If you’re a veteran looking to buy a home or refinance a mortgage, you should consider a VA mortgage as opposed to a conventional financing that often has higher interest rates and could require Private Mortgage Insurance (PMI).
The Veterans Affairs loan program assists veterans, eligible surviving spouses, and active duty service members to become homeowners. Without the VA loan program, it could be a hassle for veterans to purchase a home. But, VA home loans remove many of the stumbling blocks that veterans often face, making it significantly easier for them to obtain a home loan. As clearly laid out by the U.S. Department of Veterans Affairs, VA mortgages have:
Relaxed credit requirements
Lower closing costs
No pre-payment penalties
No PMI requirements
For those already with a mortgage, the VA also offers great refinancing options. A cash-out refinance usually comes with generous terms and allows veterans to use the value of their homes to receive cash—using it to pay down debts or to finance other goals. The VA Interest Rate Reduction Refinance Loan (IRRRL) allows veterans to benefit by potentially saving tens of thousands of dollars in interest.
In the end, all VA loans give veterans generous terms and are almost always more cost-effective than other types of loans including conventional, FHA, or USDA mortgages.
When Is It a Good Idea to Use Your VA Loan Benefits?
1. You don’t want to pay for private mortgage insurance
PMI isn't only costly to set up; PMI also adds hundreds of dollars to what you’ll need to pay every single month. Thankfully, veterans don’t need to brood over Private Mortgage Insurance as a result of the entitlement, which often adds up to 20% of the home’s value.
You do need to pay a funding fee in advance though; and it can be as high as 3.3% or as low as 1.25% of the mortgage amount based on your service level and loan details.
2. You don’t have savings for a down payment
With conventional loans, a significant portion of the cost of the home is required upfront--if you’re a veteran looking to buy a home without a down payment, you can consider using your VA home loan benefits. With a VA loan, you can buy a home without a down payment. And this means that you can start building equity quickly.
3. You have a poor credit history
Yes, foreclosure or bankruptcy can stay on your credit report for years. However, this doesn't mean you must wait a while before you can use your VA home loan benefits. In actuality, you can become eligible 2 years after the foreclosure date.
Essentially, you can use your VA loans benefit even though you have a bad credit history. Typically, you only need a 620 credit score to qualify.
4. You are disabled
If you qualify to receive recompense for a service-connected disability, you should even more strongly consider a VA loan. Normally, VA loans do require the upfront “VA Funding Fee.” Qualified applicants with a military-related disability are entirely excluded from having to pay this fee.
5. You want low closing costs
The closing costs on a VA mortgage are often lower compared to conventional financing. Why? Some closing costs are regulated. Besides, the seller can pay back about 4 percent of your loan so you can finance closing fees and expenses.
The Bottom Line
Ultimately, most borrowers who qualify for a VA loan should consider using their benefits. From low interest rates and lenient credit requirements to no down payments and PMI, the benefits of VA Mortgages bear repeating.
As you begin the new home or refinancing process and start reviewing options, make sure you speak with a Clear Mortgage Capital VA loan expert.
At Clear Mortgage Capital, we understand that you have specific goals, concerns, and expectations. Our team is very experienced, knows what the best options are, and has access to provide you with those options. We are committed to understanding and meeting your unique needs, guiding you to the right option for you and your family.
If you are a veteran, thank you for your service and your sacrifice—we would be honoured to work with you!