A VA loan is a home loan that is guaranteed by the United States Department of Veteran Affairs. The loan is designed to help make home ownership possible for those who are currently serving or have served in the military.
Although VA loans are not the best option for everyone, they can offer a wealth of benefits for qualified borrowers. It’s important to be aware of what those benefits are so you can make an educated decision when deciding if a VA loan is right for you.
No Down Payment
Saving up for a down payment is one of the biggest factors holding back potential homeowners. In most cases, VA loans do not require a down payment. Although some lenders will require a down payment as a security deposit (just in case the borrower defaults on their loan), these loans offer little risk to the lender when it comes to repayment.
No Mortgage Insurance
With a conventional mortgage, a down payment of 20% is needed to avoid paying private mortgage insurance. Because VA loans are guaranteed by the Department of Veteran Affairs, you will not be required to buy private mortgage insurance, even if no down payment is made.
VA Funding Fee
While you can acquire a VA loan with no down payment or mortgage insurance, you will be required to pay a “VA funding fee.” In short, this is a fee added to every VA loan purchase or refinance to help fund the program, ensuring it will continue to remain active.
This fee typically ranges from 1.25% – 3.3% of the loan amount, and can be paid upfront or rolled into monthly costs.
No Pre-Payment Penalties
VA loans allow you to pay off your mortgage early without being hit with additional fees. This allows borrowers to pay a little extra with each monthly payment, reducing the amount of interest owed and paying of their loan faster.
Those who have existing VA loans may qualify for VA refinance loans. VA Interest Rate Reduction Refinance Loans (IRRRLs) can help lower your monthly payments. VA Cash-Out Refinance Loans can help convert a portion of home equity into cash.
All refinancing costs and fees can be rolled into your monthly loan payments, allowing you to refinance with no cash down.
There are requirements regarding occupancy that come with obtaining a VA loan. You’ll be expected to live in the home as your primary residence after 60 days of closing. Depending on your personal situation, this can be easier said than done. In many cases, the borrower’s spouse can take complete these obligations on the borrower’s behalf.