The process of buying a home is an exciting time for both individuals and couples. It is also an expensive, stressful experience in some cases. Having a more affordable option for veterans, active military, and families of those in the military makes getting a home a much more achievable process.
There are advantages to taking out a VA loan rather than a traditional loan for your mortgage. So what is a VA loan? If you have the option, will it make that much difference to go with that type of loan over a traditional loan for your mortgage?
Are there different requirements for VA loans than there are for conventional mortgage loans? All of the answers you are looking for are here.
What is a VA Loan?
In a nutshell, a VA loan is a loan program to help eligible veterans finance their property with no down payment. The mortgage is guaranteed by the US Department of VA affairs in the U.S. and supports supply financing for veterans and their families.
Other Differences Between VA Loans and Traditional Loans:
-VA loans generally have lower interest rates than traditional loans.
-With conventional loans to get a lower interest rate, you also need a higher credit score. This is not a necessity for VA loans.
-Another plus for taking out a VA loan rather than a traditional loan is that VA loans allow for higher debt to income ratios and lower credit scores. This is very helpful, especially in today’s economy, where so many people are dealing with debt and barely making enough to cover the bills.
-For traditional loans, if you have a low credit score or too much debt to income ratio, you will end up paying extra interest or won’t be approved for the loan.
-VA loans don’t require private mortgage insurance (PMI) if you don’t put down a large enough downpayment.
-With housing costs being so high, and most banks wanting a 20% deposit to get out of paying PMI, it saves a lot of headaches and a ton of monthly cost not to have to worry about the extra fees involved with the large down payment needed for a traditional loan, in order not to pay PMI and veterans who take out a VA loan will never have to worry about it.
-There are limitations on closing costs for VA loans.
-Closing costs can be a costly portion of the loan process for a traditional mortgage. Thankfully for a VA loan, this is not the case. Sellers can pay all of a buyer’s loan-related closing costs and up to 4% of the concessions.
-There are no prepayment penalties on a VA loan.
-Many banks charge a prepayment penalty for paying off a traditional mortgage loan early. They don’t want you to pay your mortgage off before the life of the loan is over because they will lose the interest payments. With a VA loan, there is no penalty for paying off your loan early. This is a nice perk that will not only save you interest but fees as well.