The benefits of VA loans have aided many veterans, military families as well as service members to achieve their ownership dreams. While looking out for a mortgage, veterans need to consider the advantages of VA loans. Mentioned below are the biggest advantages of VA loans.
Down Payment Not Required:
Any qualified veteran can take a VA loan without any down payment. Most of the other loans will have a down payment of 3.5% of the buying price to 20% of the buying price. One of the main factors for housing crisis was due to the financing offered by traditional loans. So these days the loan program backed by the Veterans Administration is looking after the financing.
Compared to other conventional loans, this aids in monthly savings significantly. This huge benefit of purchasing with no payment helps the veterans as well as active military members not to spend their years of income and savings for a down payment. So any eligible homebuyers never require to make down payments mostly.
No Private Insurance For Mortgage:
Borrowers who take loans from conventional lenders sometimes need to pay private insurance for the mortgage every month until and unless they can pay down a minimum of 20%. This is a difficult task for most of the veterans. Private insurance for the mortgage is that insurance that will protect lenders if the borrower defaults ever.
But a VA loan has no private insurance for a mortgage. This happens as a result of backing up of all the VA loans by the federal government. They also assume the risk associated with any default on the borrower’s behalf which is typically covered by the private insurance for a mortgage. This advantage of the VA loan will allow you to build up huge equity in your house and thus you will be saving effectively over your mortgage’s life.
Low Interest Rates:
Home loans that are guaranteed by the Department of Veterans Affairs come with a very low rate of interest. Such reduced rates are decided by the Federal Reserve. Most of the traditional home loans include rates of interests that are adjustable and originate at 3% and goes above to 12%.
But a VA home loan with a fixed rate of interest will never get increased. The rate of interest is actually set for some time such as 30 years and the borrower’s annual payments will stay unchanged for that duration till you own the loan. Since the VA backs up each and every VA loan with a proper guaranty, the financial institutions will be carrying less risk and will be offering rates of interest that will be 0.5-1% lower than the conventional ones.
So team up that lower rate of interest with your ability of purchasing a home with no down payment as well as private insurance for mortgage and your savings will start to add up significantly.
No Penalty For Pre-Payment:
Many individuals realize that they can save some money by clearing off the loan early. But they are often made to pay penalties for prepayment if they want to do that. If you pay off a home loan before its maturity, a pre-payment penalty will be charged in most cases.
It is due to the fact that a lender as well as an investor will be missing out on extra opportunities of collecting interest payments on the issues loan. It is a way by which the financial institutions recover some part of that money. But VA loans can be paid off any time by the borrowers without worrying about any pre-payment penalty.
This absence of any pre-payment penalty, will allow the borrowers to consider a home purchase and refinancing options for the future.
No Least Credit Score:
The lending guidelines of VA do not consist of the least credit score. But direct lenders such as banks and credit unions will often include overlays that are extra requirements or may be restrictions for the borrowers who purchase a home under the program of VA loan. Since the Department of Veterans Affairs only takes care of the loan program and never issues the loans, they do not enforce any least credit score.
Most of the VA lenders will make use of the benchmark of credit score in order to judge the default risk of a borrower. But to secure their home financing at lower rates of interest even where there is a relaxation of credit score needs, veterans will never require anything also near to the credit. The guidelines also never disqualify any borrower automatically who have gone through a foreclosure and bankruptcy.
For many years VA loans have been considered as the safest loan available on the market. So weigh its advantages against your financial requirements as well as goals. Always opt for it after understanding which loan outcome will best suit your financial objectives.