If you're a first-time homebuyer, choosing from the various loan types can be an overwhelming experience. With all the different incentives, rates and requirements, it's hard to know the best option for you.
A VA loan stands out as the top choice for most eligible military and Veteran first-time homebuyers. Backed by a government guaranty, VA loans promise to compensate your VA lender if you default, making them a more secure option for lenders.
Even better, VA loans come with great perks such as no down payment required, generally lower rates and looser credit requirements than other loan types.
The VA loan program has enabled countless Veterans and military members to join the ranks of first-time homebuyers. As a token of gratitude for their service and sacrifices, VA loans offer a handful of attractive benefits, including:
Let's break down a few of those VA loan benefits in more detail.
Easily the most significant benefit of VA loans, no down payment requirement is a game-changer for military and Veteran first-time homebuyers. As many first-time homebuyers may have acceptable income and credit but need more savings to make a large payment, avoiding a down payment can eliminate a considerable hurdle.
The benefit of not having a down payment is immediately apparent when comparing VA loans to other loan types. For perspective, FHA loans require a minimum 3.5% down payment, while conventional loans often demand 5%. When closing on a $400,000 mortgage, a borrower would need to bring $14,000 or $20,000 cash for an FHA or conventional loan, respectively. With a VA loan's zero down payment, you can preserve your savings and bolster your credit.
Traditionally, VA loan interest rates are 0.5% to 1% lower than those of conventional loans. Over time, this can translate to enormous savings for first-time homebuyers.
Imagine you'd like to purchase a $300,000 home. Let's compare the interest costs of a conventional loan to those of a VA loan. Both have 30-year fixed-rate mortgages, but the conventional loan has a 7% interest rate, while the VA loan has a 6% interest rate.
|TIme Interval||Conventional Loan Interest||VA Loan Interest|
Over the 30-year lifetime of the loans, the VA loan saves $34,633.73 more in interest payments than the conventional loan. That's thousands of dollars that stay in your pocket.
All mortgages involve closing costs. However, the VA limits the closing costs military and Veteran first-time homebuyers can pay. VA loan borrowers can ask the seller to pay up to 4% of the total loan in concessions. Furthermore, VA loan borrowers aren't allowed to pay more than 1% for specific non-allowable fees, such as loan application or processing fees, lender appraisals or interest rate lock-in fees.
You may qualify for a VA loan by meeting one or more of the following service requirements:
Your service eligibility is reflected in your Certificate of Eligibility, a required document your VA loan lender can help you acquire during the application process. Additionally, while the VA itself doesn't set a minimum credit score, most VA loan lenders set a minimum credit score of at least 620.
Now that you understand VA loan eligibility requirements, let's cover the steps of the VA loan application process.
If you're ready to buy the home of your dreams, get preapproved today. Once you've received preapproval, your lender can guide you the rest of the way.