Is No Money Down The Only Benefit to VA Loans?
Written by Jason Nelson on August 3, 2016
The VA loan program comes with many great perks and benefits that other types of mortgages don’t offer. Thus, a home buyer who has the option to qualify for a VA loan should seriously consider taking it. As we want all of our customers to make the most of the home financing options available to them, below we list some of the benefits of VA loans.
To begin with, being able to borrow up to $417,000 (or up to $625,500 in high-cost counties) without any down payment is one major advantage of VA loans, especially if we take into account the current median sales price of $290,400. In addition, a borrower opting for a VA mortgage will benefit from:
- No debt-to-income limit – The debt-to-income ratio is one of the factors lenders use to determine the ability of a VA loan applicant to repay the loan. Though the VA doesn’t impose a maximum limit, most VA lenders ask for a 41-percent DTI ratio. However, this is only a hard-and-fast rule that lenders are willing to overlook when borrowers have other compensating factors. When the lender accepts a higher DTI ratio, it basically means that the borrower can qualify for a higher mortgage amount.
- No private mortgage insurance – Not all mortgage applicants have tens of thousands of dollars in savings to cover the 20-percent down payment on a conventional mortgage. In this case, borrowers are required to pay for private mortgage insurance, or PMI. The cost of PMI can be either paid at the closing or rolled into the loan amount. In the latter case, the borrower will have to pay an annual or monthly PMI premium until the loan balance reaches 78 percent of the original amount. For example, a borrower who takes out a 30-year, fixed-rate $200,000 mortgage and has an LTV ratio of 93 percent will have to make 58 PMI payments, totaling nearly $6,000. Since VA loans don’t require PMI, the same borrower could save all that money if he qualifies for a VA loan.
- Flexible credit score requirements – Most VA-approved lenders are looking for credit scores of at least 620. In reality, however, a person can qualify for a VA loan with a much lower credit score and even after a short sale, foreclosure or bankruptcy. Since the VA backs these loans with a guaranty, lenders carry less risk. This translates into more lenient qualification requirements for the borrower.
- Strict limits on fees and closing costs – Except for the VA borrowers who receive disability compensation and certain categories of unmarried surviving spouses, anyone who obtains a VA loan needs to pay a “funding fee” which increases the overall cost of the loan. On the other hand, the VA limits the fees the lenders can charge on VA loans. As a result, the closing costs of these loans are usually below those of other types of mortgages. Furthermore, the “funding fee” can be financed with the loan and paid over time.
- Assistance for the borrowers facing financial difficulties – Another important advantage of VA loans is the assistance offered to the borrowers who can no longer afford their mortgage payments. The VA has dedicated professionals who can negotiate with the lenders loan modifications, repayment plans and other alternatives to foreclosure on behalf of the borrowers.
At North Florida Mortgage, we have a great deal of experience with VA, FHA and conventional mortgage financing. To learn more about our home loan programs or to secure a loan that’s suited to your needs, we invite you to get in touch with our team today.