VA loans offer a host of significant benefits, which can save you a lot of money in the future.
This historic benefits program helps open the doors to home ownership for veterans and service members who may struggle to secure home financing. The volume of VA loans has skyrocketed in recent years, with the Department of Veterans Affairs backing more than 1 million loans for the first time ever in 2020.
The VA loan program can save eligible borrowers thousands of dollars, both in initial costs and over the life of their loans.
Take a look at these four main ways VA loans can save you money.
No down payment
Of all the benefits of Virginia home loans, this remains the most noteworthy — and the strongest. This is the largest $0 loan program on the market, and has helped millions of service members and veterans realize their homeownership dream since 1944.
Not having to make a down payment is an incredible benefit for homebuyers, especially beginners. About 8 in 10 VA borrowers buy a home without a down payment.
By comparison, conventional loans typically require a minimum of 5%, and FHA loans typically require 3.5%.
When purchasing a typical $300,000 home, VA borrowers will need a down payment of about $15,000 for the conventional loan and $10,500 for the FHA financing.
This is a massive piece of change that can take years for veterans to salvage. But with $0 benefits, you don’t have to worry about sinking into your cash reserves.
No mortgage insurance
Even if you can handle a down payment of 5% or 3.5%, traditional and FHA borrowers will face the prospect of paying mortgage insurance.
Conventional loans often require private mortgage insurance for buyers who cannot pay 20% of the purchase price. FHA loans come with upfront and annual mortgage insurance premiums.
These types of expenses can add anywhere from $50 to $200 or more to your mortgage payment each month. Traditional borrowers can usually stop paying mortgage insurance once they’ve established about 20% of the equity in the home. But FHA buyers are now paying this extra cost for the entire term of the mortgage.
There is no mortgage insurance on a VA loan.
lower interest rates
It’s a common misnomer that VA mortgage rates are almost always higher than traditional rates. Interest rates on government-backed mortgages generally tend to be lower on average than conventional loans, with average VA rates leading the way.
Getting a lower interest rate can save a lot of money when you’re talking about a 30-year loan. On a 30-year fixed-rate mortgage of $250,000, a 5% banknote rate means a principal and interest payment of $1,342 each month.
Lower the rate to 4.25%, and lower your monthly principal and interest payments to over $110.
Interest rates can vary depending on the lender, the borrower’s financial and credit profile, and other factors.
But this general trend is just another way for VA loans to make a huge difference for those who serve our country.
Lower closing costs
There is no escaping the cost of closing, regardless of the loan product. The good news for veterans is that the VA actually limits what lenders can charge. There are even some closing costs that VA buyers are not allowed to pay.
The total amount of closing costs will depend on a range of unique factors, so be sure to speak with your lender to get an accurate estimate. Generally, closing costs are around 3% to 5% of the loan amount.
VA buyers can require the seller to pay all closing costs related to the loan and up to 4% in liens, which can cover a range of other expenses. But who pays for what is always the product of negotiation. Home sellers are not required to pay any costs to VA buyers either.
Take the next step
United Veterans Affairs helps veterans become homeowners with VA loans. See what your military service earned you.
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