Buying a house is important for a lot of Americans and people all over the world as it requires a lot of cash that is most times not readily available. But if you are serving in the military or serving in the army, the VA Loan can ease some of your stress. Read on to find out everything you need to know about the VA loan before entering the real estate market.

What Is a VA Loan?

A VA Loan is a no down payment mortgage issued by private lenders and mortgage companies backed by the US Department of Veteran Affairs. This loan can be used to refinance an existing loan or purchase a new home.

The VA Loan is available to active serving members, Veterans, and widowed military spouses. VA loans were first made available as part of the GI Bill in 1944, but they have grown in popularity in recent years. In the first quarter of 2019, a VA loan accounted for 8% of all home purchases. This type of loan is appealing because it is easy to qualify for and does not require a down payment.

 

How Does a VA Loan Work?

Conventional mortgages are not the same as VA loans. The VA Mortgage is one of the two unconventional loans available. The Veterans Administration (VA) does not make or originate loans, but it does guarantee a portion of each loan against default. This backing, or guarantee, is what allows private lenders to offer $0 down financing and favorable rates and conditions.

This means that if you default on your payments or risk losing your estate (foreclosure), the government will agree to repay a portion of the loan to the bank.

VA loans are relatively easy to obtain because banks take less risk than they would for a traditional loan. 610,513 purchase and refinance loans were backed by the VA in 2018.

>>More: VA Cash-Out Refinance: How It Works

What Are VA Loan Requirements?

To qualify for a VA loan, you or your partner must meet the Department of Veterans Affairs (VA) basic service criteria, have a valid Certificate of Eligibility (COE), and meet the lender’s credit and income requirements.

You may be eligible for a VA Loan if you meet one of the following requirements:
You have 90 days of active service in wartime or 181 days in a peacetime
Or you have six years of service in the National Guard or Reserves,
Or you are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.

What Are VA Loan Benefits?

VA Loans are assumable: The majority of VA loans are “assumable,” meaning you can pass your VA loan to a potential home buyer who is also VA-eligible. In a growing mortgage rate setting, assumable loans can be a huge advantage when selling your house. The assumption features of your VA become much more valuable if your home loan has today’s low rate and market rates increase in the future.

There’s no minimum credit score requirement. Lenders, on the other hand, usually seek borrowers with a credit score of 620 or higher. Although we agree your ideal credit score is zero—because that means you have no debt!­, keep in mind that lenders might not want to give you a loan if you don’t have one.

You can purchase a home with no money down. VA mortgages are one of the last zero-down home loans available. In 2018, nearly half of all homes purchased with a VA loan required no down payment.

You would not be required to pay Private Mortgage Insurance (PMI). You can say goodbye to PMI because the government guarantees the loans. PMI will cost anywhere from 0.5 to 2.25 percent of your loan. In the case of a $200,000 loan, a 1% PMI rate will add $166 to your monthly mortgage payment!

The VA provides help to homeowners who are in danger of losing their homes to foreclosure. Borrowers who are having difficulty making mortgage payments can use the agency’s loan technicians to negotiate with lenders on their behalf.

They don’t have a penalty for paying early. You can make additional payments whenever you want, which can save you a lot of money in interest over the course of your loan. You can also set up your accounts such that a small amount is deducted automatically every month. For an additional $100 a month, you will cut years and tens of thousands of dollars off your debt.

Bankruptcy and foreclosure won’t permanently affect your chances. If you’ve applied for bankruptcy or experienced a foreclosure, you might still be eligible for a VA loan two years after the bankruptcy or foreclosure date.

What Are the Cons of a VA Loan?

They’re just for primary residences. Don’t waste your time trying to use your VA loan incentives to purchase a Poconos investment property or a holiday home. While VA loans are intended for primary residences, you can use this advantage to purchase a duplex or other multi-unit property as long as you live in one of the units. The VA allows for exceptions, but lenders can have their own rules that affect occupancy criteria.

VA home loans come with a mandatory fee of 1.25% to 3.3% of the loan amount. For VA loans, there is no mortgage insurance, but there is a VA Funding Fee. This fee is expected on both purchase and refinances loans to help the VA keep the program running. For those with service-connected disabilities, it may be rolled into the loan sum and waived entirely.

VA Loans are only suitable for certain types of residences. The VA loan may not be right for you if you want to buy a working estate, a downtown deli, or a fixer-upper. It’s mostly intended for “move-in ready” properties, such as single-family homes, condos, modular housing, and some multi-unit properties. Vacant land and co-ops do not qualify.

The lower interest rates on VA loans are deceptive. Although 30-year VA loans have interest rates that are comparable to or slightly lower than 30-year traditional fixed-rate loans, neither loan is a good choice. Both would cost you much more in interest over the loan’s existence than their 15-year counterparts. Therefore, a 15-year fixed-rate traditional loan is more likely to have a lower interest rate than a 15-year VA loan. It’s something we can demonstrate.

Is a VA Loan Worth It?

When you compare a VA loan to a traditional mortgage, you’ll see that, despite the perks, you’re better off sticking with a conventional loan when it comes to the cold hard cash!

You’d get a better interest rate of about 3.6 percent and wouldn’t have to worry about PMI. When you look at the interest paid over a VA Home loan term, you can really see the benefits of a conventional mortgage.

So if you purchase a house of 200000 with a conventional 15 years fixed rate, you would pay 48,156 if you make a 20% down payment. At the same time, you would pay 67,713 over the same period for a VA home loan.

Conclusion

In the end, VA loans are typically one of the most costly ways to purchase a house. If you must take out a loan to purchase a house, choose a 15-year fixed-rate traditional mortgage with a 20% down payment to avoid PMI. It’s the best choice besides paying cash for your house.

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