The advantages of a VA loan are numerous. Backed by the U.S. Department of Veterans Affairs and originated by private lenders, these loans come with favorable terms that can make them an understandably appealing choice for eligible borrowers.
Exploring the Advantages of a VA Loan
Established as part of the Serviceman’s Readjustment Act of 1944, which is better known as the G.I. Bill, the VA loan program led the VA to guarantee some 13.9 million home loans valued at more than $433.1 billion in the program’s first 50 years. With an impressive array of benefits, these loans continue to be a popular option today. What are the advantages of a VA loan?
Competitive Interest Rates
VA loans typically come with competitive interest rates (source). Because the guaranty offered by the federal government reduces the risk that lenders take when they extend these mortgages, lenders are more willing to offer favorable terms. Why is a lower interest rate valuable? Basically, borrowing money costs money. A lower interest rate means that borrowing money costs less. You’ll pay less interest over time, which reduces the total cost of your loan.
No Down Payment Needed
There is no requirement for a down payment with a VA loan as long as the property’s price tag doesn’t exceed its appraisal value (source). Borrowers don’t have to save up a substantial down payment before making a purchase, so they may be able to become homeowners sooner. Alternately, they can hold onto their savings and use them as an emergency fund or to pay for renovations to the property. Of course, borrowers who want to make a down payment can still do so if they opt for a VA loan. Doing so isn’t necessary, but it can reduce your monthly payment and allows you to build equity in your home more quickly.
No Minimum Credit Score
Many loan programs require applicants to have a minimum credit score. The VA loan program does not (source). Borrowers do have to have sufficient credit and income to qualify for the home loan that they are seeking, and some lenders do set their own standards for credit scores, but the VA has no set minimum. Instead, it instructs participating lenders to look beyond the score and consider the total picture when determining a potential borrower’s creditworthiness.
No Private Mortgage Insurance Required
Private mortgage insurance (PMI) protects a lender’s investment and is generally required when a borrower makes a down payment of less than 20 percent. It’s generally tacked on to a borrower’s monthly mortgage payment, and it can raise that cost significantly. Homebuyers using a VA loan to purchase a home don’t have to worry about this added cost because VA loans don’t require private mortgage insurance (source).
A Right to Prepay Without Penalty
With some forms of financing, borrowers who pay off their loan early incur a fee. That’s not a concern for borrowers who opt for a VA loan (source). The VA does not allow lenders to impose any penalty for prepayment or early exit, so borrowers who want to pay off their loan early to sell the home or refinance won’t face additional charges.
Limits on Closing Costs
Closing costs are expenses that buyers and sellers must pay in order to complete a real estate transaction. They are an inevitable part of buying a home. However, as Military.com explains, the VA puts strict limits on what borrowers using a VA loan can be asked to pay in closing costs. In fact, sellers may pay the closing costs in some circumstances.
A Mortgage That Is Assumable
VA loans are also assumable (source). With an assumable loan, an acceptable borrower who is approved by the lender can take over, or assume, an existing loan from a seller with no changes in the loan’s terms. For sellers who secured favorable interest rates when they got their loan, a mortgage that is assumable can be a fantastic selling point.
VA Assistance for Borrowers in Financial Difficulty
Ideally, home buyers should have financial reserves that will see them through any rough times. Unfortunately, illnesses, injuries, job losses, and other unpleasant surprises can strain the budgets of even the most fiscally cautious individuals. While borrowers with conventional loans will likely have to deal with their lenders alone, a person with a VA loan can turn to the VA for assistance if temporary financial difficulties interfere with their ability to make their mortgage payments.
The multiple advantages of a VA loan make this form of financing well worth exploring if you’re eligible. To learn more about VA loans and explore how to get the most out of your home loan entitlement, contact us today to schedule a consultation. The experienced loan officers at PrimeLending strive to make securing the right mortgage for your unique situation as simple and hassle-free as possible. At our branches located throughout Kansas City, we can help you explore our wide variety of loan products and programs, including VA loans like the VA Purchase Loan, VA Cash-Out Refinance Loan, and VA Interest Rate Reduction Refinance Loan. When you’re ready to get started, please give us a call at 844-701-5626.