For eligible veteran and active duty military borrowers a VA loan is often a better option than a conventional mortgage. This is due to the many distinct advantages offered by VA loans.
For starters, VA loans have fantastic interest rates. VA loan rates can be up to .50% lower than what you would get in a conventional mortgage!
That may not sound like much, but over the course of a year it can add up to a substantial savings.
Another big advantage of VA mortgages is that they do not require any monthly mortgage insurance.
Private mortgage insurance (PMI) is generally required on conventional loans when borrowing more than 80% of the value of a property, and the percentage amount varies with the loan-to-value.
Once again, this may not seem like a lot of money, but when added up, PMI also ends up costing hundreds of dollars a year, if not more.
By combining only the saved expenses of lower VA loan rates and the elimination of the PMI requirement, you are already looking at savings in the hundreds to thousands of dollars a year, depending on the total loan amount.
It is also typically easier to qualify for a VA mortgage loan than a conventional mortgage. This has become especially true with the current downturn in the housing market.
VA loans do not require any money down at time of purchase, and, as is often the case, with no cash out of pocket. It is impossible to find 100% financing for a conventional loan nowadays.
In addition, veterans are allowed to choose between having a fixed rate or an adjustable rate for their VA mortgage. The difference between the two options is as follows:
- Fixed rate loans have only one interest rate that is used throughout the duration of the loan.
- Adjustable rate loans start off with a set interest rate, but after an established time period the person who took out the loan can have their rate changed if it would work in their favor.
The Department of Veterans Affairs does have a funding fee requirement for VA loans. This funding fee can be anywhere between 0.5% to 3.3% of the loan total. However, veterans who were classified as disabled during at least 10% of their time in active duty do not have to pay the fee.
Refinancing with a VA loan also has many benefits over refinancing with a conventional loan. Some of these benefits include:
- A higher refinance limit (up to 90% and some 100%) than the majority of conventional loans.
- Easier credit requirements, which often make refinancing with a VA loan simpler and less stressful.
- Help from the Department of Veterans Affairs for borrowers currently in default because of financial hardship.
- No requirement of private mortgage insurance.
- The ability to include the VA funding fee with the total amount of the refinance.
Between the tremendous savings and easier terms, any veteran who is in the home-buying process should strongly consider using their hard earned VA benefits. In both the long and short, it simply makes sense.