VA purchase loans increased for the eighth straight year in fiscal year 2019, according to the Department of Veterans Affairs.› Start your VA Loan quote online
The VA Loan program is the most powerful home loan program on the market for many veterans, service members and military families. These flexible, government-backed loans come with significant benefits that open the doors of homeownership to veterans who might otherwise struggle to obtain financing.
VA loans do not require a down payment or private mortgage insurance. They feature competitive rates and terms and allow qualified borrowers to purchase a home with little to no money out of pocket. And, as of January 1, 2020, VA loan limits no longer apply to eligible veterans with full VA loan entitlement.
The increase in popularity stems from the VA loan's signature benefits, and a few less common ones, which we break down below.
Saving money and building credit can be difficult for service members who are constantly on the move. With the VA Loan, qualified borrowers can finance 100 percent of the home's value without putting down a dime. Take a look at the chart below to see how much you can save through the no-money-down benefit of the VA Loan.
|Loan Amount||0% Down||5% Down||10% Down||20% Down|
Many conventional lenders require borrowers to pay private monthly mortgage insurance unless they're able to put down at least 20 percent, which is a tough task for many veterans. Private mortgage insurance (PMI) is an insurance that protects lenders in case of a borrower default.
With a VA Loan, however, there is no PMI. This is because the federal government backs all VA Loans and assumes the risk on behalf of the borrower that is typically covered by the PMI.
This VA Loan advantage allows you to build more and more equity in your house, effectively saving you thousands of dollars over the life of your mortgage.
|Loan Amount||Monthly Savings|
Interest rates on home loans are based on risk assumed by the bank to finance the loan. Because the VA backs each VA Loan with a guaranty, financial institutions carry less risk and can offer interest rates that are typically 0.5 to 1 percent lower than conventional interest rates.
Pair that lower interest rate with the ability to purchase a home with no money down and no private mortgage insurance and the savings start adding up significantly.
|Savings from a 0.5% reduction in interest||$14,760||$24,480||$34,200||$43,920|
|Savings from a 1% reduction in interest||$28,800||$48,240||$67,320||$86,400|
Basic Allowance for Housing (BAH) is a significant benefit for qualified active military members. Lenders can count your Basic Allowance for Housing as effective income, which means you can use BAH to pay some or all of your monthly mortgage costs.
BAH varies based on your pay grade, your geographic location and your number of dependents. Learn more about Basic Allowance for Housing.
With many different types of loans, paying off a home loan before it matures results in a pre-payment penalty. This is because lenders miss out on additional opportunities to collect interest payments. The pre-payment penalty is a way for financial institutions to recoup some of that money.
The VA Loan allows borrowers to pay off their home loan at any point without having to worry about a pre-payment penalty. With the absence of a pre-payment penalty, borrowers are free to consider future home purchases and refinancing options.
Savings and interest rates shown here are for illustrative purposes only and may vary based on a variety of factors. All loans require approval and proof of eligibility and are subject to the complete terms and conditions outlined in the loan agreement documents.