4 Huge Benefits of VA Loans for First-Time Buyers
While segments of the housing market continue to waffle, the historic VA loan program has soared since the housing crisis. In fact, the VA backed an all-time record 631,142 loans in the 2015 fiscal year.
VA loans offer a host of cost-saving advantages that help make homeownership possible for scores of veterans and service members who might otherwise miss out. This program is especially helpful for first-time homebuyers.
Here’s a look at four big reasons why.
No down payment
Down payments are nearly always part of the package when it comes to purchasing a new home. How much you have to put down varies by lender, loan type, and other factors, but it’s typically a 3.5 percent down payment for FHA loans and 5 percent for conventional. On a $200,000 home purchase, that’s $7,000 for the FHA down payment and $10,000 for conventional.
It can take veterans and military members years to save that kind of sum.
The VA loan benefit reduces upfront costs for qualified buyers by requiring $0 down. That’s right – no down payment. That’s obviously a tremendous benefit for veterans who can’t or don’t want to come up with a bunch of cash to close on a home purchase.
Flexible credit requirements
Military service can impact a borrower’s ability to save for a down payment. But it can also take a toll when it comes to building a healthy credit profile. The VA loan program helps by taking a more broad-based look at a potential buyer’s credit situation.
Credit score benchmarks will vary by lender, loan type, and other factors, but VA lenders often look for a lower score than what you’ll need for conventional financing. And VA loans are more flexible and forgiving than other loan types if you’ve experienced a bankruptcy, a foreclosure or a short sale.
No mortgage insurance
Borrowers who can’t scrape together a 20 percent down payment on conventional loans will often find themselves saddled with private mortgage insurance, or PMI. This fee becomes part of the homeowner’s monthly mortgage payments until they build enough equity in the property. PMI fees can vary depending on your credit and your loan-to-value ratio, but they can easily add $80 to $100 or more to your payment.
Even the government-backed FHA and USDA loans come with their own forms of mortgage insurance, both upfront and annual.
But VA loans have no mortgage insurance requirement. For first-time homebuyers in particular, this can mean greater purchasing power or the ability to save even more money. VA loans do come with an upfront funding fee, but about a third of buyers don’t pay it because they receive compensation for a service-connected disability.
Lower interest rates
Average interest rates on VA loans actually tend to be lower than average rates on both FHA and conventional loans, according to data from mortgage software firm Ellie Mae. Your interest rate determines in part what you’re paying to borrow all that money. Lower rates can help you purchase more home, not to mention save you a lot of money over the life of a 15- or 30-year mortgage term.
To be sure, VA loans aren’t the right fit for every veteran or service member. But these flexible home loans offer an array of financial benefits that can help make it easier for first-time buyers to achieve the dream of homeownership. Learn more about the advantages of the VA loan program and how VA loans work today.
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