The VA home loan has been around for quite a while. In the past, it was mired in bureacracy and notoriously slow to close. The many years of automation and changes in the process have made the loan an attractive option for veteran buyers. In fact, 2016 was a huge year for the program. Over 700,000 VA home loans closed last year, which is double the amount from 5 years ago. Why is this loan program growing ever more popular? There are many reasons for this growth. It is possible that the VA home loan could be a perfect fit for you.
One benefit is NO DOWN PAYMENT. This amounts to huge savings, and reduced barriers to purchasing a home. Many buyers are faced with between 3.5% and 5% down payment. The average VA home loan was $253,000. If the home was bought using an FHA loan, then the buyer would need $8,855 for down payment. Convention buyers would need $12,650. This does not even take into account the closing costs!
Benefit #2 is NO MONTHLY MORTGAGE INSURANCE. Mortgage insurance covers a portion of the losses that a bank would experience in the event of a foreclosure. Our not-so-recent past proves that insurance is definately necessary, but the monthly premiums can take a chunk of your home buying power. Conventional buyers need private mortgage insurance unles they can put down 20%. FHA loans come with a portion upfront and a monthly premium which continues as long as you have a loan. On a $200,000 FHA home loan, your premium would be around $140/month. This adds up month after month, year after year. VA loans have an upfront funding fee, which can be financed as part of the loan. There is not a monthly premium. There are also ways that veterans can be exempt from the funding fee entirely.
The last benefit is the VA flexible credit guidelines. The purpose of the program was to increase home ownership among veterans, and the credit score flexibility is one way that this occurs. The average VA acceptable credit score was 50 points below the acceptable conventional score. This is amazing considering that VA loans have the lowest foreclosure rate among loan types for the last 9 years! The VA is committed to helping veterans, so they encourage banks to offer alternatives to foreclosure to veterans. Last year, the VA and loan servicers helped 97,000 veterans avoid foreclosure.
I would like to sum it up by saying that this program has helped scores of veterans buy a home. The program often has the lowest rates, no down payment, no monthly mortgage insurance, and flexibility. There is so much more to say about the program, and so little time. Please feel free to reach out to me with your questions on this program. VA home loans are a large part of my business. Thanks to all of the veterans who give so much to preserve, protect, and defend the United States of America.
Jonathan Gunnels, BIC
Equal Housing Opportunity