One of the most important programs the Department of Veterans Affairs (VA) offers is the VA home loan program. This resource is available to current servicemembers, veterans and qualifying surviving spouses who want to purchase a home.
Here is how it works: If you purchase a home through the VA mortgage loan program, you will still be taking the loan from a private lender, but the federal government would agree to insure that loan up to a certain amount.
This means that if you end up not being able to make payments on your VA-backed loan down the line, your lender will still receive either all or part of the funds you owed them.
Since they are insured by the federal government, VA home loans are much less risky for lenders than conventional loans. Therefore, they may be willing to give you better terms than they normally would.
With a conventional loan, you typically must provide a down payment of anywhere from 5% to 20% of the home’s value. This can be difficult for many buyers who either cannot afford a down payment that large or who simply don’t feel comfortable dipping heavily into their savings.
Plus, conventional loans usually require a credit score of at least 620 or 640 just to be approved. And even if you have the minimum credit score required to take out a conventional home loan, you will probably be left with a relatively high interest rate simply because lenders will see you as more of a risk.
These problems do not exist with a VA-backed home loan. Since VA loans are less risky for lenders, they have much more flexibility requirements. The main benefits are as follows:
- You may not need a down payment. According to the Department of Veterans Affairs, almost 90% of all VA home purchases are made with zero down payment.
- There are no minimum credit requirements. Technically, you can take out a VA home loan with any credit score. However, some lenders may still require you to meet a minimum credit requirement that is usually lower than with a conventional loan.
- VA home loan interest rates are lower. If you are taking out a 30-year mortgage, then VA home loans usually come with a lower interest rate than conventional loans. Even with a shorter loan term, the rates are often comparable.
- You may not need to get private mortgage insurance (PMI). Even if you don’t put down 20% when you purchase a home, you will not be charged for PMI, which can be quite expensive over time.
- VA home loans are not limited to first-time homeowners. Unlike other types of government-backed loans, a VA mortgage is available even if you are not a first-time homeowner, as long as you are using the loan to either buy, build or repair a primary residence. (Unfortunately, these loans cannot be used to purchase investment homes.)
To apply for a VA home loan, you will have to go through a private VA lender such as a bank or mortgage company.
In addition to VA purchase loans, you can find other helpful VA home loan options:
- VA refinance loans let veterans and servicemembers refinance a VA loan and get a lower interest rate.
- VA specially adapted housing grants help veterans with disabilities to adapt their homes, enabling them to live more comfortably.