Advantages of VA Home Loans
Buying or refinancing a home is a very important decision. Almost as important as selecting the right home is making sure you are selecting the right loan. There are distinct differences between VA and Conventional loans as well as significant advantages for buyers who qualify for a VA Loan.
Down Payment - VA Offers $0 Down
Conventional loans require a minimum down payment of 3% but in many cases, particularly in today's market banks are asking for as much as 10-20% down. Down payments help to mitigate the bank's risk should the loan go into default. Because a VA Loan is backed by the federal government, banks do not require a down payment making a VA Loan one of very few loan programs that can still offer 100% financing.
Monthly Payment - Save Big Every Month with VA
Because the loan is backed by the government, banks do not require PMI (private mortgage insurance), an added monthly expense required for conventional loans where the borrower finances more than 80% of the home's value.
Lenders may offer a slightly lower interest rate to a VA borrower (sometimes 0.5%-1.0% reduction vs. conventional) because the government backs the VA loan so there is less risk to the lender. Interest rates are based on the banks capital risk should the loan go into default. A lower rate combined and no PMI can substantially lower your monthly payment, which means more cash in your pocket every month.
Qualification Standards - VA can be more lenient
The credit score and qualification standards for each loan type are very different. Once again, because the government backs the loan, banks assume less risk and may have less stringent qualification standards for VA Loans.
Offset Your Mortgage Payment
If you are on Active Duty, most likely you receive a housing allowance (BAH) that can help you offset all or most of the cost of an average mortgage payment. With the added tax benefits that homeownership can offer, this can be a substantial benefit to many military families. Please consult your tax advisor for details.