Limited inventory and high interest rates cooled the housing market dramatically in 2022, with home sales down nearly 18% from 2021. National Association of Realtors. At the same time, home prices continue to rise in 2022, with a median existing-home sales price increasing by 2.3%. However, experts predict that lower demand and rising interest rates should .
Fortunately, those who serve our country and their spouses can take advantage of Veterans Affairs (VA) loans, which make financing a home a little easier.The mortgages are guaranteed by the U.S. Department of Veterans Affairs, and are available to veterans, active duty and reserve service members, and surviving military spouses. Because the federal government insures these loans, lenders can offer substantial benefits that make buying a new home easier and more affordable.
If this sounds like something you could benefit from, consider acting soon. It only takes a few minutes to verify VA loan eligibility.
4 Benefits of VA Loans to Know
1. Little to no down payment required
One of the most common barriers to home ownership is the down payment, especially for first-time home buyers. A 2022 report from National Association of Realtors said 27% of younger buyers listed saving for a down payment as the most difficult step when buying a home.
However, down payments are not an issue with VA home loans because most of these mortgages require no down payment. Other loans require at least some money upfront, such as a 3.5% minimum down payment on an FHA loan or a 3% minimum down on a conventional loan.
That means if you want to buy a $400,000 home, you’ll need to put down at least $14,000 with an FHA loan and $12,000 with a conventional loan. In contrast, with a VA mortgage loan your down payment will be $0, meaning you won’t have to save for years to come up with the funds for your own home.
You can now easily determine your eligibility.
2. No Private Mortgage Insurance (PMI)
A type of insurance that conventional mortgage lenders typically require you to pay if your down payment is less than 20% of the purchase price of your home. Similarly, new FHA loans require you to pay a mortgage insurance premium (MIP). In both cases, the purpose of mortgage insurance is to reduce the lender’s risk in financing a mortgage.
Fortunately, VA loans do not require mortgage insurance since the Department of Veterans Affairs backs its loans.
3. Low interest rates
Another valuable benefit of VA loans is interest rates that are typically 0.5% to 1% lower than conventional loans. That can make a differenceThousands of dollars or more across a 30-year mortgage.
According to Freddie Mac, averageA 30-year fixed-rate mortgage on January 19, 2023 was 6.15%. At that rate, on a $400,000 home, you’d pay more than $477,000 in interest over a 30-year term. A similar VA loan with a lower interest rate of 1% would cost $386,000 in interest charges, representing a savings of $91,000.
4. Less stringent credit and loan income requirements
Finally, VA loans typically have more flexible credit and debt-to-income (DTI) requirements than conventional loans. The VA does not set a minimum credit score for the loans they guarantee. Instead, banks and lenders subscribe to their own minimum thresholds, so values can vary. Generally, you can qualify for a VA loan with a FICOAs low as 620, but many conventional mortgage lenders prefer a score of at least 670.
Additionally, VA loans have more lenient guidelines for the debt-to-income ratio (DTI), which measures your total monthly loan payments against your gross monthly income. With a VA loan, your monthly debt, such as your car or student loan payments, must be 41% of your total.. However, you may still qualify for a VA loan with a DTI ratio of up to 55%. In that case, your lender will require you to meet additional credit score and income criteria.
You can now quickly check your VA loan eligibility with Veterans United.
When you don’t pay mortgage insurance with a VA loan, you likely have to pay a VA funding fee. The purpose of the fee is to help the government reduce the cost to taxpayers of financing the VA loan program.
Funding fees vary from 1.4% to 3.6% of the loan amount, depending on the amount of your down payment, how often you use a VA loan, and other factors. You can pay the full fee upfront at closing or fold it into your loan and pay it off over time. Some disabled veterans and surviving spouses are exempt from paying VA loan funding fees.
VA loans offer substantial benefits to veterans, active duty service members and surviving spouses. Benefits include 0% down payment, no PMI, lower interest and more lenient financing requirements.
But the benefits don’t end here. The VA loan mortgage program also limits fees and. Also, you can use the program multiple times, as benefits do not expire. Finally, a VA loan is also acceptable so you can transfer it to another qualified veteran. These are among the many benefits VA loans offer to help those who have served our country achieve their dreams of home ownership.
If you think you might benefit from a VA loan and want to check eligibility and costs, start now by answering a few short questions here.