Even as they continue to play a significant role in making homeownership possible for American veterans, many eligible individuals might wonder whether taking a VA loan will benefit them instead of other loan products.
Let’s find out by looking at what makes VA loans a good idea for so many people.
No Down Payment Requirements
One of the biggest obstacles standing in the way of potential homeowners is the down payment requirements most traditional lenders will insist on. This typically ranges anywhere between 3 percent and 20 percent of the home or building’s total price tag, which can be a challenge for many to come up with. VA loans do away with this by facilitating 0 percent down payment loans for clients with full entitlements available (they have no loan obligations currently pending).
No Monthly Mortgage Insurance Costs
Veterans borrowing under the VA umbrella will potentially save thousands of dollars because they will not be required to pay Private Mortgage Insurance (PMI), a charge that conventional borrowers incur when they do not provide a 20 percent down payment at closing.
Lower Interest Rates
While the interest rates a lender offers you will be determined by various factors, including your credit score, where you live, the down payment you submit, and more. VA applicants will often encounter lower interest rate requirements. Compared to conventional lenders who usually set their minimum credit score at 620 (although they are free to change it at their discretion), VA lenders typically go as low or even lower than 580 when evaluating loan applications.
No Loan Limits
There’s no limit to the value of a mortgage loan available to qualified VA applicants with full entitlements available to them. Applicants with partial entitlements will be faced with varying loan limits depending on the type of home they hope to acquire as well as the state or region they’re in.
Flexible Refinancing, Foreclosure, and Bankruptcy Protocols
The VA seeks to get veterans into livable homes and keep them there. To this end, they offer highly flexible refinancing options, where clients may see their interest rates reduced or gain access to cash in case of emergencies or debt obligations such as bankruptcy. Even should they go through foreclosure or Chapter 7 bankruptcy, a borrower can qualify for a VA loan once again in as little as two years.
Loan Assumption Capabilities
A little-known yet highly beneficial feature of VA loans is that they are assumable. Loan assumption refers to the ability to assume responsibility for a seller’s existing liability when purchasing from them. You’ll be essentially taking over their current mortgage payments, loan balance, and interest rates, if any.
While some VA lenders might not accept assumption arrangements, they are helpful conveyance instruments wherever they are received and offer a great bargaining chip when operating in a rising-rate environment. Care should, however, be taken when making such arrangements, as an unreliable buyer or seller might jeopardize your VA entitlement and potentially impact your credit score.
Property Type Regulations
Conventional lenders don’t place any restrictions on the type of property one might acquire using the funds they provide. On the other hand, VA loans are only meant to be used to purchase a primary residential property, which might include a single-family home, townhouse, condo, multi-family property, or manufactured home.
These Minimum Property Requirements (MRPs) might seem restrictive to some. Still, they are designed to ensure that veterans and those in need are granted access to funding for safe, serviceable, and efficient homes. Should you wish to earn property income, however, it’s perfectly legal to purchase a multi-family property and rent out the units you aren’t occupying.
No Prepayment Penalties
Borrowers hoping to pay off their mortgage earlier than they initially agreed to will not face any penalty charges. You will have the flexibility to clear your obligations early and save your money, which is different from what conventional borrowers are forced to endure when they seek to alter their payment plans.
The U.S. Department of Veterans Affairs is one of the most helpful welfare arms of the government. It is responsible for facilitating more than a million homeownership loans to eligible borrowers each year. There are plenty of benefits that come with VA loans, but it should be kept in mind that individual circumstances call for personal consideration. Consult your VA representative or real estate advisor when making home financing decisions to ensure you make the best choice for yourself and your loved ones.