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In my years of helping clients with their mortgages, I have been increasingly convinced of the superiority of the VA Loan program (for those who can take advantage of it). I’m also surprised by how many borrowers don’t know they can take advantage of it.
Here are some of the key features/benefits of VA Loans:
No Down Payment
VA Loans allow a borrower to purchase a home without a down payment, with no penalty for doing so. There are other no-down-payment mortgage programs out there, but the interest rates and terms are normally significantly worse than normal loans. With VA Loans, the borrower is not penalized (as in a higher interest rate, reduced purchase price, etc.).
Refinance Implications: In the case of a refinance, a borrower can borrow the entire value of the home (again, with no penalties/negative consequences). This is especially helpful if a client wants to access the equity in their home (called a “cash-out refinance”), because they can take out far more than an FHA or Conventional loan.
No Mortgage Insurance
With Conventional loans, mortgage insurance is required any time the down payment is less than 20%. For FHA, mortgage insurance is always required. VA Loans do not carry mortgage insurance, regardless of the size of the down payment. You can purchase/refinance up to 100% LTV (Loan to Value ratio) without wasting money on mortgage insurance.
Lower Rates and Higher Loan Amounts
VA Loan interest rates are typically less than Conventional mortgage rates and about equal to FHA rates, but without the mortgage insurance. VA Loans are also normally not subject to loan amount caps (Conventional and FHA loans are), allowing a client to purchase a larger home or cash out more equity. They also allow for higher debt-to-income ratios (similar to FHA), which lets borrowers qualify with a higher mortgage payment (and therefore, a larger home), than Conventional mortgages.
Less Strict Credit Requirements
VA Loans allow for lower credit scores (like FHA loans) and are more forgiving of significant negative credit events (like a bankruptcy). While Conventional and FHA loans have required waiting periods that have to pass before a borrower can get a new mortgage, VA Loans do not have set limits, allowing borrowers to qualify for a mortgage sooner (as long as the borrower is otherwise well-qualified).
You Don’t Have to be an Actual Veteran
A common misconception is that a former military member has to have fought in a war to qualify for a VA Loan. This is not at all the case; even time spent in the National Guard or Reserves will allow you to qualify for a VA Loan. There are several different qualification requirements, but essentially; as long as you finished your “stint” and weren’t dishonorably discharged, you should qualify for a VA Loan.
Want to see if you’d qualify for a VA Loan? We can quickly check your VA Eligibility as well as your capacity to buy a home/refinance.
