Department of Veterans Affairs home loans — VA loans, for short — can save veterans and their families significant dollars over the life of a mortgage.
Created in 1944, the VA Loan Guaranty program was designed to honor the sacrifices made by those who served our country. It provides guaranteed loans to qualified veterans, active-duty servicemembers and some surviving spouses.
Over the last several decades, this loan program has given over 18 million veterans the opportunity to buy a house — including many who might not have been able to afford one without it.
These loans provide major financial benefits, including the ability to purchase a home with no money down. In today’s real estate market, that’s a highly prized commodity. As incredible as the loan is, it’s an opportunity many veterans and military personnel do not even realize is available to them.
This post will outline everything you need to know about the financial advantages of applying for a VA loan. There are quite a few!
Key Takeaways:
- The benefits of using VA loans include no down payment, flexible credit and refinancing options and reduced costs and fees, among others
- Veterans, active-duty servicemembers and eligible surviving spouses must meet specific criteria to qualify for and obtain a VA loan.
- Speak with your lender to determine if a VA loan is right for you.
Table of Contents
- Financial Benefits of a VA Loan
- 1. No Down Payment
- 2. No PMI
- 3. Sellers Pay Closing Costs
- 4. Great Rates
- 5. No Prepayment Penalty
- 6. Flexible Refinancing
- 7. Entitlement
- 8. Low Credit and Debt-to-Income Expectations
- 9. Foreclosure and Bankruptcy Avoidance
- 10. Affordable Appraisal
- 11. Veteran and Civilian Assumability
- 12. VA Guarantee
- Bottom Line
- More Reading
Financial Benefits of a VA Loan
1. No Down Payment
Perhaps the most financially appealing aspect of a VA home loan is the fact that it requires a whopping down payment amount of zero dollars. While other types of home loans may offer some waivers on down payments in extreme circumstances, the VA loan program is one of the only ones that offers unrestricted access to total home financing.
The ability to buy without a down payment means that veterans can come to the table with less liquidity and cash on hand than most other buyers.
In 2024, VA borrowers in most parts of the country can purchase a home worth up to $726,200 without putting down a single dollar, even without their full loan entitlement. In 2020, loan limits were removed for servicemembers and veterans with full loan entitlement so you can borrow even more without a down payment.
Thanks to the no-down payment requirement, the purchasing power of VA home loans is unmatched in the marketplace, allowing veterans to buy homes with fewer upfront costs and potentially qualify for higher-priced homes than they might with other loan types. This unique benefit makes it easier for veterans to access homeownership without needing a large initial investment.
2. No PMI
Private mortgage insurance is a monthly cost that conventional borrowers have to pay unless they put down at least 20% of the total loan as a down payment. PMI is designed to safeguard lenders in case buyers default on their home loans.
The beauty of a VA loan is that there is no monthly private mortgage insurance. Period. Since the VA backs VA loans, they’re less risky for lenders, resulting in no mortgage insurance.
Thanks to this feature, veterans can hundreds of dollars per month on their mortgage payments.
3. Sellers Pay Closing Costs
Veterans can avoid paying most, if not all, of the closing costs associated with a loan.
The VA allows sellers to pay up to 6% of closing costs and concessions. That means that veterans may not need a pile of cash on hand to cover those final costs associated with their loans.
The seller can cover expenses such as the appraisal, credit report, title insurance and prepaid taxes. This benefit alone can save veterans thousands of dollars upfront.
When you add these savings to the others you’re getting with a VA loan, you begin to see just how monumental the savings can be.
4. Great Rates
VA loan rates are frequently lower than those of their conventional counterparts. While single-digit changes between interest rates might seem insignificant at a glance, a slight difference in rates can make a big difference over the life of a 30-year mortgage.
For example, on a $300,000, 30-year fixed-rate mortgage at 5.0% interest, the monthly payment will be $1,610 without taxes, insurance and other costs. At a rate of 5.5%, the monthly payment jumps to $1,703. Over the life of the loan, that extra $93 per month adds nearly $34,000 to the cost of the loan.
You can check out our list of the top 10 VA loan companies here.
5. No Prepayment Penalty
A lesser-known feature of VA loans is that there’s no penalty for paying off your loan early. This allows you to put extra money toward your principal each month, potentially saving you thousands of dollars in interest and reducing the length of your mortgage. While prepayment penalties have become increasingly rare with other loan types, some conventional lenders still charge them, making the VA loan’s no-penalty benefit a valuable perk.
6. Flexible Refinancing
When you refinance a VA loan, you have two main options, the first of which is the Interest Rate Reduction Refinance Loan (IRRRL), typically referred to as a VA Streamline Refinance.
With the IRRRL, you can refinance your loan with major savings by lowering your interest rates.
VA IRRRLs are designed to be quick and easy and usually don’t require a credit check, appraisal, or income verification.
If your main goal is not savings but equity, you can opt for a VA cash-out refinance, allowing you to borrow against your home’s equity for other needs.
7. Entitlement
People often assume that a VA loan is a one-time offer to veterans and military personnel. If you have served the appropriate amount of time in the military — whether you are on active duty or were honorably discharged — you may take out multiple VA loans throughout your life.
Your certificate of eligibility (COE) will include an entitlement code, which states how much you can borrow without a down payment. There is a basic entitlement level and a second bonus tier, which is the maximum you can take out.
You do not automatically lose your entitlement after your first home purchase. Even if you’ve defaulted on a VA loan, you might still be able to qualify for one in the future, depending on the size of the loan and your location.
In some cases, you can have multiple VA loans at once.
8. Low Credit and Debt-to-Income Expectations
When a lender grants your request for a loan, they are taking a risk. As such, they will check your credit score and debt-to-income (DTI) ratio to assess your likelihood of repaying the borrowed amount.
Because your loan is backed by the VA, though, the requirements are far less strenuous. In other words, you do not have to have the same excellent credit to obtain a VA loan as you would for a conventional home loan.
VA lenders will take a holistic look at your DTI ratio and your credit score rather than setting a concrete standard minimum or maximum requirement. Most VA lenders will require a minimum credit score of 620 and DTI ratio of 41% or less.
9. Foreclosure and Bankruptcy Avoidance
If you’ve experienced bankruptcy or foreclosure, VA loans offer flexibility with shorter waiting periods than conventional loans. For example, while conventional loans typically impose a 3- to 7-year waiting period after a foreclosure, VA loans require only a 2-year wait.
With bankruptcy, the waiting period depends on the type: if you filed for Chapter 7 bankruptcy, you’ll need to wait 2 years after discharge to qualify for a VA loan. For Chapter 13 bankruptcy, however, you may become eligible after just 12 months of on-time payments during the repayment period, with court approval, rather than waiting for the full discharge. This flexibility makes VA loans accessible to veterans working to rebuild their financial footing.
10. Affordable Appraisal
While you may not think of a required appraisal of the home you’re looking to buy as a benefit, you should.
With a VA appraisal, you’ll get a professional opinion on the safety, structure and stability of your prospective house. Whichever way the VA appraisal goes, you’ll get some peace of mind knowing you won’t be moving into an unsafe home. You’ll also get a fair market value estimate, assessing what your home is actually worth, which is a good starting point for price negotiations.
11. Veteran and Civilian Assumability
A buyer can assume the veteran’s existing mortgage and interest rate with a VA loan assumption. This allows VA homeowners to provide buyers with the opportunity to secure low rates that are otherwise unavailable.
12. VA Guarantee
The VA loan program’s greatest benefit is its core mission. Unlike some other programs whose driving motivation is profit, the VA is dedicated to helping veterans and military personnel get the homes of their dreams and stay in them.
That’s why they guarantee around one-fourth of the mortgage in case of default. While few VA loan recipients default on their payments and face foreclosure, knowing that you have the VA’s support in that worst-case scenario is comforting.
Bottom Line
Those are just a handful of the big-time financial benefits of VA loans. These powerful lending tools have helped over 18 million veterans become homeowners in the last seven decades. All these unique benefits add up to savings and security not often found elsewhere.
More Reading
VA Loan Rates: Compare Today’s VA Home Loan Rates
How to Apply For a VA Loan: An Overview
2024 VA Loan Limits by County – How Much House Can You Buy?
Equal Housing Opportunity. The Department of Veterans Affairs affirmatively administers the VA Home Loan Program by assuring that all Veterans are given an equal opportunity to buy homes with VA assistance. Federal law requires all VA Home Loan Program participants — builders, brokers and lenders offering housing for sale with VA financing — must comply with Fair Housing Laws and may not discriminate based on the race, color, religion, sex, handicap, familial status, or national origin of the Veteran.
About Post Author
Comments:
About the comments on this site:
These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.
crunchycon says
DH and I got a VA mortgage nearly 20 years ago. It made getting our first (and only) home so much easier, and I’m grateful first to DH for his service to the country and to the VA Loan Guaranty program for providing such a great benefit. The best advice I would give someone who qualifies for the the VA mortgage is not to get tempted by the amount of house you can buy – we deliberately underbought and paid off the house early.