If you are eligible for a VA loan, you can consider yourself lucky. This type of loan offers lucrative terms that no other program offers; even if you are eligible for a conventional loan or any other loan type, using your VA benefits can work to your advantage in the long run.
Use your Cash to Fix up your Home
Many mortgage programs require a large down payment; some even require 20 percent down, which can be a large chunk of change when you are purchasing a $200,000 or $300,000 loan. If you have the cash, you can get the loan; however, then you have no cash left for when you move into the home. Even if you are moving into your dream home, chances are there are things you need to purchase – that cash would come in handy for those items! Whether you want to paint the walls a different color; replace items that you would consider contaminated if you kept the previous owner’s possessions (toilets, faucets, etc.); or you need to purchase appliances, cash will be necessary. Since the VA loan allows you to put down as little as 0% on the loan, you can use that cash to purchase these items right away rather than taking out more credit or having to wait.
Save Cash on your Monthly Payments
Going back to the lack of need to put down 20% on the home, the VA loan also does not require you to pay private mortgage insurance even if you don’t make a down payment. That could save you several hundred dollars a month depending on the type of loan you are taking out; the down payment you put down; and your credit score. That alone is reason enough to opt for the Veteran’s loan in order to avoid the extra insurance charges that you would not get back should you sell the home even in the next few years – that is money that is paid directly to the insurance company and never seen again; unlike the investment you make directly in the home and get back when you sell the home.
Sell when you Want
Prepayment penalties are fewer and further between these days because of the new mortgage guidelines set forth by the government, but they do still exist. This is not the case with VA loans, though. There is no such thing as a prepayment penalty on them, which means you can sell your home six months, a year, or 5 years down the road – it does not matter and it will not cost you anything extra in the end. This can be a huge bonus for those borrowers that are not sure how long they will be staying in the home or those that know they will be moving for sure.
Less Stringent Requirements
A VA loan is not very difficult to obtain as long as you have the income to support the new payment. Unlike conventional loans, loans provided by the VA are also backed by the VA; backed by the VA means that the agency will guarantee the bank that provides the funds a portion of the loan if you defaulted on the loan in the future. This gives the bank a little reassurance when providing funds for borrowers and makes them more willing to provide the funds. When this is the case, the stipulations to obtain a loan are much less stringent. Of course, the lender will still need to see a decent credit history, average debt ratio, and a stable employment history, but they will not penalize you for certain things that a conventional loan might. The largest concern for a lender providing a VA loans is the amount of your disposable income or the income that is left over after you pay your mortgage and monthly obligations. They want to make sure you are comfortable with your everyday expenses before providing you a loan. As long as your disposable income is sufficient, they will cut most borrowers slack in other areas.
Your Loan is Assumable
Today it is hard to find a loan that is assumable, unless it is a VA loan. This means that someone else (that has VA entitlement) can take on your loan as is rather than getting their own loan and paying you the cash so you can pay your loan off. This does not mean the borrower does not need to qualify for the loan, but it does mean that he gets to take your interest rate and lucrative terms and pick up where you left off. The only additional charge to the loan is a new 0.5% funding fee, which is based off of the current principal balance of the loan. You can choose to let a non-veteran assume your loan, but then you lose your entitlement, which means you cannot obtain another VA loan down the road on another property as long as the original mortgage is outstanding.
Each of these reasons makes the VA loan very attractive. They enable you to get the loan you need without overextending your credit, having excessively high monthly payments, or the risk of being turned down as long as you make adequate income and have decent recent credit. If you are a veteran, it is worth looking into your benefits for this type of loan in order to make the most of your monthly income and your ability to get into the home you desire.