Purchasing a Home With a VA Loan: The Ins and Outs
VA mortgages are the most flexible lending programs available for most borrowers in the military, with no down payment required. Since 1944, approximately 24 million service personnel have become proud property owners, courtesy of the program.
This article will help you understand how the VA loan program works. In addition, we take a close look at VA home loan significant benefits and drawbacks.
What Is a VA Loan?
It is a form of financing offered by private lenders and partially secured by the United States Veterans Affairs Department.
It is a unique program for veterans, active military members, and widows of fallen military personnel in America. The lending program aims to assist its beneficiaries in becoming homeowners at a low cost.
Besides other benefits, the VA loan requires no deposit, no mortgage insurance, and has flexible loan qualification rules.
What Are the Eligibility Criteria?
To qualify for this loan as military personnel, you must fulfill any of the following prerequisites:
You have 90 days in a row of active military duty during wartime or 181 days during peacetime or ex-military veteran.
Active engagement in America’s National Guard for more than six years.
You are the husband or wife to a service member who passed away on duty.
Although many people believe that it is simple for veterans to obtain these loans, there are several aspects of VA housing loans that some borrowers and realtors do not know.
Here, we look at the benefits and drawbacks of VA-backed military loans:
Advantages of a VA Loan
The primary benefits of a VA home loan are as follows:
1. You Don’t Require a Down Payment
One of the few nil-deposit loans currently available is a VA mortgage. While most home mortgage programs involve a partial deposit when you sign up, the VA mortgage is an excellent exception.
Instead of an upfront cash payment based on the property’s appraised value, a VA loan allows you to fund up to 100% of the total value. The waiver on the down payment is an excellent relief if you have no cash in your account to kick start a loan application process.
2. No Payment of Premium Mortgage Insurance (PMI) Charges
Lenders usually charge a mortgage insurance fee when you pay a deposit of less than 20% of the appraised value. If you miss a payment on your loan, the insurance payment protects the mortgage financier.
However, thanks to FHA’s backup, VA loans do not require a security deposit or mortgage insurance. It nullifies any need for homeowner’s insurance, allowing you to save more funds. As a result, it is very cost-effective both upfront and later.
3. You Can Borrow Any Amount
If you are a qualified veteran with a full VA loan benefit, you can receive as much as you wish, all deposit-free.
However, some lenders will use local lending thresholds to determine your maximum credit limit if you do not have the full VA loan privilege. But with full entitlement, you are not subject to these restrictions or a deposit requirement.
4. Government Guarantee
If you wonder why VA loans have desirable and friendly terms, it is because of backing by the federal government.
Consequently, if you cannot pay the balance for any reason, the government will pay a part of the debt to the lender. This assurance motivates and allows mortgage financiers to offer VA loans with highly favorable terms.
Similarly, loan officers at the bureau can enter negotiations with lending institutions on your behalf to avoid foreclosure if you have difficulty making loan repayments.
5. No Restrictions on Refinancing
A VA mortgage allows you to make overpayments whenever you want, saving you thousands of dollars in interest rates. If you wish, you can set up a payment schedule so that the financier deducts a small amount each month.
Similarly, during the repayment period, you are at liberty to sell the property without financial implications. Regardless of when you decide to sell your home, you won’t have to pay early exit fees.
Furthermore, you can consider refinancing your existing mortgage or switch to a non-VA mortgage at any time.
6. Affordable Closing Costs
The government oversees the efficient management of VA mortgages. As a result, they regulate the closing costs that lenders may charge loan applicants. Eventually, a VA loan ends up less costly than traditional loans.
Savings on closing charges can help you in home furnishings, house repairs, and transportation when relocating to a new home.
Disadvantages of a VA Loan
The main disadvantages of VA mortgage are as follows:
1. Restricted Usage Is a Great Limitation
A VA loan is only available for construction, purchasing a principal residence, or making payments on an existing mortgage. In addition, the principal residence can be a single-family residence, rental unit, customizable housing, or multi-unit asset.
If you wish to purchase a hobby farm, real estate, investment, or restaurant, the VA mortgage will not be ideal for you.
2. You Pay a Mandatory Funding Fee
Unlike other loans, the VA mortgage requires a Funding Charge. It is a one-off payment amounting to 2.3% of your loan amount. If you’ve borrowed under the VA loan program before, the fee rises to 3.6%.
As a result, you may incur higher monthly premiums and interest over the loan repayment period. The funding fee compensates for any losses, hence sustaining the program for the future.
VA Loan: Is It Ideal for Purchasing a Home?
Purchasing a home may be tricky, without any cash on hand. However, if you are a former soldier or currently serving in the military, you can benefit from VA mortgage privileges.
You will pay no deposit, no PMI fees, and you will be able to use the loan repeatedly. These, and many other factors, make your homeownership a reality.
Contact an accredited VA mortgage lender or a loan officer at the Veterans Affairs Department to determine your eligibility.