VA Home Loans are the Best Home Loans

The Department of Veterans Affairs guaranteed nearly 630,000 loans in 2013, setting an all-time high.

TheVA Loan programis the most powerful home loanprogram on the market for veterans and military families. These flexible, government-backed loans come with significant benefits that open the doors of homeownership toveteranswho might otherwise struggle to obtain financing.

VA loans require no down payment or private mortgage insurance. They feature competitive rates and terms and allow qualified borrowers to purchase a home with little to no money out of pocket.

The increasing popularity has stemmed from the loan program’s signature benefits, which include:

 

1.  No Down Payment

Saving money and building credit can be difficult forservice memberswho are constantly on the move. With the VA Loan, qualified borrowers can finance 100 percent of the home’s value without putting down a dime. Take a look at the chart below to see how much you can save through the no-money-down benefit of the VA Loan.

VA Loan Savings at Closing:

Loan Amount      0% Down     5% Down     10% Down     20% Down

$150,000            $0                 $7,500         $15,000        $30,000

$250,000           $0                 $12,500       $25,000       $50,000

$350,000           $0                 $17,500       $35,000        $70,000

$450,000           $0                 $22,500      $45,000        $90,000

 

2.  No Private Mortgage Insurance

Many conventional lenders require borrowers to pay private monthly mortgage insurance unless they’re able to put down at least 20 percent, which is a tough task for many veterans. Private mortgage insurance (PMI) is an insurance that protects lenders in case of a borrower default.

PMI Savings per Month:

Loan Amount                          Monthly Savings

$150,000                                Save $115/mo

$250,000                               Save $191/mo

$350,000                               Save $268/mo

$450,000                               Save $345/mo

With a VA Loan, however, there is no PMI. This is because the federal government backs all VA Loans and assumes the risk on behalf of the borrower that is typically covered by the PMI.

This VA Loan advantage allows you to build more and more equity in your house, effectively saving you thousands of dollars over the life of yourmortgage.

 

3.  Competitive Interest Rates

Interest rates on home loans are based on risk assumed by the bank to finance the loan. Because the VA backs each VA Loan with a guaranty, financial institutions carry less risk and can offer interest rates that are typically 0.5 to 1 percent lower than conventional interest rates.

Pair that lower interest rate with the ability to purchase a home with no money down and no private mortgage insurance and the savings start adding up significantly.

Lower Interest = More Savings

Loan Amount                                                             $150k          $250k             $350k           $450k

Savings from a 0.5% reduction in interest              $14,760       $24,480          $34,200       $43,920

Savings from a 1% reduction in interest                  $28,800      $48,240          $67,320       $86,400

(Assumes 10% down on loan; see additional notes at bottom of page)

 

4.  Additional Benefits

Basic Allowance for Housing

Basic Allowance for Housing (BAH) is a significant benefit for qualifiedactive military members. Lenders can count your Basic Allowance for Housing as effective income, which means you can use BAH to pay some or all of your monthly mortgage costs.

BAH varies based on your pay grade, your geographic location and your number of dependents. Learn more about Basic Allowance for Housing.

No Pre-Payment Penalty

With many different types of loans, paying off a home loan before it matures results in a pre-payment penalty. This is because lenders miss out on additional opportunities to collect interest payments. The pre-payment penalty is a way for financial institutions to recoup some of that money.

The VA Loan allows borrowers to pay off their home loan at any point without having to worry about a pre-payment penalty. With the absence of a pre-payment penalty, borrowers are free to consider future home purchases and refinancing options. In addition, if you would like to make additional payments toward your principal balance, your mortgage payments can be recast to reduce your mortgage payments