Veterans Affair Home Loans are a powerful option for veterans and active service members. Because of the nature of military service, it is difficult for many borrowers to build the assets and credit history necessary to secure a conventional mortgage. The advantages of VA loans are one of the reasons why they’re so popular, and some of those benefits are discussed in the guide below.
No Down Payment is Necessary
A qualified veteran or service member can get a Veteran Affairs loan without a big down payment. Compared to FHA and conventional mortgages, this means substantial monthly savings. FHA loans come with a minimum down payment of 3.5%; on conventional loans, the minimum is usually 5%. Many military borrowers have a hard time coming up with that sum of money. But VA loans allow them to get on the path to homeownership without the difficulty of coming up with a down payment.
Unlike FHA and conventional mortgages, VA loans don’t come with a PMI (private mortgage insurance) requirement. FHA loans have immediate and yearly mortgage insurance expenses, which can add up to $200 to the monthly payment. Because VA loans have no mortgage insurance requirement, borrowers can save thousands over the life of a loan.
Fair Interest Rates
Because the VA backs part of every loan, lenders can offer more competitive rates to military borrowers. Interest rates are based on the lender’s level of risk, and the VA guarantee gives lenders the reassurance they need to offer lower rates.
Lenient Credit Requirements
Because the VA oversees the program and doesn’t issue loans, the agency has no minimum credit score requirement. However, most lenders use a benchmark to determine a borrower’s default risk, and they usually prefer credit scores of 620 or higher. Veterans getting conventional loans must often meet higher benchmarks, but they don’t need perfect credit to get a VA loan. These loans are more forgiving in terms of allowing a borrower to bounce back after a short sale, foreclosure, or bankruptcy.
A Limit on Closing Costs
Every mortgage comes with closing costs and fees, but these are limited by the VA. Some fees and costs must be paid by other parties in VA transactions, and these protections help make homeownership an attainable goal for more military borrowers.
A common misconception about VA loans is that it’s a one-time-only benefit. In fact, eligible vets and military members can use the benefit as many times as they’d like, and they don’t have to pay in full to get another loan. Those with questions about their entitlement should consult a VA loan specialist.
No Prepayment Penalty
Many borrowers realize they can save money by paying off a loan early, but those savings may be wiped out by prepayment penalties. These fees were created to mitigate lenders’ and investors’ loss of decades of interest payments. However, VA borrowers can pay their loans early without worrying about prepayment penalties.
The VA’s loan program comes with numerous benefits, such as lower interest rates, no prepayment penalties, and limited closing costs. This beneficial program allows veterans and active service members to own their own homes where they’d otherwise not be able. For more information on VA Loans in Madison WI, visit the website or call a VA loan specialist today.