5 Benefits to Using Your VA Loan for Your First Home
Whether you’ve served in the military, or you’re still an active-duty service member, buying a home can be one of the best decisions you can make in your life. Besides the fact that you can build a significant amount of equity by the time you’re discharged from the military, owning your own home while on active duty brings along many benefits, including better emotional, mental and financial stability, tax breaks and deductions, and the freedom to decorate and change your home the way you want.
Whatever your motivation for buying a piece of property, VA loans, FHA loans, and conventional mortgages are some of the best ways to finance a home purchase. But because each type of loan comes with its own set of requirements and benefits, the VA loan remains the most advantageous home financing option for a service member or veteran.
Nowadays, many service members think they need to wait until they’re separated from the military in order to be eligible for a VA loan. In reality, however, any service member could qualify for a VA loan if he or she has served at least 181 consecutive days on active duty during peacetime and 90 days during wartime. To understand why a VA loan might be better for you than another type of loan when buying your first home, here are the top 5 benefits of this loan.
- The VA Loan Doesn’t Require a Down Payment
One of the most important benefits of choosing a VA loan instead of another financing option when buying your first home is that you don’t have to put any money down upfront. While most home loan programs require borrowers to put down a specific amount, which can average anywhere from 3.5% to 20% on a piece of property, a VA loan can be used to finance up to 100% of a home’s purchase price. Although this loan program doesn’t require an upfront payment, making a down payment can bring along a series of advantages, some of which include paying a lower funding fee, building equity faster, and obtaining a lower interest rate, which will translate into lower monthly payments over the life of the loan.
- The VA Loan Has Flexible Credit Score Minimums
The VA doesn’t establish any minimum credit score requirements for VA loans. However, the majority of private financial institutions that issue these loans often require applicants to have a minimum FICO score of 620 in order to qualify for a VA loan. But because the VA loan is backed by the government, the credit score requirements adopted by most lenders are generally more flexible than the requirements for other loans. Additionally, lenders don’t approve or deny applications solely on credit scores. Besides the FICO score, they consider the credit history, financial situation, and military/employment status of each applicant when reviewing loan applications. Considering all these aspects, you may qualify for a VA loan even if your credit score is below 620. Similarly, an applicant could be denied a VA loan despite having an excellent credit score.
- The VA Loan Doesn’t Require Private Mortgage Insurance (PMI)
Unlike conventional mortgage products, which commonly require PMI when borrowers aren’t able to put down at least 20% on the properties they want to purchase, VA loans require most borrowers to pay a funding fee. This fee, which currently varies from 1.4% to 3.6% of the loan amount, is a one-time charge and can be rolled into the loan or paid upfront. The amount that you’ll be required to pay for this fee depends on the type of VA loan, how much you’re putting down, and whether you’ve used a VA loan before. As mentioned above, not all borrowers are required to pay the funding fee. The service members and veterans, who are eligible to receive or are receiving compensation for a service-related disability as well as the Purple Heart recipients and any surviving spouses eligible for a VA loan, are exempt from paying the funding fee.
- There Are Different Types of VA Loans You May Qualify For
Before applying for a VA loan, one thing you should be aware of is that there are various types of VA loans that can be used to finance a home purchase. In addition to using this type of loan to buy a pre-owned or new-built home or condo, you can opt for a VA loan instead of a conventional construction mortgage to cover the cost to build a new home. Since not all lenders issue VA construction loans, a good strategy would be to get a conventional construction loan first and then refinance it into a VA loan.
If you intend to convert a construction loan or conventional mortgage to a VA loan, you have the option to choose a VA-backed cash-out refinance. A VA cash-out refinance allows you to take some cash out of your home equity, provided you have enough equity built up in your home. Another way you can use a VA loan is to purchase a lot or a factory-built home, or both. Two other types of loans that are backed up by the VA include IRRLs and vendee loans, which can be used to purchase VA-owned properties for sale. You can also opt for a VA loan to make repairs or improvements to a piece of property that you already own. Most VA loan types come with fixed or adjustable interest rates and slightly different terms and conditions.
- VA Loan Agreements Don’t Include a Prepayment Penalty Clause
Because VA loans don’t have a prepayment penalty attached, you can pay off your mortgage early, refinance it into a different type of loan, or sell your home at any time without worrying about having to pay a penalty fee. Furthermore, the VA loan is assumable, which means that someone else can take over your loan and become responsible for making the monthly payments. But the person still needs to be a VA-eligible borrower. The VA also limits the amount borrowers can pay in closing costs. Currently, the closing costs of these loans range between 3% and 5% of the loan amount, depending on the location and type of property you’re buying.
Whether you want to learn more about the enticing benefits of a VA loan that may make sense for your first home purchase, or learn how to become eligible for this loan or find out what documents you’ll need to provide for a smooth VA loan application process, feel free to contact our experienced mortgage originators, who will guide you through the mortgage approval process.
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