV Financing
Once the purpose of the new mortgage is established, VA loan programs offer the option to get a no money down mortgage with a fixed-rate in term lengths of either 15 years or 30 years, or even adjustable-rate mortgages (ARM’s). Current VA loan term options are outlined below:
- VA 30-Year Fixed-Rate Mortgage
- VA 15-Year Fixed-Rate Mortgage
- VA Adjustable-Rate Mortgage offered as 3/1, 5/1, 7/1 or 10/1 ARM’s
2. No monthly mortgage insurance
The second benefit of a VA loan is that there’s no private mortgage insurance (PMI) required. In fact, there’s no monthly mortgage insurance whatsoever. The U.S. government insures the loans, which allows the lender to waive the mortgage insurance. You won’t find that in any other loan program with less than a 20% down payment.
For example, conventional mortgages with down payments less than 20% require the borrower to buy mortgage insurance to pay back the lender in case of default. Other government-insured mortgage programs like FHA loans and USDA loans require even higher mortgage insurance coverage and monthly payments, and that gets very expensive over time.
Because no such mortgage insurance payments are required for VA loans, qualified borrowers can literally save hundreds of dollars per month. Nobody deserves that more than our veterans. In appreciation of your service, America will guarantee your mortgage.
3. Low rates
And the third big benefit of a VA home loan is that lenders offer these loans at reduced interest rates, from .5% to 1% lower than conventional rates. Lenders are able to do this because, again, the U.S. Government is ‘backing’ the loan. Reduced interest rates can also save hundreds of dollars monthly, which will add up to tens of thousands of dollars in savings over the life of your loan.
Beyond these big three benefits, zero down mortgages for veterans offer some other attractive features. With preapproval from your lender, your VA loan may be assumable by another qualified buyer should you decide to sell your home. If you’re able to pay off your home loan early, there will be no prepayment penalty. And if you’re active military with a Basic Allowance for Housing (BAH), lenders can count your BAH as effective income and you can use your BAH to pay some or all of your monthly payments. You can calculate your Basic Housing Allowance using the tools provided here.
While VA home loans offer many benefits unique to active and retired military, the decision to purchase and finance a home is a major one than contains many options that are unique just to you. By taking the time to research your options, doing your homework and shopping around, chances are you’ll find your perfect mortgage.
VA Mortgage Resources
- 2015 VA Loan Requirements
- VA Mortgage Payment Calculator
- VA Residual Income Calculator
- VA Funding Fee Calculator
- 2015 VA Loan Limits