The VA home loan benefit helps veterans and their families become homeowners. The VA does this by providing approved lenders with a guaranty. This guaranty promises the lender the VA will reimburse them up to 25% of the amount defaulted on if you stop paying your mortgage.
How does this help you as a veteran? Keep reading to find out.
Who Provides VA Home Loans?
Even though it might seem like the VA provides VA loans, they don’t. Only VA-approved lenders can provide the loans. These lenders have a distinct understanding of the VA underwriting rules. They may only fund loans in the VA name that meet these guidelines.
Because individual lenders fund the VA loan, they can also add their own requirements. They call these overlays. Here’s an example. The VA prefers credit scores around 620 in order to secure VA financing. Lender A may require a minimum credit score of 650, though. This is just an example; lenders can add any overlays they want that make them feel the risk of default is much lower.
The Various Benefits
The VA home loan has many benefits that you won’t find with any other loan program. They include:
- No down payment required – You can borrow up to 100% of the purchase price of the home. This can be great for veterans just getting out of the service and that have not had the time or resources to save money for a down payment.
- No mortgage insurance – Even though you borrow 100% of the home’s purchase price, you don’t have to pay any type of mortgage insurance. This is in stark contrast to FHA loans and conventional loans, both of which that require insurance.
- Lower interest rates – In general, VA home loan interest rates are lower than other loan programs despite their high LTV and flexible guidelines. This can help you save money every month and over the life of the loan.
- The seller can pay your closing costs – Sellers are able to pay all of your closing costs, assuming they agree to do so. This could help you save even more money on the loan itself.
- The seller can provide seller concessions – In addition to the help with closing costs, sellers can provide concessions or financial assistance equal up to 4% of the loan amount.
- Help avoiding foreclosure – As long as you talk with your lender and/or the VA as soon as you are experiencing financial trouble, you may receive foreclosure prevention assistance.
- VA loan are assumable – You have the option to let someone whether a veteran or not, assume your mortgage. This may help you when you go to sell your home. It is also helpful if you want to give your home to your child or another relative.
The VA home loan benefit makes it much easier for veterans to purchase a home. It’s an affordable way to buy a home as the VA provides the guaranty for lenders. This may make more lenders willing to abide by the flexible guidelines and give you a loan even with no money down on it.