In the fiscal year 2017, the Department of Veterans Affairs (VA) has guaranteed about 740,000 loans. This, so far, sets the highest record of all time. Since the implementation of the VA Loan program, more and more homebuyers benefit each year.
For several veterans, active service members, and their military families, availing a VA Loan is the easiest, most accessible, and most powerful program the market can offer. Because of the guaranty the government provides and the program’s flexibility, homeownership has since become a dream come true.
The VA Home Loan program had a significant increase in popularity over the course of the last 5 years. And this is because of the program’s indicative benefits. These include:
Zero down payments
Because they are continually on the move, military personnel and service members find building good credit or saving enough money tough and challenging. But with VA Loan in place, qualified debtors are able to finance the home value up to 100% without having to put down even a dime. Here’s a quick guide on how much one can save with VA Loan’s no down payment benefit.
Private Mortgage Insurance not required
Unless a borrower is able to pay 20% in advanced, most traditional lenders require that mortgagors obtain a monthly Private Mortgage Insurance. While PMIs gives lenders the protections against defaulting borrowers, these add up on top of a household’s monthly expense. But with the VA Loan, veterans, who may otherwise find paying down payments troublesome, enjoy the benefit of the program without the need of any PMI.
The federal government does not just guarantee every VA Loan. It also assumes all risk and responsibility on the borrower’s behalf which is usually covered by PMIs. Because of this, potential homebuyers can effective save and add more equity to the house. Here’s a quick guide on how much can be saved:
Competitive and better interest rates
Home loan interest rates are computed based on the risk the bank had to assume in financing the loan. But because every VA Loan is backed up by the Veterans Affairs, banks and other lenders carry a lesser risk. In return, interest rates as low as 0.5% can be offered; something that’s significantly lower than traditional interest rates.
The cocktail of zero down payment, no PMI requirement, and the lower interest rate is the perfect combination in purchasing a home. These do not just make the process easy but significantly increases a household’s savings.
Credits to Veterans United Home Loans
Basic Allowance for Housing
Basic Allowance for Housing or BAH is another significant benefit of the VA Loan program for qualified military members on active duty. Banks and other financial institutions consider Basic Allowance for Housing of a service member as an effective income. This means BAH can be used to pay a portion of or the total amount of the mortgage cost in each month.
No prepayment penalty clause
With almost all types of mortgages and loans, especially for home loans, paying off the balance before the maturity date results in what is called a prepayment penalty. With this, opportunities in collecting additional interest payments are lost. Banks, other financial institutions, and private lenders impose such penalties to recoup monies that are otherwise lost when the loan is paid in advanced.
With VA Loan, borrowers are able to pay off the loan anytime without being penalized. With the program’s no prepayment penalty clause, mortgagors can freely consider upcoming home purchases or refinancing options.