Veterans and service members have had the VA home loan benefit since 1944, and with millions eligible, there are still questions about what the benefits are of utilizing the VA Loan compared to other loans.
We’ve put together the top 9 benefits of a VA loan to help clear up the advantages:
No down payment. Eligible buyers aren’t required to have a down payment in most cases, whereas conventional loans typically require 5% and FHA loans 3.5% of the purchase price as a down payment.
No monthly mortgage insurance premiums or PMI. FHA loans have both an up front and an annual mortgage insurance payment, and conventional loans typically require mortgage insurance with a down payment of less than 20%.
No prepayment penalties. VA buyers can pay their loan off at any time without penalty.
Refinance options. The VA program allows homeowners with existing VA loans the option to refinance their loan to lower their payment and/or interest rate. Even those who originally didn’t finance their home with a VA loan, but are eligible, can refinance with a new VA loan.
Assumability. If you sell your home with a VA loan it may be assumable by the buyer. This can be a big benefit to many buyers who wouldn’t otherwise be eligible for a VA loan.
Low interest rates. VA loans continue to have some of the lowest average interest rates of all loan types.
Limitation on closing costs. Unlike other loan types the VA limits the closing costs that may be charged. Additionally, sellers are allowed to pay all of a VA buyer’s loan-related closing costs, and can even pay up to 4% in concessions on top of that.
Foreclosure avoidance. The VA works hard to advocate on behalf of homeowners to find alternatives to foreclosure. In 2018, they successfully assisted over 104,000 veterans avoid foreclosure.
Repeated use of entitlement. One of the great things about the VA home loan program is that the eligible service member has the benefit for life. If they use their benefit to purchase a home, that entitlement is fully restored once the loan is repaid in full. Additionally, if they don’t use their entire entitlement on the purchase of a property, whatever is left can be used to purchase another property.
It’s important to remember that the VA doesn’t make the actual loans – it guarantees the mortgage made through approved lenders. This guarantee encourages lenders to offer borrowers more favorable terms than they do on other loans, and while there aren’t minimums set in place for much of the guidelines by the VA, each lender sets their own qualification requirements.