Many traditional mortgages require a down payment of 20 percent, or more, to acquire a property. If you lack the 20 percent down and can find a traditional loan with a smaller down payment, you will be required to pay private mortgage insurance, (PMI). Adding another one and a half to one percent to your monthly house payment, you will be required to pay for PMI until the equity in your home reaches the 20 percent mark.
These costs, along with taxes and insurance can add considerably to the cost of purchasing a home and the monthly cost of living in it. A VA loan, which offers zero percent down, competitive interest rates and a variety of options, helps service members purchase homes more affordably than with a traditional mortgage.
What is a VA Loan?
Exclusively available to active and former service members the VA loans were implemented by the U.S. Government in 1944, to assist those coming home from war. The military loan guaranty program helps those in the military, formerly in the military and those who have been left widowed by service a service member buy homes.
Not a loan but a mortgage guarantee, a VA loan is guaranteed by the U.S. Government and administered through an approved lender that you find by applying with a conventional lender. A VA loan allows veterans 103.3 percent financing without the expense of PMI or a down payment making home ownership attainable.
A VA funding fee of zero to three and three tenths of a percent is required and paid to the Veterans Administration. This fee can be paid, by the buyer at the time of the purchase or rolled into the loan making a VA loan even more appealing to first-time homebuyers, those who need to refinance and those who would like to improve their homes.
If you are an active service member and meet the following requirements then you may be eligible for a VA loan.
To qualify for a VA Loan you must have:
- Ninety consecutive days of duty during a time of war
- 181 days of duty during peace time
- Six years of National Guard or Reserve duty
- Or, be the spouse of a service member who died in the line of duty or resulting from a service related disability and not remarried.
No Down Payment or PMI
Conventional loans require a homebuyer to have a down payment of 20 percent or they must have private mortgage insurance, PMI. This insurance guarantees payment of the loan if the purchaser defaults on their loan. Not protection for you but protection for the lender, it can add a sizeable amount to your monthly house payment in the event that you can’t come up with a 20 percent down payment.
On $100,000 borrowed, you can add $1,000 per year to your payments if your PMI is one percent. A down payment on the same $100,000 at 20 percent down is $20,000, which is difficult for many to save, for a home purchase. The alternative, for eligible service members is a VA loan, which doesn’t require a down payment or private mortgage insurance. This allows veterans to purchase a home with very little in funds, up front and no PMI adding to their monthly payment.
Favorable Loans
In a market, where lenders are more careful than ever when extending credit on property, a VA loan can help you purchase a home, refinance a home, build a home or improve a home that might otherwise be unavailable to you. The interest rates and loan terms of VA loans are competitive with traditional loans. Even more so, to some extent, because approved lenders know that the loans are fully backed by the U.S. Government, in the event of a loan default. This makes VA loans appealing to the lenders who service them, which is in your favor if you are eligible.
What is a VA Loan Good For?
With a VA loan, you can purchase a single-family home, condominium or build your dream home from the ground up. You can repair, or improve your home with a VA loan or refinance an existing loan. You may also use a VA loan to buy a manufactured home, with or without a lot.
A VA loan will guarantee up to $417,000 or the total loan, which gives you a lot of buying power when searching for a home on Movoto. In counties with high costs where home prices are higher on average, the VA loan limit, with no down payment, may be higher than this amount.
What is a VA Loan not good for?
A VA loan cannot be used to purchase a business or investment property. Homes purchased with a VA loan must be owner occupied during the term of the loan. The intent of VA loans is for service member housing, exclusively, but that’s not to say that you can’t use a VA loan to make a good investment when you purchase your home.
Is a VA Loan for you?
If you meet the requirements for a VA loan and you are searching for a new home or want to build your own, find a lender who will work with you toward this goal. There is no time like the present to find out how much you will be qualified to borrow and you may find that your mortgage is lower than your current rent payment. Wouldn’t that be nice?
2 Point Highlight
With a VA loan, you can purchase a single-family home, condominium or build your dream home from the ground up.
If you meet the requirements for a VA loan and you are searching for a new home or want to build your own, find a lender who will work with you toward this goal.
