VA-Backed Loans - 7 Benefits That May Surprise You
Whether you qualify for a conventional mortgage or not, a modern VA-backed mortgage may be a better option for you. While the VA mortgage program was created during the post-WWII period to encourage home ownership for returning service members re-entering the workforce, the programs have evolved and improved over time, esp. in the last several years. Unfortunately, public perceptions have not kept pace with the opportunities available. If you are a veteran, check out these benefits of today’s VA-backed mortgages that may surprise you:
Here are a few key benefits of VA-backed Home Loans:
- Down payment flexibility - even if you can provide a down payment, VA-backed loans do not require one (or only a small one), as the VA is providing a substantial guarantee to the lender instead. You may want to consider using the freed-up funds for other investment purposes.
- No monthly mortgage insurance - conventional mortgages with low down payments generally require the substantial extra costs of private mortgage insurance. VA-backed mortgages substitute the VA’s guarantee at no incremental cost to the veteran.
- Lower interest rates. Since the VA guarantees a portion of every VA-backed loan, financial institutions can offer interest rates to VA borrowers that are typically 0.5% to 1% lower than the rates on conventional loans of similar terms. Rates are based on the inherent risk assumed by the lender to finance the loan. On a 30-year $250,000 loan, the difference between paying a 6% and 6.75% rate can mean approximately $44,141 in savings over the life of the loan.
- Benefit no matter which way rates move - If rates fall in the years following your home purchase, VA-backed loans have a streamlined and inexpensive mechanism to refinance the loan to the lower interest rate, often with streamlined underwriting processes and without additional costs like appraisals. If rates rise in the years following your home purchase, and you look to sell your home, the low rate on your loan is likely to be assumable by your buyer, improving the value of your home.
- No credit score apprehension. There is a misperception among the public that VA-backed loans are only for those with low credit ratings and minimal financial resources. This is not accurate. Again, the VA guarantee provides the lender with assurance of credit strength, and the veteran’s credit rating, whether high or low, is less important than in a conventional transaction. This allows veterans across a broad spectrum of financial resources to qualify for low rates and higher borrowing capacity.
- Not “one-and-done” - Veterans have the capacity to use the benefits of a VA-backed loan for their primary residences across their lifetimes - using the benefit once does not limit your ability to use it again. It also does not matter how long ago you served; you still qualify for a VA-backed mortgage.
- Efficient process - While historically there has been a perception that getting a VA loan closed can take a long time and a lot of bureaucracy, that is not the case for today’s VA-backed loans. Once a borrower gets an initial Certificate of Eligibility, the process can be as, or even more, efficient than for a conventional mortgage.
Ryan Harris, NMLS #2048588, is a USAF Veteran who specializes in VA Home Loan assistance at McHenry Savings Bank. Contact Ryan at (815) 331-6423 to learn more about this program BEFORE starting your house-hunting journey.
MSB NMLS #630527. www.mchenrysavings.com Equal Housing Lender. Farmer Mac Approved Lender.