3 Major Benefits of VA Loans

Written by Posted On Monday, 20 June 2022 00:00

For those who are eligible for a VA loan, there really is no better choice for financing a home with zero down and limited closing costs. No other program can compare. Here are three of the main reasons why they're such a good option.

No Down

This is the best benefit. There's no down payment required. There are a few programs out there that offer a zero down option but they tend to get a bit pricey. To offset the lack of a down payment, the interest rate is increased. Not so with VA loans. The zero down feature is built in while at the same time keeps a lid on rates. There is no rate penalty with a zero down VA loan. This means someone can get into a home sooner rather than later. Another government-backed home loan comes from the United States Department of Agriculture, or the USDA. While this program is indeed a zero down product, the loan is restricted to areas deemed rural. The VA loan can be used pretty much anywhere.

Lower Costs

VA loans also have lower overall closing costs, which again limits the amount of funds needed to close on a home. There are some closing costs that are prohibited for veterans to pay. The VA allows borrowers to pay for an appraisal, credit, title, origination and recording fees. There are one-time costs. Other costs will be recurring as with any other home loan. This includes property taxes and homeowners insurance. Yet it's also allowable for interested third parties to pay these recurring costs as well. The sellers of a home can contribute to part or all of the buyer's recurring costs.

So far, we're looking at zero down and reduced fees. Not bad.

No Monthly PMI

While conventional loans as well as FHA loans offer low down payment options, they both require a monthly mortgage insurnace premium. Not so with a VA loan. The VA loan, which does in fact carry a government-backed guarantee should the loan ever go into default, the insurance premium to pay for that guaranty is financed by what is known as the Funding Fee. This is an upfront fee but a feature of the Funding Fee is that even though it's an upfront cost, it can be rolled into the final loan amount without having to pay for it out of pocket.

Finally, VA loans are assumable. Which means a buyer can assume an existing VA loan on a property in lieu of getting new third party financing. This is an attractive feature which can allow buyers to assume a loan with a potentially lower than market rate. VA loans are assumable but the buyers must still be able to qualify based upon income and credit.

If buying a home with zero down, limited closing costs and competitive rates sounds attractive to you, it's worth a call to your loan officer to review the VA option. VA loans are available to veterans, active duty personnel with minimum 180 days of service, National Guard and Armed Forces Reserves and others.

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David Reed

David Reed (Austin, TX) is the author of Mortgages 101, Mortgage Confidential, Your Successful Career as a Mortgage Broker , The Real Estate Investor's Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. As a Senior Loan Officer and Mortgage Executive he closed more than 2,000 mortgage loans over the course of more than 20 years in commercial and residential mortgage lending. 

He has appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show. His advice has appeared in the New York Times, Parade Magazine, Washington Post and Kiplinger's as well as in newspapers and magazines throughout the country. 

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