Since its inception in 1944 as a part of GI Bill Rights, VA Home Loans have helped millions of veterans and their families purchase a home after returning from service. The veteran home program has become more critical than ever, as many service members and veterans find it hard to buy a home or get a loan from private mortgage lenders.
The veteran home loan offers benefits not found in conventional mortgage loans. Since its inception, the purpose of this loan program has remained the same: to provide easy home loans to service members and veterans.
What is A VA Home Loan?
The veteran loan is a program monitored and regulated by the United States Department of Veteran Affairs that allows veterans to have mortgage loans with zero or little down payment. The program allows current service members, veterans, and their surviving spouses to purchase homes. There are a wide variety of VA loans.
Types Of VA Home Loans
The VA loan program is diverse and offers different types of loans to help veterans choose suitable loans. Here are the following loan types:
VA Purchase Loan. VA purchase loans enable veterans to have loans for new or old homes with zero down payment. These loans allow veterans to purchase single homes, duplexes, condominiums, new constructions, and other properties. However, it depends on the lender’s policies and guidelines.
VA Cash-Out Refinance Loan. VA Cash-Out Refinance allows veterans to cash out mortgage value and refinance up to 90% of their home value. Similarly, like VA purchase loans, the cash-out refinance loans also have lender guidelines and policies.
VA IRRRL. VA IRRRL (interest rate reduction refinance loan) is another refinance option that allows veterans to have low-cost and straightforward loans that, in many cases, do not require any income verification or credit underwriting.
Benefits of Veteran Home Loans
Apart from various loan types, the program offers many benefits:
No Need For Down Payment. It is the most significant benefit of acquiring VA home loans; veterans do not need to pay hefty down payments for acquiring any loans. Usually, people have to save for years to pay the down payment of a loan. The down payment for conventional loans and FHA is typically between 3.5 to 5 percent.
Saving money for a down payment can be difficult for veterans and service members as they have to move frequently. The VA home loan is the ideal program as it does not need any down payments; for example, if a veteran takes a traditional loan of $150,000, then the 10% down payment cost will be $15,000, and for higher value loans like $450,000 the down payment cost can even go to $50,000 for 10% down payments.
No-Private Mortgage Insurance. Veterans can avoid private monthly insurance fees to lenders by acquiring veteran home loans. Private mortgage insurance protects the lenders if their borrowers have defaulted, so they must pay the monthly fees for private mortgage insurance.
Veterans can save money by avoiding private mortgage insurance. FHA loans also have their monthly mortgage insurance fees. These fees can be challenging for veterans to pay. Depending on the loan amount, for example, if the loan amount is from $150,000 to $450,000, then veterans can save $115/month to $350/month.
VA loans have an obligatory service fee directly sent to the United States Department of Veteran Affairs. However, veterans with disabilities due to service are exempted from paying this fee.
Flexibility On DTI Ratios. DTI (debt to income ratio) means the percentages of income you own each month to your debts and expenses. A good DTI ratio is considered not to be more than 30%. Your Gross monthly income (before taxes) is used for calculating DTI.
When acquiring loans or debts, the lender looks for DTI ratios of the borrower, whether they will be able to pay back the interest or loans. Sometimes, the borrower with a DTI ratio of 50% can get the VA loan. However, in the VA loans, even if the borrower does not have a good DTI ratio, let’s say they may have a DTI ratio greater than 40%, they will still be able to acquire the loan.
Low-Interest Rates. It is another considerable advantage of having VA loans; they offer significantly low-interest rates than conventional loans. Veterans can save a lot of money with low-interest rates; more importantly, they have low fixed interest rates.
Low-interest rates play a crucial role in monthly savings; with low-interest rates, you can save some money each month. For example, you can save thousands of dollars in a year by having 1% fewer interest rates than usual on a loan amount of $150,000.
Low Credit Requirements. The Veteran home loan program is monitored and overviewed by the Department of Veteran Affairs, but they are not the ones lending the loan. As a result, the ministry has no credit scores set.
However, lenders do set a credit score benchmark to see if the lender can get default or not. Still, these scores are considerably lower than any other traditional loan credit score requirement. In the case of veterans, they don’t need an ideal credit score or anything like 100% perfect, the loan usually gets often approved, and minor inconveniences are ignored.
Who Can Get VA Home Loans?
Check the eligibility criteria from the United States Department of Veteran Affairs. This is where you will be asked when you served and which branch of the armed forces you belonged to. The standard rule is that the following seven uniformed service members have access to VA loans.
Public Health Service (USPHS)
National Oceanic Atmospheric Administration (NOAA)
VA home loans are a necessary program for our country; this is the least we can do for our veterans and show appreciation for their service. The program benefits the veterans and service members to buy homes and houses without huge initial payments.