One of the best, yet most underutilized, benefits of serving in the armed forces is the loan guarantee program provided by the U.S. Department of Veteran Affairs. Simply put, veterans should know all about the VA home loans. The VA offers no down payment mortgage loan guarantees to qualifying current and former service members, or their surviving spouses, with lower interest rates and payments than traditional mortgage loans. The United States has said thank you to over 20 million returning troops with this program since its inception following World War II.
Who Qualifies For VA Mortgage Loans?
In order to take advantage of the VA home loans program, some important qualifying factors need to be met. During a time of war, a service member must serve a consecutive 91 days of active duty to qualify for a VA Loan. For peacetime, 181 days on active duty meet the standard. Those individuals serving in the National Guard or Reserve component must have completed at least six years to use their VA Loan benefit.
Surviving spouses of service members are free to use the VA home loans benefit in most cases. The only major qualifying factor is that the death of the service member must have been in the line of duty or caused by a service-related disability. The spouse must not have remarried either.
Zero Down, but There's a Catch!
Zero down payment loan opportunities are few and far between in the current financial market, but the VA Loan still provides that benefit for those that qualify for the program. There is a small catch if the service member decides to buy with zero down.
The VA, being the large bureaucratic machine that it is, requires its pound of flesh from the deal in the form of a funding fee. This one-time fee is 2.15% of the total loan amount, but it can be incorporated into the mortgage itself to maintain the “zero down” nature of the purchase. By making an initial down payment on the loan, the purchaser can reduce that fee to zero, thus removing the VA's arbitrary price-gouge.
Who Issues the Mortgage and Pays the Private Mortgage Insurance?
Another common misconception about the VA home loan guarantee is the involvement of private banking institutions. Many believe the VA itself issues the loans, but that is not the case. The Department of Veterans Affairs provides private lending institutions with the guarantee of the federal government’s repayment of the loan upon the borrower’s default.
With that guarantee, the borrower has the ability to forgo private mortgage insurance that is always required on mortgages that lacked a 20% down payment at the time of purchase. In the end, the VA Loan has a much lower monthly payment than a traditional loan payment that includes a private mortgage insurance premium.
With any big-government program though, consumers must be wary of companies looking to take advantage of them when shopping for loans. Shady mortgage lenders that tack on large fees and questionable loan terms have all been reported by veterans using their VA Loan benefits.
What’s the Rate?
While the actual rate of the mortgage will depend on the borrower’s credit score, in most cases, the final interest rate may be up to 1% lower than that of a traditional mortgage. Those seeking VA Loans cannot expect to completely avoid the skeletons in their credit closets, but they should be able to do better than they would on the opened market.
A credit score of at least 620 is required by most banks to qualify for a VA Loan, but since the VA backs the mortgage, banking institutions assume much less risk for this type of loan. As such, most VA Loans have a lower interest rate.
VA Home Loans Basics!
The VA Loan program is far from simple. Those seeking more information and application details should speak with their financial institution or a trusted real estate agent with VA Loan experience. Those professionals can easily guide qualified individuals down the path to successful home ownership and ensure the borrower does not get tangled in a VA Loan scam.