By Melanie Graysmith
There are multiple advantages to a VA mortgage. The VA Loan Program is the dominant home loan program in the nation for veterans, current service members, and their families. Flexible government backed VA loans provide considerable benefits and offer a sensible way for veterans to gain homeownership without the efforts to obtain financing. VA home loans are available from private lenders, such as banks, credit unions, and mortgage companies, not the government itself. VA guarantees a portion of the loan, allowing lenders to provide more favorable terms.
No Down Payment
No doubt the biggest advantage to a VA home loan is no down payment at all. Without having to save for a down payment you can purchase a home immediately. Conventional loans require up to 20 percent down payment. With VA loans, savings are significant, and qualified buyers can finance 100 percent.
No Mortgage Insurance
Conventional home loan borrowers who cannot pay a 20 percent down payment must buy private mortgage insurance (PMI) that protects the lender against borrower default. There is no PMI with a VA loan as the federal government backs these loans and assumes the risk. Although VA buyers do not pay mortgage insurance, they do pay a funding fee they can add to their loans. Funding fees, paid directly to the VA, help maintain the loan program.
Lowest Interest Rates
VA home loan rates are competitive at rates lower than institutions financing the loans. With the VA backing each loan with a guaranty, there are fewer risks for financial lenders to carry, allowing them to offer lower interest rates.
Origination points are fees a lender can charge to make a loan. The VA loan program limits the amount a lender can charge a buyer, and determines what amount is reasonable.
A property up for purchase needs an appraisal to determine its value. The VA Inspector will view the property and verify it meets all codes and living standards set by the Veterans Administration.
VA Certificate Of Reasonable Value
With a traditional loan to finance a home to purchase, the buyer must rely on an appraisal to determine property value. With a VA loan the VA will issue a certificate of reasonable value (CRV) of the property you choose, which is good for up to six-months. The CRV remains applicable to any VA buyer beyond the original one responsible for the contract.
Options For No Closing Costs
VA home loan buyers can structure their loans to benefit them and have the seller pay all closing costs, which can cover a range of costs including prepaid property taxes, homeowners insurance, buyer’s funding fee, and more. With a traditional loan, closing costs can be 3-5 percent above a home purchase price, but using a VA Home Loan you may not have to pay any closing costs.
Limits On Closing Costs
In cases where the buyer opts to fund costs at closing, or the seller refuses to pay, the VA limits the costs and fee lenders can charge. In fact, most charges are negated and not allowed for buyers.
No Prepayment Penalty
Paying off a loan before it matures often means a pre-payment penalty because lenders lose out on collecting additional interest, and penalties allow them to recoup that money. With a VA loan there is no pre-payment penalty, so borrowers can pay off their loans at any time, worry free.
The Benefit Never Expires
Other veterans can assume VA loans, as the VA will allow you to sell your property and have a new a purchaser take over your previous loan.