No down payment. No mortgage insurance. Lower credit score requirements than most loan programs. Does this sound too good to be true? Actually, this is a true reality for our military veterans. These are all characteristics of Veterans Affairs mortgages, also known as VA loans. These home loans are made through private lenders and as long as guidelines are met, they are partially guaranteed by the Department of Veterans Affairs.
The VA home loan program’s lower cost to buyers can significantly benefit the financial picture of the home buyer. The money that is typically required upfront with other lending options can be applied toward moving costs, home improvements, as well as future planning like emergency funds and retirement accounts.
To illustrate the financial benefit of not having to pay mortgage insurance, a borrower who makes a 3.5 percent down payment on a $200,000 conventional mortgage will be required to pay approximately $100 a month for mortgage insurance. With the VA loan, the buyer not only saves the $7,000 down payment, but also saves $1,200 per year by not being required to pay mortgage insurance.
Another benefit of a VA loan is the lower closing costs. Closing costs can be a substantial expense when purchasing a home. Fortunately, the VA limits the amount that can be charged for closing costs. In addition, it is possible to negotiate to have the closing costs paid by the seller.
As with all loans, there are loan origination fees. According to Bankrate.com, a borrower in the armed forces getting a VA loan for the first time, with no money down, can expect to pay a fee of 2.15 percent of the loan amount. The fee is reduced to 1.25 percent of the loan amount if the borrower makes a down payment of 10 percent or more. Reservists and National Guard members normally pay about .25 percent more in fees than active-duty members.
Additional Benefits of VA Loans:
Buyers are not required to be first-time homebuyers.
Veterans can reuse the benefit; it isn’t a one-time benefit, although fees are higher.
VA loans are often easier to qualify for than conventional mortgages.
VA loans are available only to finance a primary home. A VA loan cannot be used to purchase or refinance vacation and investment homes.
The lender cannot charge a penalty fee if the loan is paid off early.
Make Sure You Can Afford It
Even though the cost benefits to VA loans are significant, financial due diligence needs to occur prior to purchasing a home. It is imperative to educate yourself on the true costs of home ownership. By planning ahead, you will know how much you can afford and avoid any surprises from unanticipated expenses. Consult with a trusted lender, complete budgeting worksheets and use online mortgage calculators to help you determine what an affordable mortgage payment is for you.
Find Out if You Are Eligible
You can determine if you are eligible for the VA Home Loan benefit based on service and discharge requirements.
According to Veterans Benefits Administration of the VA, most members of the regular military, veterans, reservists and National Guard are eligible to apply for a VA loan. Spouses of military members who died while on active duty or as a result of a service-connected disability also can apply.
The Department of Housing and Urban Development has housing agencies available to answer questions regarding the VA loan option. You can call 800-569-4287.
If you are a veteran and are looking for a house in the Prescott or Phoenix area, contact CLA Realty at 866-662-9200 or visit
CLARealty.net for information on homes available. CLA Realty offers a 10 percent discount off of the commission for listing and a 10 percent commission credit to veteran buyers. QCBN
By Colleen McElmell
Colleen McElmell at CLA Realty can help you find you next flip. She has an office in both Phoenix and Prescott and specializes in Residential and Commercial Real Estate.
Contact her at CLARealty.net or give her a call at 866-662-9200.