What is the benefit of doing a VA loan versus a conventional loan. We often think of VA loans, which are designed for active duty military and United State Veterans, as a loan that gets you a better rate. While this is usually the case, there are several other reasons that a VA loan is the right way to go.
First, let me address the interest rate. VA loans are backed by the Veterans Administration, or in other words, the federal government. This means that the government guarantees up to 25% of the loan. This guarantee frees up lenders, giving them the luxury of offering highly competitive interest rates. This doesn’t mean they are always the lowest, but as a general rule of thumb, they are lower.
Another great thing about VA loans is that there is no private mortgage insurance (PMI). This benefit is in my opinion far more important than saving a fraction of a percent on your interest rate because it can amount to hundreds of dollars each month saved on your payment. PMI is insurance that you pay to a private company so that they will back a certain percentage of your loan. This insurance isn’t for you, it’s for your lender and usually adds between $150-$250 per month to your mortgage payment. Can you see why this is so amazing? By not having to pay mortgage insurance, all of a sudden you’ve freed up a couple hundred dollars per month to either go towards a nicer home or to better manage your finances.
The final benefit I want to bring up today is the closing costs. In most cases, closing costs amount to thousands of dollars and they need to be paid in the form of a down payment. But with the VA loan program, the seller can pay those closing costs and you’re not required to have a down payment. Now don’t get too excited, you will need to have some cash reserves built up to buy a house through the VA loan program, but instead of the normal tens of thousands, you normally only need a few thousand to cover things like earnest money and home inspections.
Ultimately the VA loan program is there to thank military families and US Veterans for their service. The program does this by offering a program that saves Veterans thousands of dollars and makes getting into a home a little bit easier.
We’re happy to provide help to Veterans and military families as they search for homes. Feel free to give us a call today and we’d be happy to help answer your questions and get you on your way.