Tuesday, December 9, 2014

The Basics & Benefits of VA Home Loans

By Brian Willingham, Senior Mortgage Banker


For veterans who qualify, a VA home loan is usually the best option to finance the purchase of a home.   In this blog, I’ll quickly go over the benefits of a VA loan compared to other types of mortgages.

What are the benefits of a VA Home Loan?
VA loans offer several benefits compared to other mortgage programs available:
  • In most cases, no down payment is required (see below for more information)
  • In addition to not having a down payment, there is also no mortgage insurance on VA loans
  • VA loans often provide better interest rates than conventional loans
VA Home Loans do not require a down payment if the veteran has not previously used their home loan benefits and the price of the home is within established VA limits. These limits are based on the state and county where the home is located. You can find those limits here:  http://www.benefits.va.gov/HOMELOANS/purchaseco_loan_limits.asp

For veterans who have used their home loan benefits before, no down payment could still be an option but this is dependent on other factors.  Other than VA loans, there are very few mortgage options with no down payment.  Keep in mind, conventional loans require at least 5% of the sales price for a down payment, and FHA loans require 3.5% down.  Although, some counties and states have first-time home buyer programs that provide assistance for the down payments and closing costs required by conventional or FHA loans, they typically don’t provide the low interest rates that a VA loan does and most usually have mortgage insurance requirements as well.
 
Mortgage insurance is an extra fee paid by the home buyer on loans with less than 20% down which provides additional protection for the lender in the case of a default on the loan.  Mortgage insurance rates vary depending on loan types, credit scores and other factors, but regardless, they raise the cost of buying a home.  Since VA loans don’t have mortgage insurance like other types of loans, this provides an additional opportunity to save money. 

VA loans do have a “Funding Fee” which is paid to the Veterans Administration at the time of settlement.  The amount of the funding fee varies depending on if the veteran has used their VA Home Loan benefits before and if there was any down payment requirement.  However, even with the funding fee, VA loans can often save veterans money compared to conventional and FHA loans because of their often lower rates and lack of down payment requirement and mortgage insurance. 

Next week, we’ll take a look at the basic requirements and some of the more common rules with VA loans. Until then, feel free to check out our mortgage calculators, request a copy of our homebuyers guide or get started on your mortgage application



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