The United States Department of Veterans Affairs (VA) is one of the biggest loan guarantors in the world. In 2021, the VA backed more than $447 billion in loans.
The VA works with major mortgage companies like Rocket Mortgage and Pennymac Loan Services. The way it works is that the VA issues rules and regulations for the lenders it does business with. With the VA providing financial protection against default, lenders can offer more favorable terms.
Read on to learn more about VA loan benefits. Explore the benefits of using VA loans so that you are prepared to buy your next home.
What Are the Benefits of a VA Loan?
There are so many benefits to securing a VA loan. Not only are there favorable terms and conditions, but there is a strong financial incentive to pursue a VA loan.
Veterans are given access to better terms than the average homeowner obtains as a thank you for their service. Many sacrifice their health and put their life on the line for their country.
Active duty and retired veterans are typically not independently wealthy, so helping them acquire housing is a top priority of the government. Continue reading for a brief explanation of each benefit:
Perhaps the most impactful reason to choose a VA loan is that a down payment requirement is not imposed on borrowers. With United States home prices at record highs, this is a substantial benefit.
The standard conventional mortgage requires a 20% down payment. Mortgages guaranteed by the Federal Housing Administration require at least a 3.5% down payment. On a $400,000 mortgage, this amounts to a $14,000 down payment.
Private Mortgage Insurance (PMI)
All mortgages without a 20% down payment typically require a monthly PMI payment. Borrowers who do not put 20% down are considered more likely to default on their loan. By requiring a monthly PMI payment, the lender is reducing its risk.
The general rule for PMI is that it costs $40 to $80 for every $100,000 worth of mortgage. On a $400,000 mortgage, you will pay up to $320 per month in PMI. Avoiding PMI gives VA loan recipients another huge financial advantage.
Interest rates are still low on a VA loan despite the other favorable terms. The VA does not set the rates and they are not involved in preparing the mortgage application.
The mortgages are issued by private lenders approved by the VA. This means you can shop around for the best rate.
VA rules also allow you to divert a portion of the mortgage towards closing costs. The goal is to reduce borrowers’ out-of-pocket contributions as much as possible.
The VA allows 4% of the purchase price to cover closing costs. On a $400,000 price tag, up to $16,000 of closing costs can be rolled into the mortgage. Read more here to learn about how this benefit works.
Your Guide to VA Loan Benefits
You are now ready to pursue a VA loan. There are so many outstanding benefits such as zero down payment or PMI. Interest rates are competitive and you can roll closing costs into the final purchase price.
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