Veteran Affairs Home Loans, or VA Home loans, are undoubtedly one of the most borrower-friendly loans available for qualified homebuyers. Only eligible veterans, servicemembers and their families are qualified for them. These loans are not provided by the U.S. Department of Veteran Affairs directly. The VA simply guarantees a part of the loan and private lenders, such as banks or mortgage companies, lend to eligible borrowers. As these loans are backed by the VA, lenders are confident of extending a lot of benefits to the borrowers. On that note, let’s look into the various benefits of VA loans that help veterans purchase homes without breaking a sweat.
1. Competitive Interest Rates
VA loans come at attractive interest rates. The borrowing rates are less as compared to conventional loans and though the rate difference may not seem that big it can actually make a huge difference in terms of the interest one ends up paying over longer borrowing periods. For example, if you took a loan of $500,000 for 30 years at an interest rate that is 0.50 percent less than a conventional loan then you can save around $50,000 as interest cost.
2. Zero Down Payment Costs
One of the biggest advantage of VA loans is that they are zero down payment loans, that is, eligible borrowers don’t need to pay a single penny as down payment. This is possible because VA loans are backed by the VA board and as a portion of the loan is guaranteed by the VA, lenders are comfortable lending 100 percent of the cost of the property the borrower wants to buy.
3. Reduced Closing Costs
VA loans reduce the closing cost burden of borrowers by not allowing borrowers to pay some of the closing costs such as attorney fee, processing fee, documentation charges, loan costs and many more. The question that may cross your mind is “Who bears the cost if not the buyer?” Usually, the seller bears the closing costs. Even the broker may opt to bear a part of the closing costs.
4. Zero Private Mortgage Insurance
The FHA and conventional loans require borrowers to pay a monthly premium known as Zero Private Mortgage Insurance, if they are unable to pay the down payment that ranges somewhere between 3 to 5 percent. VA loans, on the other hand, are zero down payment loans and therefore, borrowers need not pay Private Mortgage Insurance premium.
5. Zero Prepayment Penalty
Most loan types require borrowers to pay a percentage of the outstanding loan as a prepayment penalty. The sooner one closes their loan, the higher the outstanding amount, and therefore, higher the prepayment penalty. However, VA loan borrowers need not worry about prepayment penalties as VA loan lenders do not levy any penalty for pre-closures.
