The VA loan provides tremendous benefits for millions of veterans. Not every veteran understands the advantages of this loan though. Aside from the fact that it provides 100% financing, there are many other benefits.
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Keep reading to learn all of the benefits you may be missing out on.
Flexible Guidelines
The VA has some of the most flexible guidelines in the industry. They don’t have a minimum credit score or maximum debt ratio. They look at the big picture and let the funding lender decide if you qualify. This makes it much easier to qualify for VA financing without rigid guidelines.
No Required Monthly Insurance
The VA loan is one of the only government-backed loans that don’t require monthly mortgage insurance. Both FHA and USDA loans require it. This can add a few hundred dollars to your monthly mortgage payment.
The only extra fee the VA requires is the upfront funding fee. At 2.15% of the loan amount, this fee helps the VA continue to guarantee loans for veterans. They use these funds as a part of their reserves when they must pay a bank back for a defaulted loan. Luckily, the VA has one of the lowest default rates out of any loan program.
Low Interest Rates
Interest rates are always a big concern for any borrower. They determine how much the loan costs you per month as well as over the life of the loan. The VA has some of the lowest interest rates out of any program. Oftentimes, you’ll find that VA rates are as much as 1% lower than any other loan program.
No Cost for Prepaying
Luckily, today prepayment penalties are few and far between, but it’s still worth mentioning. You are free to pay off your VA loan whenever you want. There is not a certain number of months you must live in the home or hold the loan. If you need to move or you have the money to pay off the loan, you are free to do so at any time.
Simple Refinancing
Many homeowners refinance even after securing a great rate when they buy the home. No one can predict what the future holds. If rates drop and you want to refinance, the VA makes it simple. They have a streamline refinance program called the Interest Rate Reduction Refinance Program. You don’t have to verify your credit score, income, or the value of your home for this program. As long as you have 12 months of on-time payments, you may qualify for the loan.
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The IRRRL is only for borrowers that want to refinance their loan for a lower rate. If you want cash out of the home, you’ll have to go through the full refinance process.
Lower Closing Fees
The VA sets a maximum amount of closing fees veterans can pay. This keeps closing costs affordable for you. On average, VA closing costs are 1 – 3% of the loan amount. This is lower than conventional loan averages of 3-6%! In addition, you aren’t required to pay your own closing costs. You can get help.
The seller or real estate agent can help you pay the closing costs. They can contribute up to 4% of the purchase price of the home for this reason. Typically, this is more than enough to cover the costs of a VA loan.
If the seller doesn’t pay the costs, the lender can also pay for them. This is a ‘no closing cost’ loan. Rather than charging closing costs, the lender may charge a 0.5% higher interest rate. They then waive the closing costs for you. If rates are low enough, this could be beneficial for you.
Help With Foreclosure Prevention
The VA works very hard to prevent foreclosure whenever possible. If you start experiencing financial issues, the VA can work on your behalf to prevent foreclosure. They will work with the lender to come up with a solution, such as a payment plan or loan modification to prevent you from losing your home.
Lifetime Benefits
Something many veterans don’t realize is they can use their VA loan benefits many times. If you take out a loan and pay it off, along with selling the home you bought it with, you can use your benefit again. You can repeat this process as many times as you like. Typically, you have to sell the home and pay off the loan to do so, though. If you do and you did not default on any part of the loan, you can reuse 100% of your benefits.
Hold Two VA Loans at Once
There are exceptions to the rule that allow you to hold two VA loans at once as well. If your job or service relocates you, buying a new home may be possible with your VA benefits. If you did not use your full entitlement amount ($424,100), you can use the remaining amount for another home. You do not have to sell your original home as long as you have VA approval. The VA doesn’t specify how far your new commute must be in order to qualify, though. It’s on a case-by-case basis.
The VA loan has many advantages aside from the no down payment required rule. It’s a great way for veterans to get flexible financing with affordable terms. The VA helps veterans throughout the process and even if they are facing financial difficulty.
Always look for a few VA approved lenders to determine which one has the best rates and fees. The VA does not set the rate or the fees. They do maximize how much you pay, but that doesn’t mean there aren’t lenders competing for your business. Find the best VA loan for you and use the advantages today!
