Since the Department of Veterans Affairs first rolled out the VA housing loan program as part of the Original GI Bill, 20 million veterans have taken advantage of it to secure a mortgage. Although the financial backgrounds of the men and women who use the loan are varied, many borrowers would not have otherwise been able to secure financing. According to National Mortgage News, the typical VA loan borrower has below $7,000 in total assets. Eighty percent of individuals who take out the loan would be unable to qualify for a conventional loan. Currently, a-million-and-a-half active mortgages were acquired through the loan. Despite the benefits of the program, the popularity of the loan is a relatively recent phenomenon. Only thirteen percent of the 22 million American Veterans living in this country have used the entitlement.
Many buyers are either unaware of or do not understand the advantages provided by the Veterans Administration (VA) loans. The following is a breakdown of the top 10 rewards of a VA loan as compared to a conventional loan or FHA financing.
If you have any questions, please talk to a VA Home Loan Specialist at 888-573-4496.
$0 Down required
VA loans do not require a down payment. Many other loans have a down payment of 3.5 percent (FHA loans) of the purchase price to 20 percent of the purchase price for conventional loans. Recently, 100 percent financing was offered for traditional loans however this was a major contributing factor to the housing crisis. Currently, the only 100 percent financing option offered are the Veterans Administration backed loan program.
Options For No Closing Costs
Other loans require several closing costs. These closing costs encompass Inspection Fees, Escrow Fees, Taxes, Title Insurance, and Homeowners Insurance, among others. A VA home loan structured by a buyer to purchase in the most beneficial way, all closing costs will be covered on the sellers end, and not by the buyer. Per sale, the average cost of closing can range above 3-5 percent of the home’s purchase price. This often equates to thousands of dollars. Buying a home using a traditional loan may lead to a required payment of $30,000 or more for closing costs. You may not have to pay anything using a VA Home Loan.
Closing Costs that are Non Allowable
In the event that the buyer opts to fund the costs at the time of closing (or the seller refuses to pay), the VA will reduce the specific closing costs that are payable by the purchaser. In a traditional purchase transaction, the buyer will potentially be charged for a surplus of expenses, including:
- Settlement fees
- Loan closing
- Document preparation fees
- Conveyance fees
- Loan paper preparation
- Service of the attorney beyond interest rate lock-in, title work, photographs, telephone calls and amortization schedules, membership or entrance fees, escrow fees and charges, notary fees, preparation and assignment of mortgage, trustee’s fees, loan application processing fees, preparation and truth and lending statement
- Loan broker fees
- Finder’s fees
- Tax service fees
Luckily, per the VA, these charges are negated and non-allowable.
VA certificate of reasonable value
Using a traditional loan or cash to finance a home purchase means that the buyer will be relaying on an appraisal as a method of determining the value of the property. As part of the VA loan program, The VA issues a certificate of reasonable value. Good for up t o six months, the CRV is applicable to any VA buyer, not just the original one responsible for the contract, for up to six months.
Home Inspection Conducted by the VA
As part of the appraisal process, the VA inspector verifies that the property up for purchase meets all living standards and codes established by the Veterans Administration. The home must be a habitable domicile in safe condition. Buyers are protected from purchasing a home that is in damaged or unsafe condition by the VA. The plumbing, roof and furnace (among other areas) will be inspected by the VA inspector. The Veterans Administration requires repairs to be made at no cost to the buyer if the home is not up to the VA housing code.
Streamline Refinance for lower rates
If the VA buyer has purchased property using the VA loan entitlement, they have the option to refinance the loan to a lower interest rate. The streamline process enables the borrower to refinance the loan without the burden of a credit check as well as without an appraisal and much of the documentation called for in the initial loan application process.
No prepayment penalty
The majority of traditional loans call for a prepayment penalty. This means, that in the event of a home being sold or refinanced; the lender will potentially charge you fees as a result of an early full payment. Under some circumstance, this can amount to as much as thousands, or tens of thousands of dollars.
Many loan brokers and lenders charge buyers a fee to originate a loan. This fee is usually known as points. With the VA loan program, a limit is set on the amount that can be charged in origination fees. A lender will not be allowed to charge the buyer more than what is determined reasonable by the VA.
Other veterans can assume all VA loans. Traditional loan requirements stipulate that a new buyer acquire an entirely new loan. The VA will allow you to sell your property and have a new purchaser take over your previous loan.
Home Loans guaranteed by the Department of Veterans Affairs generally carry extremely low interest rates. These reduced rates are in part set by the Federal Reserve. Many traditional home loans have adjustable rates that originate at 3 percent and may go above 12 percent. A VA Home Loan with a fixed rate will never increase. Because the interest rate is set for a period of time that may be as long as thirty years, the borrowers annual payments will remain unchanged for the duration of the time you hold the loan.