The Department of Veteran’s Affairs (VA for short) guarantees loans for qualifying veterans. This type of loan is referred to as a VA home loan. These loans are one of the best benefits available to men and women who have served in the US military. While the VA does not actually lend the money to veterans they promise or guarantee that the money will be repaid should the loan for some reason go into default. VA loans can be used for both new home purchases and the refinancing of existing mortgages.
If you are a qualifying veteran that is either currently serving in the military or who has been honorably discharged you can go into almost any lending institution that handles home loans and apply for a VA loan. Among the most attractive things about a VA home loan is that there is no down payment required for loans up to $417,000. This may not seem like such a bonus as other mortgage lenders offer this, however, you aren’t suffering a higher interest rate in order to skip the down payment with a VA home loan.
Another great thing about a VA home loan is the fact that your interest rate will be quite competitive if not lower than the average conventional loans that are currently available. Lower interest rates equal lower payments over time and that is always a good thing (assuming that the interest rates are fixed and not adjustable). For those with less than stellar credit records, some find that qualifying for a VA loan is easier than qualifying for a conventional loan, it is important to remember however, that you must still qualify based on your credit in order to receive this benefit.
Another great benefit to obtaining a VA home loan is the fact that you will not be required to take out private mortgage insurance (PMI). Private mortgage insurance is a type of insurance that lenders require should your home go into default (the lender reaps the rewards and the buyer pays the premium). Buyers are generally required to pay PMI until the principal owed reaches 80%. This can result in significant savings over time for those who take out a loan that doesn’t require private mortgage insurance.
Now that you know the good, it’s time you learn the not so good. First of all, there is a ‘funding fee’, which can be financed if cash is hard to come by at closing. However, it is important to keep in mind that you will be paying interest on the amount you financed and a relatively small funding fee now could have bought a new car by the time you finish paying for over a 30 year period. This fee isn’t much different from a loan origination fee that you would pay with other lenders and if you aren’t paying a down payment shouldn’t be too difficult to come up with.
There are also limits to the amount you can borrow that in some markets (particularly those in high demand areas such as California, Florida, and New York) might be more than mildly prohibitive. In addition to all of this, there is no such thing as money for nothing and you must still qualify for these funds according to your credit worthiness. If you qualify for a VA home loan, it is definitely worth considering as it could save you a lot of money over the length of your home loan.