5 Benefits of VA Home Loans Over Conventional Loans
The VA Home Loan program, since its introduction in 1944, has helped a large number of armed forces personnel realize their dream of owning a home. This government-backed loan is, arguably, the most cost-effective mortgage program in the market. During 2015, the demand for VA loans spiked in almost all states, especially Texas or Florida, and given their unparalleled benefits, the surge is likely to continue. So what does the VA loan have to offer over other loan programs?
1. Zero Down-payment
One of the most popular benefits of VA loans is that VA loan borrowers don’t need to pay any down-payment. They are one of the few loans that provide 100 percent financing options, as opposed to the conventional loans that require borrowers to pay a minimum of five percent as down-payment.
2. Zero Private Mortgage Insurance
If a borrower puts down less than a 20 percent down payment on a conventional loan, they are typically, then, required to pay a monthly Private Mortgage Insurance (PMI). This can average out to be around $80 or more per $100,000 of loan amount. The Department of Veteran Affairs, however, prohibits any sort of mortgage insurance premium on VA loans.
3. More Lenient Credit Qualification Norms
The credit qualification norms with VA loans are far more relaxed as compared to the conventional loans. The reason is simple, the VA loans are backed by the VA. Conventional loans, on the other hand, have stricter underwriting standards as they are not backed by any government body, but instead rely on private investors in the "secondary market".
4. Borrower-Friendly Payment Terms
VA loans, unlike conventional loans, do not have any prepayment penalties, plus they are assumable loans. Assumable loans are mortgages that can be transferred to the new homeowner. For example, if a borrower were to obtain a VA loan when rates are in the 4’s, but is trying to sell their home when rates are in the 6’s, they could offer to have the potential buyer assume the loan at the lower rate that was secured when the home was originally purchase. This feature is not available with conventional loans and they have the paid-in-full clause that require the home seller to close the loan before selling it off. Therefore, VA home loans are comparatively more customer friendly.
5. Closing Costs Benefits
Typically, the closing cost for a conventional loan ranges between two to five percent, which is an additional burden for the borrowers. The VA, however, provides a distinct advantage to borrowers; it allows some of the closing costs such as VA appraisal, recording fees, state and local taxes, credit report costs to be paid by the seller or shared between the buyer (the loan borrower) and the seller. Although the seller may offer to pay a part of the closing costs as a concession to the buyer - according to the VA loan guidelines - the “concessions” cannot exceed 4 percent of the loan amount.
Most of the benefits discussed in this post can be linked to the fact that VA loans are backed by the VA that dictates the terms of the loans to prevent abuses to VA loan borrowers. Moreover, a VA approved lender would not want to jeopardize their reputation by playing foul or using any unapproved tactics that may even lead to its disqualification. As a VA loan borrower you should also learn about your VA loan limits to choose the right property. If you are a veteran looking for a VA loan, get in touch with one of our experts at The Davidson Group, Texas, by filling out this form and we will get back to you, shortly.