VA Home Loan Benefits

VA Home Loan Benefits

Phil Sykora |Sep 12, 2023

What is a VA Loan?

In July 2023 (the month with the most recent statistics), the Veterans Administration released its monthly volume report, which showed that lenders originated 35,558 VA loans. These loans had an average balance of $374,429 and a total loan volume – in just one month – of over $13 billion.

That’s nothing to sneeze at, but what exactly is a VA loan?

A Veterans Administration (VA) loan is a type of mortgage loan program in the United States that is backed by the Department of Veterans Affairs. It’s specifically designed to assist the following groups:

Active-duty military personnel.
Veterans. Veterans who have not been dishonorably discharged all qualify for a VA loan.
Certain eligible members of the National Guard and Reserves. The requirements for these groups are a bit more extensive. They need to have completed at least six years of service, been honorably discharged, or been placed on the retired list.
Surviving spouses. A surviving spouse can also qualify for a VA loan as long as they haven’t remarried.

If you fit any of those categories, you can qualify for a VA loan. There are two ways that you can confirm this:

1. Apply for a Certificate of Eligibility through the Department of Veterans Affairs website.
2. Speak with a lender who specializes in VA loans.

But why would you want to pick a VA loan over any other loan type? Simple: because there are a lot of benefits associated with VA loans – and in this article, we’re going to go over the benefits of Veterans Administration loans.

VA Home Loan Benefits

1. No Down Payment

FHA loans require you to put at least 3.5% down. On a $400,000 loan, that means you must have saved at least $14,000 to apply.

Conventional loans typically require a much larger amount down, with many buyers putting down around 20%. On a $400,000 loan, that’s $80,000.

It can take people years to come up with the money required to buy a home in their area.

The biggest benefit associated with the VA loan program is the fact that you don’t have to put any money down at all to start building equity. This makes homeownership much more accessible to veterans and active-duty service members.

2. No PMI

In addition, if you put less than 20% down on a conventional loan, you have to make an extra payment every month for “private mortgage insurance,” which the lender will tap into if you can’t make your payment. FHA’s private mortgage insurance is baked into the loan and you can’t get rid of it even after you’ve paid off more than 20% of the loan.

For VA loans, that isn’t the case.

Since the Department of Veterans Affairs guarantees a significant chunk of your loan through your entitlement, there is no private mortgage insurance. If you default, the lender can access this money instead – that means more money in your pocket with a lower monthly payment, among other benefits.

3. Lower Interest Rates

The benefits don’t stop there, either. As of this writing, in September 2023, the average interest rate for a 30-year fixed-rate loan is 7.55%. The average 30-year fixed-rate VA loan is around 6.6%. On average, that’s what you can typically expect: VA loans have a lower interest rate of 0.5-1%.

But what does that mean for you? Let’s run the numbers again on a $400k loan.

For a conventional $400k loan with zero percent down, over 30 years, you’d pay over $1 million with a 7.55% rate, with $611,000 going toward interest.

For a VA loan of the same size at 6.6%, you’d pay only $919,000, with $520,000 going towards interest. This results in a savings of almost $100,000.

4. Lower Credit Requirements

VA loans are backed by the U.S. Department of Veterans Affairs, as we mentioned above. The government's guarantee of a portion of the loan reduces the lender's risk. If the borrower defaults on the loan, the government will reimburse the lender for a portion of the loss. This guarantee makes lenders more willing to offer favorable terms to borrowers, including those with lower credit scores.

5. No Limit

There is no limit on how many times a borrower can qualify for a VA loan. Many veterans believe that this is a benefit that they can only qualify for once – and once they’ve used it, it’s gone for good. That isn’t the case. Even if you went into foreclosure twenty years ago, you can still qualify for another VA loan. Many lenders have to charge a small “reinstatement fee” if this is your second VA loan, but it can be done.

However, just because there’s no time limit doesn’t mean there isn’t a limit on the number of VA loans that you can have. Since you’re supposed to use a VA loan for your primary residence, most service members will only have one open at a time. In some cases, they might be able to qualify for two.

6. Foreclosure Support

8 out of 10 VA home buyers put no money down.

Yet the foreclosure rates for VA loans are among the lowest. One reason might be that service members have the discipline and fortitude to make their payments no matter what, having gone through rigorous training in the military.

Additionally, the Department of Veterans Affairs does everything in its power to help keep veterans and active duty service members in their homes.

Conclusion: VA Home Loan Benefits

There are a lot of benefits to buying a home through the VA program: no down payment, no PMI and low interest rates, to name a few.

VA home loans are some of the best loan products available to buyers, and they come with added protection from the Department of Veterans Affairs. If you can qualify for a VA loan, it’s a better option than virtually all other loan types.

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Myles Leva | September 12, 2023

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Everything You Need to Know About Filing Your Own Taxes

Katie Macomb | September 12, 2023

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