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6 Advantages to VA Loans that are Simply Unbeatable

Millennial Magazine - va loans

Millions of veterans, service members, and their families have been helped by the VA home loan program since its inception in 1944. It’s more critical now than ever before.

As a result of the Great Recession and historically low-interest rates, the volume of VA loans has increased significantly. Veterans who would otherwise be unable to afford a home can now do so thanks to the VA program’s substantial financial aid.

Six of the most important advantages of these long-cherished home loans are listed here:

Pay Nothing Upfront

This is by far the most notable perk of the program. A down payment is not required on purchases made with a VA Loan that meets the county’s conforming loan limit. In more expensive areas, these limits are higher and subject to annual adjustment.

Typical down payment requirements for conventional and FHA loans are 5 percent and 3.5 percent, respectively. A $200,000 mortgage requires a $10,000 conventional down payment, while the FHA requires a $7,000 conventional down payment.

Saving that much money can take a long time for service members and veterans. With no money down, military personnel who want to buy a home don’t have to scrape and stockpile for years to do so.

No Private Mortgage Insurance

Even for conventional and FHA buyers, saving for a down payment can be a challenge. But unless they can put down a substantial amount—typically 20 percent of the purchase price—they’re on the hook for mortgage insurance. For the same $200,000 mortgage, that’s an extra $40,000 in your pocket.

There is an upfront mortgage insurance premium and an annual mortgage insurance premium, which now lasts for the life of the loan with FHA. It can take years for conventional buyers to accumulate enough equity to cover this monthly payment.

VA loans do not require any sort of mortgage insurance.

The Department of Veterans Affairs collects a mandatory funding fee for VA loans. As a benefit to future generations, those with service-connected disabilities are exempt from paying this fee.

Reductions in Credit Requirement

Credit score requirements have begun to soften, but it hasn’t done much to ease the purchasing process for many service members. Conventional and FHA lenders’ credit standards can still be difficult to meet.

620 is the minimum credit score required by the vast majority of VA lenders. People who want a low-interest rate on their mortgage will have to meet stricter requirements for conventional mortgages than those who don’t.

Fair credit scores, which fall in the middle of FICO’s Good and Excellent categories, are defined as scores between 619 and 699. Contrary to popular belief, VA buyers do not require near-perfect credit in order to obtain a mortgage.

Forgiving DTI Ratios

In general, VA lenders want to see that major debt payments, such as a mortgage or student loans, don’t consume more than 41% of your gross monthly income.

There is, however, a way to get a VA loan even if you have a higher DTI ratio. Depending on your credit score and ability to meet additional income benchmarks, some lenders may grant you a loan with a maximum interest rate of 55 percent.

Having more options available to buyers can make it easier for them to get the most out of their money.

Keeping Closing Costs Down

No matter what kind of mortgage you get, you’ll have to pay closing costs. Veterans can only pay a certain amount of closing costs and fees, according to the VA.

Buyers may request that the seller cover all loan-related closing costs, as well as up to 4% of the purchase price for things like pre-tax and insurance, collections, or judgments.

Insolvency and Foreclosure

Your chances of getting a VA loan don’t go away just because you’ve had some financial difficulties in the past. It is possible to obtain a VA home loan two years after a foreclosure, short sale, or bankruptcy has taken place, according to the Department of Veterans Affairs. In some cases, veterans who file for Chapter 13 bankruptcy protection can be eligible just a year removed from the filing date.

Waiting periods for conventional or FHA financing can be significantly longer for homebuyers. VA-backed home loans are forgivable even if the veteran defaults on one.

What do you think?

Written by JD Hysen

JD Hysen is a fin-tech writer and music critic for Millennial Magazine. As host of The TrueMan Show, he covers all things related to stocks, tech and culture. He's a market analyst by day and a music scout by night, combing venues in search of fresh acts and noteworthy performances.

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