Modern homebuyers can face a mountain of restrictions when applying for a mortgage. Tougher credit standards and higher income requirements have pushed many prospective buyers out of the market altogether.
Enter the VA home loan.
Throughout the housing market meltdown, the VA loan program has remained steadfast in its mission: providing accessible and cost-effective loans to military members. Veterans and active duty members continue to tap into a number of benefits unseen in other financing options.
It’s exceedingly difficult to buy a home these days with no money down. In the face of the recent housing crisis, most conventional lenders will require at least 5 percent (and up to 20 percent) down. FHA loans provide a lower down payment option, at 3.5 percent, but even that figure can be out of reach for some buyers.
Here’s where VA loans soar above the competition.
Even in an era of strict lending, VA loans continue to offer 100 percent financing to qualifying home buyers. These no-money-down loans have connected thousands of military home buyers with dream properties over the years. While always an important benefit of military service, the VA loan program is an incredibly powerful tool in today’s tight lending climate.
The VA loan program also frees military borrowers from buying private mortgage insurance (PMI). A portion of each VA loan is backed by the federal government, rendering PMI unnecessary.
Avoiding PMI can generate some serious savings. PMI fees generally range from 0.5 to 1 percent of the total loan amount on an annual basis. The average mortgage amount in March 2015 was $294,900, according to the Mortgage Bankers Association, meaning a typical home buyer could be expected to pay from $1,475 to $2,945 in first-year PMI costs.
The PMI cost for VA loan borrowers? Zero.
Once happy with any score above 620, most conventional lenders have raised the bar for credit score minimums. The average FICO credit score of successful conventional mortgage applicants in April 2017 was 753, according to mortgage technology firm Ellie Mae.
But borrowers don’t need perfect credit to win VA financing. Many VA lenders are good with a 660 score. In an economy fraught with unemployment and souring investments, the relaxed credit standards can be a boon for military home buyers.
VA loan rates will fluctuate based on the market and the individual borrower. But it’s certainly helpful to know that VA loan rates are competitive with other loan programs, and frequently fall below conventional rates. For more information on current VA loan rates, contact a Veterans United Home Loans rate specialist at 855-870-8845.
Most buyers aren’t affected by prepayment penalties, but they can be irritating for homeowners who strive to be debt-free. Borrowers who pay off a conventional loan within the first five years could be stunned with a big prepayment penalty, which generally amounts to six months of interest.
Lenders are prohibited from charging prepayment penalties on VA loans. Military buyers are free to pay off a loan before its term ends, without fear of incurring a prepayment penalty.
To nab each of these VA home loan benefits, a prospective borrower needs to work closely with an experienced real estate agent and a VA-savvy lender. The VA home loan aims to be user-friendly, but specialized knowledge is required, particularly when it comes to the following three issues:
Polish your own skills with a review of VA loan eligibility criteria and property standards. Don’t forget that VA loan standards can change periodically, so keep up to date with the latest news from the Veterans United blog and the VA’s official Home Loan Program site. The hundreds of thousands of veterans who rely on the VA loan program each year will appreciate your efforts.