With a purchase as long-lasting and expensive as a new home, it's important to research what type of loan works for you. Although different lenders will throw around a lot of numbers, it's imperative that you carefully figure out the bottom line of each option.
One major advantage veterans have is VA backing for home loans which comes with a number of elements that conventional loans usually don't have. We've collected the top nine advantages for you below.
1. No down payment. This is probably one of the best aspects of a VA Loan. The no down payment guaranty makes initial costs cheaper, and gives you greater flexibility in choosing a new home.
2. You can refinance your VA loan without re-qualifying. Refinancing your mortgage is a big step, but it might be a necessary one if your expenses go up. With most other loans, you'll need to repeat the arduous process of qualification which is stressful in and of itself, and there's always the possibility that you'll be denied. With a VA loan, there's no re-qualifying and no stress: all you need to worry about is picking which new loan is right for you.
3. No prepayment penalty. Intuitively, having enough money to prepay a loan would be a good thing, but with some loans it can come with a penalty. These penalties are written into your contract and specify what maximum percentage you can pay each month. With a VA Loan, there is no penalty for paying off most or all of your loan before your repayment period is over.
4. Venders pay up to 6% of credits and closing costs. Closing costs can be complicated and they're unique to each home purchase. Regardless, they can add up to substantial sum which makes an initial home purchase harder to afford.
5. A VA loan can finance up to 100% of the property value. It's possible that a conventional loan may only cover a portion of the total cost of a home. VA loans, however, can finance the entirety of the value of a home, and there are only two main exceptions to this rule. Chapter three, section three of the VA Lender's handbook states that, "Lenders who sell their VA loans in the secondary market must limit the size of those loans to the maximums prescribed by Government National Mortgage Association (GNMA) or whatever conduit they use to sell the loans." It also says that, "VA limits the amount of the loan to the reasonable value of the property shown on the NOV plus the cost of energy efficiency improvements up to $6,000 plus the VA funding fee." This means that the VA will only finance what they determine to be the value of the property. There are few other exceptions, and these can be found in the same chapter and section online.
6. No monthly mortgage insurance premium. If a lender decides that your equity is low enough, they can decide that they want you to have mortgage insurance. In this case, you will be required to purchase said insurance at an agreed upon percentage of the original home value. If you ever default, then the lender is guaranteed that percentage of their money back. However, with the VA, you won't be required to do this at all. Since the VA backs the loan to begin with, there's no need for you to pay an insurance premium.
7. Limits on closing costs. Closing costs can turn into a hefty portion of an initial payment for a home. However, chapter three, section one of the Lender Handbook states that closing costs, "payable by the veteran are limited by regulation to a specific list of items plus a one percent flat charge by the lender." Chapter eight provides a list of items "that cannot be charged to the veteran as ‘itemized fees and charges.' Instead, the lender must cover any cost of these items out of its flat fee." This list can be found in section two of chapter eight in the online edition of the VA Lender's handbook.
8. Appraisal of property value. With a VA-backed loan, an appraiser is sent to the property to calculate its value. This is because many regulations regarding a VA loan rely on the figure an appraiser comes up with, but it also gives borrowers piece of mind regarding the cost of their home.
9. Free personal financial counseling. Whether you fall on hard economic times or you just want to cover your bases, the VA offers financial counseling to borrowers. The VA works with FinancialPoint, an independent company, and offers 24/7 online financial planning, calls or e-mails for quick questions, and in-person meetings to discuss finances.
