For many people, owning a home is a long-time dream. As one of the benefits to veterans of the United States armed forces, the United States Department of Veterans Affairs offers mortgage loans. Typically called VA loans, these mortgages have some different rules and distinct advantages when they are compared to conventional mortgage loans. Here are some of the benefits of buying a home with a VA loan.
No Down Payment Required
If you qualify for a VA loan, you do not have to make a down payment when buying a house. For many people, saving the typical 20% down payment required for a conventional loan is a challenge. High rents make it difficult to set enough aside for a 20% down payment. A VA loan allows you to finance the entire purchase of the home. This means that you could buy a home many years earlier with a VA loan compared to a conventional loan.
No Private Mortgage Insurance
VA loans do not require you to purchase private mortgage insurance (PMI). PMI is a type of insurance that conventional loans require of a borrower who does not put the full 20% down on the mortgage. Not having to pay PMI saves a person a considerable amount of money.
Limitations on the Buyer's Closing Costs
With a conventional loan, a buyer will have a variety of closing costs. Those expenses can be 6% or more of the purchase price of the home. When you use a VA loan, there are limits on the amount of closing costs you have to pay. The terms in a VA loan allow the seller to pay all of the buyer's closing costs as well as up to 4% of the purchase price of the home in concessions. Those concessions could include a carpet allowance or appliance allowance.
Lower-Than-Average Interest Rates
VA loans have the lowest average interest rates out of all of the types of mortgage loans, according to VA Loans, a mortgage research center. Over the course of a 20- to 30-year mortgage, this means that you would pay much less in total costs for the home compared to using a conventional mortgage loan. There are also two refinancing options for VA loans. This would allow you to lower your interest rate. If you originally bought a house with a conventional loan, the VA allows you to refinance it with one of their loans. This would allow you to get a lower interest rate.
No Pre-Payment Penalties
With a lower interest rate on a VA loan and no requirement to pay PMI, you might be able to make extra payments on your mortgage. There is no pre-payment penalty on a VA loan. If you get a windfall of money or are able to make an extra payment or two each year, this could reduce your total costs of buying the home.