One of the little known government-insured home loan programs is the Department of Veterans Affairs mortgage.
Whether you’re purchasing a home or financing a similar purchase, it can be hard to find a feasible option. Unfortunately, this can be particularly true for members of the military and veterans.
For active members of the military and veterans, VA loans are an amazing financing option. VA loans offer a wide range of benefits, from lower interest rates and the absence of down payments, to relaxed credit requirements and more.
Those who gave up so much to defend our freedom should be able to afford homeownership and rest easy in the knowledge that they won’t lose their home if they come upon hard times. The VA has worked tirelessly for years to make sure this is true.
There are several advantages of utilizing a VA loan.
First, no down payments on most loans. In fact, 80% of veterans who obtain a VA loan will not have to pay a down payment.
This is clearly a cost savings opportunity that can significantly reduce barriers to homeownership for many veterans. Even Federal Housing Administration (FHA) loans geared toward veterans have a minimum down payment requirement of 3.5%, and many have up to 5% down payment requirements.
For many veteran borrowers, a down payment of 3.5% to 5% can close the door to homeownership at the application stage.
If 3.5% to 5% doesn’t sound like much, it can translate into down payments of up to $12,500, and that’s just on a home of $250,000. In many areas of the country, you could be looking at down payments of $15,000 and up.
Being able to take advantage of zero down payment options, on the other hand, can be the difference between owning a home and not being able to afford one, which makes the absence of a down payment a huge benefit for most veterans.
In a traditional loan, interest rates can act as yet another barrier to homeownership. The average interest rate on a traditional 30-year FHA loan is around 5.04%. VA loans can be accessed at a lower interest rate, often at 0.5% to 1% lower than an FHA loan.
The reason for this is that the VA guarantees a certain percentage of every loan they offer, meaning partnering financial institutions can offer lower interest rates.
While 0.5% to 1% might not sound like a big deal, over the life of a loan it can add up to tens of thousands of dollars in savings.
Third, VA loans do not require mortgage insurance premiums. The initial costs of purchasing a home are just the beginning of the financial responsibilities homeowners have to undertake. Added to them are the ongoing costs of homeownership that cover everything from maintenance costs to various forms of insurance.
One form of an insurance premium that can typically add up to $180 a month to the cost of owning a home is the mortgage insurance premium. However, with most VA loans, those premiums don’t exist, removing yet another potential barrier to homeownership.
Fourth, VA loans come with foreclosure protection. Among its many substantial contributions to the military community is the VA’s success at keeping over half a million at-risk veterans in their homes during the housing crisis.
Unlike other programs that help veterans purchase a home but then offer little to no support down the road, the VA is focused not just on home acquisition for veterans but home retention, as well.
To that end, many of the VA’s loan-related policies, such as their residual income guidelines, are focused on foreclosure protection. This effort has made VA loans some of the safest loans available for eight years running.
The added security of knowing the chance of foreclosure is low can help veterans take one more stress off their plates.
Finally, VA loans limit closing costs, which are one of the most expensive aspects of the home buying process. It’s no secret that closing costs can be steep, and the inability to pay those costs acts as yet another obstacle to homeownership for many veterans.
With a VA loan, there are limits to how much lenders can charge in closing costs. Additionally, VA loan recipients can transfer closing costs to other parties, such as the seller.
This frees up cash flow, reduces the up-front costs of homeownership, and removes yet another potential barrier to owning a home for many veterans.
By removing many of the most common up-front and ongoing costs that limit access to homeownership for veterans, VA loans offer hope and security to the nation’s bravest and best.
All of these benefits mean 80% of veterans who qualify can realize the dream of homeownership who otherwise wouldn’t have had a chance.
Ben Mizes is the co-founder and CEO of Clever Real Estate, a referral network that connects top-rated agents with home buyers and sellers at a discount rate.