One of the most commonly asked questions for VA-eligible homebuyers is -- “Are the terms available on the VA program better than those on a conventional loan?” Generally speaking, yes it is.  It all depends on the down payment the borrower wants to make, the interest rate they are looking for, and the funds they have available for closing costs.

1. Zero Down Payment

Almost all loan types require a substantial amount of down payment. On the other hand, you can get a VA mortgage loan without a down payment. This is the signature benefit of this specialty mortgage. Unlike conventional loans that demand a minimum 3 to 5 percent down payment, VA loans have zero down payment requirement¹. An additional plus, unlike conventional and FHA loans that need borrowers to pay extra every month on mortgage insurance premiums for not being able to put down a substantial down-payment upfront, VA loan borrowers don’t have to worry about monthly mortgage insurance.

2. Lower Interest Rates

The US Department of Veteran Affairs guarantees VA mortgages that allows lenders to offer more competitive interest rates than typical conventional loans. While the difference in interest rates may not seem significant at first, if you calculate the difference in interest paid over a longer period of time (20-30 years), you will find that it saves you a lot more money than you would have assumed. For example, a 0.50% change in interest rate on a $200,000 loan will make a difference of $20,000 in saved interest over 30 years.

3. Reduce Burden of Closing Costs

One of the benefits of VA loans is that it limits the types of closing costs that borrowers may need to bear. Some of the costs that borrowers are not allowed to pay are loan costs, insurance, attorney, underwriting, escrow, processing, documentation, tax services, and more. The inevitable question is now if borrowers can’t bear these costs, then who will pay them? In such a scenario, sellers can pay these non-allowed costs. Sellers, however, can pay a maximum of 4 percent of the closing costs that are known as “seller concessions.” If you are a homebuyer and are looking for a VA loan, make sure the concessions are hashed-out during the initial negotiations.  In a “Seller’s Market”, where there are more buyers than there are homes to purchase, it is not likely that the Seller is willing to pay these concessions, unless the home price is raised to offset the cost.  In this case, the lender can pay the non-allowables but it will likely be at the cost of a higher rate to offset the cost.

Conclusion

All in all, it would be safe to say that VA loans offer a number of benefits over other mortgage options, which explains their increasing demand. If you, too, are looking to obtain a VA mortgage loan, contact us today to get started.

¹Example: $250,000 30 year fixed rate mortgage loan financed at 100%. 4.125% interest rate, 4.50% APR. Other restrictions may apply. Must qualify for VA loan program. If loan amount is over $417,000 down payment is 25% of the overage up to $1,000,000 loan amount.