You’ve already determined your eligibility for a VA home loan and have reviewed the steps to take to apply. You know a VA home loan is the right option for you, but did you know there are several benefits provided by the Veterans Administration for those obtaining a VA home loan? The following is a breakdown of the top five benefits of VA home loans.
1. No Down Payment
Most VA home loans do not require a down payment. Since traditional home loans, on average, require a down payment of 20% of the loan amount, you are able to save approximately $40,000 on a $200,000 home. Not having to make a down payment will help you maintain your emergency fund, help pay for repairs and renovations, or your new home’s extra expenses such as appliances and furnishings.
2. No Private Mortgage Insurance
Private mortgage insurance (PMI) is a special type of insurance policy put in place to protect lenders against loss if a borrower defaults on the loan, and is typically required when a borrower makes a down payment of less than 20% on a loan. PMI costs range from 0.5% to 1% of the entire loan amount on an annual basis; however, the greater your risk factors, the higher the rate you pay. VA home loans do not require PMI because the government assumes the risk on behalf of the borrower. With the absence of PMI, you’ll be saving thousands over the life of your loan.
3. No Prepayment Penalties
A prepayment penalty is a clause in a mortgage contract stating that a penalty will be assessed if you pay down or pay off your mortgage within a certain time period. They are included to protect the lender against financial loss of paid interest over time. Not having to pay for these penalties allows you to pay off your mortgage early, save money, and allows you to consider future purchases and refinancing options.
4. Competitive Interest Rates
Since the VA backs each VA home loan with a guarantee, lenders can offer interest rates that are typically 0.25% lower than those of conventional loans. This is true for lenders such as Easy Mortgage, as we’re able to offer special VA home loan mortgage rates for veterans and service members through the Homes for Heroes program. Lower interest rates could mean significant savings for you. For instance, the difference between paying 4% and 4.75% interest on a 30-year $250,000 loan is a savings of approximately $40,000 over the life of the loan. Our mortgage calculator can help you easily determine how much you can save by comparing varying interest rates against a set loan amount and term of loan.
5. Lifetime Benefit
Something of which not many home buyers are aware is that the VA mortgage program is a lifetime benefit, meaning veterans and service members can take advantage of the program’s benefits over and over throughout their lives. This is helpful for those who need to relocate, as it’s possible to have more than one VA home loan at a time. What provides this benefit is what’s known as VA loan entitlement. This is a specific dollar amount that the VA promises to repay the lender if the veteran or service member defaults on the loan. When you purchase your home, some or all of your entitlement is applied to your loan. If you find yourself needing to move, you can rent out your first home and use your remaining entitlement to purchase a second home. Your entitlement is restored once your original loan is paid in full.