June 5, 2017 | Joshua Kruger
Looking to finance your dream home? Well, if you’re a veteran or service member, look no further than the VA loan. Backed by the Department of Veteran Affairs, the VA loan is far and away the best option for armed service members and their families, offering unbeatable financing options and reduced restrictions meant to provide our nation’s bravest with the best possible chance of securing a home.
The VA loan is available to military service members, National Guard, reservists, veterans, and spouses of service members who were killed during active duty (or as the result of an active duty injury).
Most armed forces members are eligible within just six months of service, while National Guard and reservists must wait six years. Eligibility requirements get quite specific in the case of being called in for active duty, so check out the VA Department website if you think you might qualify!
What Are the Benefits?
Relaxed credit requirements are part of what make VA loans so attractive to those who qualify. Consider this: similarly to an FHA loan, the VA loan is not granted by the government, but is guaranteed by it. Hence, lenders are more likely to reduce their minimum credit score requirement in order to accommodate your loan because they are not liable for potential defaults. Yes, you are more likely to meet with success if your FICO score is at least 620, but underwriters will take into account your entire credit “story” in assessing your application.
No private mortgage insurance (PMI) is required with a VA loan. Again, the Department of Veteran Affairs backs the loan, so no additional insurance is necessary to cover any losses on the loan! This allows you to save on those monthly payments and build equity over time or just put that extra cash toward paying off your mortgage earlier than expected . . . which brings us to:
Zero Pre-payment Penalties are assessed with VA loans. With a conventional loan, lenders collect interest on your monthly payments, resulting in extra income for them. By assessing a pre-payment penalty, lenders don’t lose out on that money-making opportunity. This is not allowed, however, in the case of a VA loan, so homeowners can feel free to pay off their loan without fear of penalty.
No down payment is required in securing a VA loan. Again, this is meant to render monthly payments more accessible to armed service members. Combine that with the lack of PMIs, and you’ve got great savings.
Better interest rates are another significant advantage of VA loans. Because of the government backing we’ve mentioned a couple times, banks are more comfortable taking additional risks on your loan. This may translate to rates that can be a half to a full percentage point lower than conventional loans!
Basic Allowance for Housing (BAH) is a fantastic benefit for military service members in general, but it also helps significantly in securing your home loan and making your monthly payments! In the case of a VA loan, your lender is able to count your BAH toward your monthly pay. This means: 1) they can use it to determine the amount of home you’re able to afford, and 2) you can use it to pay your monthly mortgage bill. End result: you might be approved for a larger loan, and you’ll also have an easier time paying it off.
Note: Your BAH will continue to fluctuate from year to year along with the market, so be aware that you are responsible for the difference should your BAH drop below the amount of your mortgage payment.
Clearly, VA loans are worth a look, so contact one of our representative today to discuss your options if you think you may qualify!
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