The VA home loan program offers remarkable advantages for military members and veterans looking to buy a home. There’s no other mortgage program that delivers such a compelling list of advantages.
However, one benefit of the VA loan program stands above all others. With the ability to finance up to 100% of the buying value, eligible home buyers can purchase a home without waiting for years to save up for a VA loan down payment.
In fact, VA loans allow military members and veterans to avoid the necessity of a down payment altogether. This loan program becomes a truly unbeatable choice when you look at the additional advantages, such as flexible qualification criteria.
This article will explore the biggest benefit that the VA loan program brings to the table. So, let’s get started on how to use a VA loan to its fullest potential and discover the advantage of favorable VA mortgage loan rates.
What Is a VA Loan?
Before we dive into the various benefits, let’s first start with the basics: understanding what a VA loan is and how it sets itself apart from a regular mortgage product.
Simply put, a VA loan is a home mortgage loan backed by a government insurance guarantee. However, it is crucial to know that mortgage lenders and private-sector banks offer these loans, not the government.
As it states on the U.S. Department of Veterans Affairs website: VA home loans are offered by private lenders, like mortgage companies and banks. A portion of the loan is guaranteed by VA, allowing the lender to offer you favorable terms.
Now, the phrase “favorable terms” is an understatement when it comes to VA loans. This extraordinary program enables qualified veterans and service members to buy a home without any down payment, along with highly competitive interest rates.
The Biggest Benefit: No Down Payment
The VA loan program offers a standout advantage of avoiding the VA loan down payment requirements. Qualified borrowers with full entitlement could finance the entire home purchase, significantly minimizing their upfront expenses.
However, instead of just labeling it a “big benefit,” let’s examine the real numbers to see how this can help aspiring homeowners fulfill their dreams.
According to the 2022 report from the National Association of REALTORS, 35% of customers think they need 16% to 20% for a down payment. However, since 2018, the typical down payment for first-time buyers has been between 6% to 7%.
As of summer 2023, the median home price in the United States was around $348,000. A homebuyer making a down payment between 6% and 7% of the purchase price (the average cited above) would end up paying somewhere between $20,880 and $24,360 upfront.
For a person with an average income, it could take several years to save up enough money to qualify for a mortgage loan. Surveys have shown that it takes borrowers anywhere from three to five years, on average, to save up for a down payment.
Therefore, this financial relief offered by the VA loan program allows home buyers to skip the step of making a down payment and straight away jump to purchasing their own house.
Removing a Major Hurdle to Homeownership
This is where the major benefit provided by the VA loan program shines. It allows military service members and veterans to buy a house sooner rather than later by reducing the amount of money they have to pay upfront.
Thanks to VA loans, the biggest obstacle to becoming a homeowner is eliminated. This loan program makes it easier for those who have served their country to make their dream of owning a home come true.
Moreover, this program can free up money for other major purposes, like furniture or moving expenses. By avoiding the down payment expense, which can add up to many thousands of dollars, borrowers can keep some money in the bank instead of depleting their savings.
But the Benefits Don’t End There
We have examined the benefits of a VA home loan – they allow eligible home buyers to purchase a home sooner by significantly reducing the initial costs.
Yet, this program consists of more significant advantages. Borrowers who opt for VA loans can typically avoid the cost of mortgage insurance, a crucial aspect of mortgage banking.
Unlike other types of home loans where mortgage insurance is required with low down payments, VA loans often spare borrowers from this cost. For example, conventional loans require mortgage insurance if the loan goes beyond 80% of the home’s value. Meanwhile, the FHA program requires mortgage insurance for most borrowers, which persists throughout the loan’s life.
While VA loans do require a funding charge that supports the insurance guarantee, it’s just a one-time payment, as opposed to the ongoing monthly payments associated with mortgage insurance.
Moreover, VA loans are one of the most accessible mortgage options to qualify for, largely due to government support. You don’t require ideal credit for a VA loan; even individuals with credit scores as low as 500 may qualify, a route that might not be available with conventional financing options. When determining financial decisions like whether to invest money or pay off mortgage, the availability of VA loans provides an excellent benefit for aspiring homeowners.
Lastly, the interest rate aspect deserves attention. Mortgage lenders usually provide lower interest rates for VA loans compared to conventional mortgage financing. Shaving even a few basis points off the interest rate can lead to substantial long-term savings for borrowers. This aspect underscores one of the key benefits of a VA loan vs conventional options.
What to Take Away from This Article
In this article, we’ve explored various VA loan benefits. Let’s sum up the key takeaways.
VA home loans bring a wide range of benefits for military members and veterans wanting to purchase a home. Among these, the standout advantage is the ability to finance up to 100% of the buying amount, effectively eliminating the need for a down payment.
This approach significantly reduces the upfront deposit for homebuyers, making homeownership more achievable.
VA loans also address a major hurdle to owning a home by enabling borrowers to buy a house sooner. Additionally, these loans help borrowers avoid paying mortgage insurance, which is often required for other loan types with low down payments.
Furthermore, VA loans tend to be more lenient with their qualification criteria, extending eligibility even to those borrowers with lower credit scores.
In essence, VA loans provide a pathway to homeownership that is both flexible and supportive of veterans and military service members.