Section 2.4

VA Loan Benefits & Advantages

VA loans are an incredibly unique loan option, with many benefits and advantages that aren't available with other loan types. These exclusive features, including the potential to save thousands of dollars, are only available to qualifying servicemembers, veterans, and surviving spouses.

Many of the benefits of a VA loan are possible because the Department of Veteran Affairs backs up every loan by up to 25%. We'll cover what all of these benefits are below. That way you'll know exactly why VA loans have more advantages than almost any other home loan option.

Benefit #1: No Down Payment

One of the most amazing features of VA loans is that they don't require you to make a down payment.

Homebuyers often spend years saving up thousands of dollars that they can use for a down payment on a home. It can be a difficult and frustrating process, especially since it often means delaying your dreams.

Though it's true that making a down payment can be a savvy financial choice, it can also be a barrier. However, it's a barrier that servicemembers and veterans don't have to worry about, since VA loans don't require one.

Benefit #2: No Private Mortgage Insurance (PMI)

Conventional loans without a 20% down payment require you to pay what's called private mortgage insurance, or PMI for short. FHA and USDA loans also have their own mortgage insurance requirements, regardless of your down payment amount.

Basically, with PMI, the cost of it gets added to your monthly mortgage payment, increasing the total amount you pay for the loan.

But VA loans are different. Even though they don't require a down payment, you never have to pay any type of mortgage insurance, which can save you hundreds of dollars each month and thousands over the life of the loan.

Benefit #3: Lower-Than-Average Interest Rates

Compared to all of the other home loan options, VA loans consistently have lower interest rates, And even small decreases in an interest rate can lead to thousands of dollars saved on your interest payments.

In addition to the general lower rates, the lender you choose can impact your interest rate even further. Here at Low VA Rates, we try to live up to our name by offering low rates on VA loans.

Benefit #4: Easier Loan Qualifications

In order to determine the interest rate you qualify for, lenders analyze your financial qualifications, including your credit score and debt-to-income (DTI) ratio.

But even though your credit score still plays a role in your rate, the VA doesn't actually have a minimum credit score requirement. In comparison, FHA loans require all borrowers to have at least a 500 or higher credit score, and conventional loans typically require at least a 620.

Another area where VA loans have easier qualification requirements is with the DTI ratio. Again, other loan programs have strict rules about what the maximum DTI can be. For VA loans, the DTI requirement is more flexible, with no hard and fast cut off.

Something to know is that some lenders do implement their own internal credit score minimums. These are called overlays, and to avoid them you should shop around for a lender and compare their requirements.

Benefit #5: Limitations on Closing Costs

On average, closing costs are around 3-5% of your loan amount, which usually means they end up totaling thousands of dollars you'll need to have in cash when it's time to close on your home.

However, the VA has set limits on what closing costs veterans and servicemembers are allowed to pay on a VA loan. If a closing cost isn't part of what's been approved by the VA, either the seller or the lender will have to cover it.

As for what these approved closing costs are, lenders can only charge you a 1% origination fee (or an itemized list that can't total over 1%), the VA funding fee, and a few other fees that pay for your appraisal, credit report, title insurance, etc. Though this isn't a comprehensive list of all the allowed closing costs, you can get more details from the VA's website.

Finally, it's also important to know that closing costs can vary from lender to lender, just like interest rates can. That's why we encourage you to shop around and compare APRs and loan estimates from different lenders.

While the other closing costs get paid to the lender to cover the charges associated with creating your loan, the VA funding fee goes directly to the VA to fund the VA loan program for future generations of veterans and servicemembers.

Benefit #6: No Prepayment Penalties

Though it's less common than it used to be, some lenders do still charge borrowers prepayment penalties if they choose to pay off their home loan early or get a refinance.

Basically, a prepayment penalty is almost like a punishment for being more financially responsible, which is why the VA doesn't allow them on VA loans. So, as a VA loan borrower, you don't have to worry about ever being charged a prepayment penalty. Once again, this proves how favorable VA loans are for those who qualify.

Benefit #7: Foreclosure Assistance

One of the most incredible facts about VA loans is that they have the lowest foreclosure rate of any home loan program, period.

While there are a lot of factors that make this low foreclosure rate possible, one of the big ones is that the VA employs people whose job is to help you and other veterans avoid foreclosure.

One of the main ways they accomplish this goal is to advocate for you by getting the lender to agree to alternatives. These alternatives could include a repayment plan, forbearance, loan modifications, short sales, and more.

While the possibility of foreclosure is scary to even think about, you can put your mind at ease knowing the VA is there to support you and have your back.

Unbeatable Benefits, Unbeatable Loans

In this article, we've covered just a few of the notable benefits for VA loans. However, we were by no means exhaustive. VA loans still have plenty of additional, smaller benefits for you to enjoy.

But even though we didn't cover all of them here, we hope you're still able to see why VA loans are such an exceptional option for servicemembers and veterans, you included. You've earned all of these benefits and advantages by giving so much for our country.