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What are the eight major advantages of the VA home loan?
Four Minute Read
Written by Ed Andrews III on April 12th, 2020
Eight Reasons VA Home Loans are the Best
The VA mortgage loan is almost always the best option for veterans. There are tons of benefits to using the program, but here are the top eight advantages of the VA home loan.
1. Lower Interest Rates
2. No Down Payment Required
3. No Private Mortgage Insurance (PMI) Required
4. No Minimum Credit Score
5. Flexible Debt to Income Ratio Requirements
6. Easy No Document Refinances Allowed
7. VA Finance Counselors to Assist Struggling Homeowners
8. Veterans Can Reuse the VA Loan Throughout Their Lifetime
Read on for more details on each of these VA home loan benefits.
1. Lower Interest Rates
All things being equal, the rates you’ll qualify for on a VA loan are likely to be lower than what you’ll qualify for with FHA or conventional financing.
This is especially true for veterans with credit scores that fall below 680. The pricing add-ons for lower credit scores can add up quickly. With VA you’ll be able to take advantage of exceptional rates, even if you don’t have exceptional credit.
2. No Down Payment Required – This is perhaps the most attractive aspect of VA home loans. Veterans literally don’t have to put anything down on the house they’re buying, because VA is a no down payment loan program. This is not possible on any other loan programs except USDA, and that can only be used in rural areas.
Down payment assistance programs that help home shoppers by a house with no money down, generally carry unfavorable terms like higher interest rates, second mortgage payments, recapture penalties, etc.
They aren’t remotely the same as the 100% financing VA home loan benefit, it’s truly unrivaled.
3. No Private Mortgage Insurance (PMI) – Generally when someone buys a house with FHA or conventional financing, and puts down less than 20%, they have to pay for Mortgage Insurance every month.
This is not to be confused with Homeowner’s Insurance, which insures the home against damage from fire, inclement weather, or other perils. Rather, mortgage insurance covers the bank in the event that you default on the loan. Despite the fact this insurance only benefits the lender, it’s the homeowner that is stuck paying the premium.
One of the advantages of a VA home loan...you won’t have to pay for mortgage insurance even if you don’t put a penny down.
4. No Minimum Credit Score – Despite popular belief or what some mortgage companies may tell you, the VA home loan technically does not have a minimum credit score. That’s not to say they don’t consider your credit, because they absolutely do. But they don’t have a hard stop at a certain number.
I’ve helped veterans use their VA home loan benefits to finance 100% of the cost of their home with credit scores as low as 580.
For veterans that were willing to put down 10%, I’ve closed them with scores as low as 520. For people looking to refinance an existing VA loan, credit will not impact their ability to qualify.
5. Flexible Debt to Income Ratios – The dreaded debt to income ratio has kept many people from realizing their dream of home ownership. Debt to income ratios (commonly referred to as DTI, are merely a measurement of the amount of debt you have versus how much income you have. If your monthly debt payments (including your proposed mortgage payment) would consume 50% of your gross monthly income, that means your debt to income ratio is 50%.
For most loan products the maximum qualifying debt to income ratio ranges from 41% up to 55%. However, while the VA home loan looks at your debt to income ratio, it is more concerned with veterans having residual income remaining at the end of the month. I’ve personally closed VA loans with DTIs well into the 60s, and I’ve seen others be approved with even higher ratios.
6. Easy No Document Refinances – With the VA’s Interest Rate Reduction Refinance Loan (also known as IRRRL) veterans can refinance their existing VA home loans, and take advantage of lower rates without all the red tape. They aren’t required to get an appraisal, provide income documents, provide asset documents, nor can they be disqualified for their credit ranking.
Many of these typical loan requirements cannot be avoided with FHA or conventional financing, this is purely a benefit of VA loans.
In addition, the VA caps how much veterans can be charged in fees when using the IRRRL. Almost ensuring the veterans only bear the cost of refinancing when it’s truly beneficial for them and their families. There’s no other refinance product that compares.
7. VA Finance Counselors for Struggling Homeowners - There’s a reason VA loans have the lowest foreclosure rates out of all the most commonly used mortgage loan programs (Conventional, FHA, USDA). When veterans are in trouble with their mortgages, they can contact the VA directly, and have a VA Finance Counselor contact their mortgage company and negotiate on their behalf.
In addition, the CFPB (Consumer Financial Protection Bureau) has passed regulations to add mortgage protections for veterans. These include the ability to pursue loan modifications without first having to be in default. They have an exhaustive foreclosure prevention process that lenders are required to adhere to. They have even added policies to help servicemen and women who are currently going through a PCS (permanent change of duty station).
The safeguards in place to keep veterans in their home is perhaps the most important of all the advantages of a VA mortgage loan.
8. Lifetime Benefit – Contrary to what many veterans believe, the VA home loan benefits are a lifetime benefit. Meaning it can be re-used repeatedly. I often encounter vets who have yet to use their VA home loan benefits and will often say they’re saving it. But there’s no need to conserve this benefit.
One of the benefits of using a VA loan is if you find yourself needing it again in the future, you can always come back to the well.
I’m sure you’re asking yourself, “Well….what are the disadvantages?”. Though all of these are great advantages, and many of you are probably already sold on the idea that VA is definitely the way to go. There’s always two sides to a coin.
So be sure to watch my video “Disadvantages of the VA home loan”, where I’ll be covering all the drawbacks of using this home loan program designed for America’s veterans.
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About the Author:Ed Andrews III
Ed Andrews III is a mortgage loan officer, and U.S. veteran of the Iraq & Afghanistan War. He is an expert on VA home loans, and dedicated to helping veterans achieve home-ownership.
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