If you’re a service member, active or retired, there’s no doubt you’ve heard about VA loans. However, some people don’t know what exactly a VA loan is. Simply put VA loans are loans from private lenders (banks, credit unions, mortgage companies etc.) to eligible service members (active or retired), backed by the government, to purchase a home to live in.
VA loans are not available to everyone and there are guidelines and requirements for the loans.
The purpose of VA loans is to help active and retired service members get affordable housing without going through financial hardships. VA loans are also a way of helping to stimulate the housing market by allowing more people to buy houses without being foreclosed on.
VA loans have a lot great advantages over conventional loans to help service member become home owners.
Benefits of a VA Loan
When you ask someone why they’re getting a VA loan to buy their first home, they will most likely mention the $0 down payment. VA loans are 100% financed loans for homes. Conventional loans generally require buyers to pay a down payment of around 20%. The VA realized that a lot of people weren’t buying homes simply because they couldn’t afford the down payment.
The 100% financing isn’t the only benefit of VA loans. The fact that the loans are backed by the government allows for credit to become less of a factor in determining approval. Just because you don’t have an ideal credit score, that shouldn’t limit you from becoming a home owner. Lenders are more willing to grant VA loans to people with lower credit scores because if the borrower defaults on the loan, the lender is protected against any loss by the government. Having a higher credit score can help out the interest you’re paying though. A higher interest rate will help you receive a lower interest rate on your VA loan.
Disadvantages of a VA Loan
One of the biggest disadvantages to VA loans is that not everyone is eligible. There are service requirements and certain income requirements that must be met to receive a VA loan. The service requirements relate to your tenure in the military. The income requirements are set in place to make ensure that borrowers will not default on their loans. Since the point of VA loans is to provide affordable housing, the Department of Veteran Affairs wants to make sure that people aren’t buying homes they can’t afford. One thing lenders look at in approving VA loans is the amount of debt a borrower has compared to their income.
If you’re interested in obtaining a VA loan but want to see how much your payments will be, there are plenty of online VA loan calculators available to help you get a look at the amount you’ll be paying for the home and your monthly payments. There are also refinancing options for VA loans. If you initially had a conventional loan and qualify for a VA loan, consult a VA loan specialist to see your options. And even if you already have a VA loan, you can still refinance if you feel it’s advantageous to you.
VA loans are a great option for eligible service members, especially those looking to purchase their first home. VA loans allow you to save a substantial amount of money, and give service members the chance to become home owners.
