Why a VA Mortgage?
The VA Loan Advantage
The Department of Veterans Affairs guaranteed nearly 540,000 loans in 2012, hitting an 18-year high.
The VA Loan program is the most powerful home loan program on the market for veterans and military families. These flexible, government-backed loans come with significant benefits that open the doors of homeownership to veterans who might otherwise struggle to obtain financing.
VA loans require no down payment or private mortgage insurance. They feature competitive rates and terms and allow qualified borrowers to purchase a home with little to no money out of pocket.
The increasing popularity has stemmed from the loan program’s signature benefits, which include:
1. No Down Payment
Saving money and building credit can be difficult for service members who are constantly on the move. With the VA Loan, qualified borrowers can finance 100 percent of the home's value without putting down a dime. Take a look at the chart below to see how much you can save through the no-money-down benefit of the VA Loan.
VA Loan Savings at Closing:
| Loan Amount | 0% Down | 5% Down | 10% Down | 20% Down |
|---|---|---|---|---|
| $150,000 | $0 | $7,500 | $15,000 | $30,000 |
| $250,000 | $0 | $12,500 | $25,000 | $50,000 |
| $350,000 | $0 | $17,500 | $35,000 | $70,000 |
| $450,000 | $0 | $22,500 | $45,000 | $90,000 |
2. No Private Mortgage Insurance
Many conventional lenders require borrowers to pay private monthly mortgage insurance unless they're able to put down at least 20 percent, which is a tough task for many veterans. Private mortgage insurance (PMI) is an insurance that protects lenders in case of a borrower default.
PMI Savings per Month:
| Loan Amount | Monthly Savings |
|---|---|
| $150,000 | Save $115/mo |
| $250,000 | Save $191/mo |
| $350,000 | Save $268/mo |
| $450,000 | Save $345/mo |
With a VA Loan, however, there is no PMI. This is because the federal government backs all VA Loans and assumes the risk on behalf of the borrower that is typically covered by the PMI.
This VA Loan advantage allows you to build more and more equity in your house, effectively saving you thousands of dollars over the life of your mortgage.
3. Competitive Interest Rates
Interest rates on home loans are based on risk assumed by the bank to finance the loan. Because the VA backs each VA Loan with a guaranty, financial institutions carry less risk and can offer interest rates that are typically 0.5 to 1 percent lower than conventional interest rates.
Pair that lower interest rate with the ability to purchase a home with no money down and no private mortgage insurance and the savings start adding up significantly.
Lower Interest = More Savings
| Loan Amount | $150k | $250k | $350k | $450k |
|---|---|---|---|---|
| Savings from a 0.5% reduction in interest | $14,760 | $24,480 | $34,200 | $43,920 |
| Savings from a 1% reduction in interest | $28,800 | $48,240 | $67,320 | $86,400 |
(Assumes 10% down on loan; see additional notes at bottom of page)
Additional Benefits
Basic Allowance for Housing
Basic Allowance for Housing (BAH) is a significant benefit for qualified active military members. Lenders can count your Basic Allowance for Housing as effective income, which means you can use BAH to pay some or all of your monthly mortgage costs.
BAH varies based on your pay grade, your geographic location and your number of dependents.
No Pre-Payment Penalty
With many different types of loans, paying off a home loan before it matures results in a pre-payment penalty. This is because lenders miss out on additional opportunities to collect interest payments. The pre-payment penalty is a way for financial institutions to recoup some of that money.
The VA Loan allows borrowers to pay off their home loan at any point without having to worry about a pre-payment penalty. With the absence of a pre-payment penalty, borrowers are free to consider future home purchases and refinancing options.
To learn more about the benefits of using your VA loan benefit, give us a call today!
