In this guide, we’ll cover the key VA loan requirements and explain who qualifies for this type of home loan.
One of the most significant benefits of VA loans is the ability to buy a home with no down payment. This sets VA loans apart from conventional loans, which typically require a down payment of anywhere from 5% to 20% of the home’s purchase price.
Here’s a detailed comparison of how much you can save at closing with a VA loan compared to conventional loans requiring down payments:
$0 down: VA loans allow eligible veterans to finance 100% of the home’s purchase price, meaning no out-of-pocket costs for the down payment.
On a $350,000 loan, a conventional loan with a 20% down payment would require you to bring $70,000 to closing. With a VA loan, you pay $0.
This is especially beneficial for first-time homebuyers or veterans who don’t have large savings for a down payment.
Unlike conventional loans, VA loans do not require Private Mortgage Insurance (PMI), even if you put no money down. PMI is typically required on conventional loans when the down payment is less than 20%, and it can add hundreds of dollars to your monthly mortgage payment.
Here’s how much you can save per month by avoiding PMI with a VA loan:
Avoiding PMI saves you hundreds of dollars every month. For example, on a $350,000 loan, you save $268 per month by not paying PMI. Over a year, that’s a savings of $3,216, and over a 30-year loan, you could save $96,000 just on PMI.
No PMI is a huge financial advantage for VA borrowers, allowing for lower monthly payments and greater long-term savings.
VA loans have more flexible credit and income requirements than conventional loans, making them easier to qualify for.
Credit Score: While conventional loans often require a credit score of 680 or higher, many VA lenders will work with borrowers who have scores as low as 620.
Debt-to-Income Ratio (DTI): VA loans often allow higher DTI ratios than conventional loans, meaning veterans with existing debt can still qualify.
VA loans have limits on closing costs, making them more affordable. The VA sets caps on certain fees that lenders can charge, and in some cases, sellers can pay for part or all of your closing costs.
Seller Concessions: Sellers are allowed to cover up to 4% of the loan amount in closing costs. This means you could negotiate for the seller to pay a significant portion of the costs, further reducing your upfront expenses.
VA loans do not have prepayment penalties, meaning you can pay off your loan early without incurring extra fees. If you have the financial ability to make extra payments, you can pay off your mortgage sooner and save on interest over the life of the loan.
The VA loan has clear advantages when compared to a conventional loan. From no down payment and no PMI to lower interest rates and easier qualification, VA home loans are designed to provide significant savings and flexibility for veterans and service members.
Your VA loan benefit is not a one-time offer. As long as you pay off your previous VA loan or have remaining entitlement, you can use your VA loan benefits again to purchase a new home.
Multiple Uses: Veterans can use the VA loan benefit multiple times throughout their life, giving them ongoing access to affordable home financing options.
VA loans are assumable, meaning you can transfer your loan to a qualified buyer if you decide to sell your home. This feature is especially valuable in times of rising interest rates, as it allows the buyer to take over your low-interest VA loan.
Attractive for Buyers: If you have a low interest rate locked in, this can be a selling point for potential buyers, giving you a competitive edge in the housing market.
The VA provides foreclosure avoidance assistance to veterans who may be struggling to make their mortgage payments. They offer support and work with lenders to help veterans avoid foreclosure through loan modifications, repayment plans, or other strategies.
Advocacy: The VA actively advocates for veterans, helping them find solutions to keep their homes during difficult financial times.
If you already have a VA loan, you have access to Streamline Refinancing, also known as the Interest Rate Reduction Refinance Loan (IRRRL). This program allows you to refinance your existing VA loan to a lower interest rate with minimal paperwork and lower closing costs.
Benefits: Lower interest rates, no need for an appraisal in most cases, and reduced documentation requirements make refinancing with a VA loan a simple process.
