Did you know that there are millions of veterans and service members in the US today? And yet, in the past five years, only a small percentage of them were able to purchase a home with a VA home loan. Most eligible veterans often bypass the federal program as a viable option for several reasons.
The most common reason is the lack of understanding of the home loan program. Keep reading, so you'll know everything there is to know about VA home loans.
Unlike other VA benefits, a VA home loan isn't offered by the government itself and is only available from private financial companies like Security America Mortgage. The Department of Veterans Affairs doesn't take loan applications, review and approve the loans, or issue the necessary funds. Instead, the VA offers insurance to lenders, which is officially known as the VA guaranty.
The VA gives an assurance that they will pay their monthly payments if the veteran can no longer do so. In turn, the lender will issue loans at superior terms. This allows you to enjoy the benefit while also having the speed and convenience of working with your preferred lender.
On average, VA loan rates are about 0.5% lower than conventional mortgage loans. This is because the VA backs your loan, making it a lower risk for lenders.
In addition, VA mortgages often have lower foreclosure rates than other loan types, which further reduces the risk for lenders. These factors add up to further reduce the mortgage rates and provide affordable payments for veterans.
With a VA loan, you can borrow as much as your lender is willing to give you. Plus, you don't have to worry about down payment either.
In general, traditional mortgage loans require at least a 5% down payment. However, for bigger loans, it can easily reach 15% to 20%. That's up to USD$80,000 down on a USD$400,000 home purchase. This means you can buy a home right away instead of saving up for years to afford a down payment.
Although you may have heard of the VA's loan limit, this isn't a cap on how much you can borrow. The VA and lenders use these county-level limits to determine the type of down payment you need if you don't have a full VA loan entitlement. Otherwise, if you have full entitlement, then there's no need to worry about dealing with these limits or saving up for a down payment.
A home VA loan doesn't have a mortgage insurance fee. However, it comes with a VA funding fee for both home purchase and refinances loans. This fee helps keep the loan program going and make the home buying sustainable for future veterans. It ranges from 0.50% to 3.3% of your loan amount, depending on the loan type and your service history.
That said, not every veteran needs to pay the funding fee. For instance, disabled veterans who are receiving compensation for their service-connected disability, as well as those who are eligible for disability compensations but are receiving active duty or retirement pay instead, are exempt from this mandatory fee.
In 2015, over 3,000 surviving spouses bought a home with a VA home loan benefit. Un-remarried wives and husbands of deceased servicepersons (killed in action) can purchase a home without down payments or mortgage insurance. Additionally, the funding fee mentioned earlier is also waived. This benefit can help surviving spouses and children move forward after tragedy.
VA loans don't have an expiration date. This means that even if you served last year or 50 years ago, you could still use it to buy a home. Furthermore, a VA home loan isn't a one-time benefit. You can use it as many times as you wish.
For instance, if you bought a house with a VA loan last year and outgrew it and now require something bigger for your family, you can simply sell it. You can use the fund to pay the remaining amount on your loan. Once you do, your entitlement is fully restored, which you can use to buy another house.
However, there's another way to re-use your benefit. You can receive a one-time restoration when you pay off the loan but keep the home. This often applies when you purchased the property long ago and already paid off the loan. It may also apply if you refinance the VA loan with a non-VA mortgage. In such cases, you can keep the house and use the VA loan to buy another one.
The VA home loan is a program that numerous home buyers wish they had access to but is solely reserved for veterans and honorable servicemen of all branches of the military. With a deeper understanding of this program, you'll no longer have to waste your time looking for a different home-buying funding or refinancing option.