In an effort to show gratitude for their service, the VA Home Loan was enacted in 1944 by Congress as part of the original GI Bill of Rights. This benefit was created to help returning veterans become homeowners. Instead of giving veterans a cash bonus, the government determined that a guaranteed government loan would be a more sustainable way for qualified individuals to purchase a home. The VA does not actually issue home loans, it insures them. In the event that a borrower defaults, the lender is assured repayment. Because banks take on less risk than they would with a traditional loan, financing for veterans is more accessible.
VA home loans offer many benefits to qualified candidates that other loan programs do not, including higher front-end and debt ratios as well as easier qualification standards. Simply put, the VA loan is probably the most advantageous entitlement available to military members.
Since the creation of VA home loans, More than 18 million veterans have been directly assisted by the loan and as a result have experienced the rewards of home ownership.
Benefits of the VA Loan
- No down payment requirement: The VA home mortgage program doesn’t require borrowers pay a down payment. Typically, down payments can amount to about 20 percent of the loan value, so this is a significant up-front cost savings for veterans who use a VA-backed home loan.
- More lenient credit requirements: The VA program doesn’t deny loans on the sole basis of low credit scores, additionally, many lenders who offer VA loans don’t offer lower or raised interest rates based on credit scores. Typically, the VA program only assesses the past 12 months of a borrower’s credit history.
- Refinancing options: Borrowers who use a VA home loan to make a purchase also frequently have the opportunity to refinance to a lower interest rate, without having to fully re-qualify.
- Service-related disability options: Veterans with a service-related disability may qualify for a waiver of the funding fee, which means even lower closing costs and/or mortgage payments if the funding fee is financed.
- No private mortgage insurance: Conventional lenders often require borrowers pay for private monthly mortgage insurance, unless they put down 20 percent of the cost of the home. The purpose of private mortgage insurance is to protect lenders in case of a default, but with VA loans this isn’t a requirement, since the federal government guarantees all VA loans.
- No pre-payment penalties: With many traditional loans, if the borrower pays off the mortgage before the date of maturation, they are charged a penalty. This is because lenders are missing out on the opportunity to collect more money in interest payments. VA home loans allow borrowers to pay off their loan whenever they choose, without any penalties. Borrowers who use VA home loans have more opportunities to purchase a new home in the future, as well as expanded refinancing options.
- Competitive interest rates: Interest rates on VA home loans are generally anywhere from 0.5 to 1 percent lower than rates on conventional loans, since each loan is backed by the federal government.
VA home loans continue to be a tremendous resource for veterans and their families. These loans are flexible and provide unique opportunities for American military members past and present, who might not otherwise have the opportunity to become a homeowner.