Since its inception in 1944, the VA home loan program has helped millions of veterans, service members, and their families. As of today, it is more critical than ever.
The volume of VA loans has increased significantly as a result of the Great Recession and historically low-interest rates. As a result of the VA program’s substantial financial aid, veterans can now afford a home.
In this article, we’ll go over the top six benefits of these long-cherished home equity lines of credit:
1. Pay nothing at all in advance
The most significant benefit of the program is this. VA Loans that meet the county’s conforming loan limit do not require a down payment. These limits are higher in more expensive areas, and they are subject to annual revision.
Conventional and FHA loans typically require a 5 percent and 3.5 percent down payment, respectively. A conventional down payment of $10,000 is required for a $200,000 mortgage, while the FHA only requires a conventional down payment of $7,000 to qualify.
For service members and veterans, saving that much money can take a long time. Military personnel who want to buy a home don’t have to save for years to do so because there is no money down.
2. There is no private mortgage insurance
To save for a down payment even for conventional and FHA homebuyers is a challenge. However, mortgage insurance is a necessity unless a sizable down payment is made—typically 20% of the purchase price. That’s an extra $40,000 in your pocket on the same $200,000 mortgage.
The upfront mortgage insurance premium and the annual mortgage insurance premium, which now lasts for the life of the loan, are now included in the FHA’s mortgage insurance costs. For conventional buyers, it may take many years before they have built up enough equity to cover the monthly payment.
Unlike conventional loans, VA loans do not necessitate the purchase of mortgage insurance.
For VA loans, the Department of Veterans Affairs collects a mandatory funding fee. Those with service-connected disabilities are exempt from paying this fee as a benefit to future generations.
3. Changes in the Requirement for Credit
Credit score requirements have loosened, but it hasn’t done much to alleviate the purchasing process for many service members. The credit requirements of conventional and FHA lenders can still be challenging to meet.
Most VA lenders require a credit score of at least 620. Conventional mortgages require more stringent requirements for borrowers who want a low-interest rate than those who don’t.
In the middle of FICO’s Good and Excellent categories, scores between 619 and 699 are considered fair credit scores. VA buyers don’t need perfect credit to get a mortgage, despite popular belief.
4. DTI Ratios That Are Forgiven
Mortgage and student loan payments should not take up more than 41 percent of gross monthly income for the majority of VA lenders.
The good news is that even if your DTI is higher, you can still get a VA loan. Loans with interest rates of up to 55% are available from some lenders, depending on your credit score and ability to meet additional income requirements.
Customers can make better use of their money if they have more options at their disposal.
5. Keeping the Cost of Closing Low
Closing costs are required regardless of the type of mortgage you take out. According to the VA, veterans can only afford a certain amount in closing costs and fees.
Customers may request that sellers cover all loan-related closing costs and up to 4% of the purchase price in pre-tax and insurance, collections, or judgments.
6. Foreclosure and bankruptcy
If you’ve had financial difficulties in the past, it doesn’t mean you’re out of luck when it comes to getting a VA loan. After two years, the Department of Veterans Affairs says it is possible to get a VA loan for a VA-approved mortgage. Just one year after filing for Chapter 13 bankruptcy protection, some veterans may be eligible.
Homebuyers may have to wait longer for conventional or FHA financing. If the veteran defaults on one of the VA-backed home loans, the loan is forgiven.