VA loans are a great option for active-duty service members, veterans and eligible spouses. They offer no down payment, no mortgage insurance and lenient credit requirements.
You can find out if you qualify by getting a Certificate of Eligibility (COE) online or through your lender. Then, start shopping around for lenders that issue VA mortgages.
No PMI
One of the biggest money-saving advantages of working with a VA loan is that it doesn’t require you to pay private mortgage insurance (PMI). PMI can be costly, often adding hundreds or even thousands of dollars to your monthly mortgage payment.
But a VA loan doesn’t charge PMI, which means you can save tens of thousands of dollars over the life of your mortgage.
Another great advantage of VA loans is that they don’t discriminate against home buyers with past credit issues such as bankruptcies or foreclosures. This gives you more flexibility to shop around for a lender that can help you get the financing you need.
VA funding fees are also relatively small, between 0.50 percent and 3.3 percent of the loan amount, depending on your service history. They can be paid at closing or rolled into the mortgage loan balance and paid off over time.
No down payment
Many VA loans don’t require a down payment, and it can make buying a home more affordable for service members. However, it is important to consider the pros and cons of a no down payment requirement before making this financial decision.
Compared to other loan options, VA loans don’t require private mortgage insurance (PMI). This can save borrowers hundreds of dollars per month in monthly payments.
In addition, VA loans often allow borrowers to take advantage of lender credits. These credits vary by amount and can be applied to the total amount of your mortgage.
Despite the no down payment requirement, most VA loans still require a credit check. This can be a major obstacle for borrowers who don’t have a strong credit history or high debt-to-income ratio.
No funding fee
If you’re a veteran who wants to use a VA loan to buy or refinance a home, there is one fee that will apply: the VA funding fee. This fee is required by law and can be rolled into the loan amount or paid in cash at closing.
This fee is usually a small percentage of the total loan, but it can be a significant financial burden for some borrowers. It can increase the size of your loan and your monthly payments, so it’s best to consider how much it will cost you before committing to a purchase or refinance.
The VA funding fee varies depending on the type of loan, your down payment, whether you’re a first-time borrower, and your disability status. The fee is also waived for certain service members, including veterans receiving service-connected disability compensation, Purple Heart recipients and surviving spouses of disabled veterans who died in service.
No credit check
Unlike other mortgages that are backed by Freddie Mac and Fannie Mae, VA loans do not require lenders to run credit checks on borrowers. This can be a good thing for borrowers who have no credit, or have bad credit, because it can make it easier to qualify.
You should still try to build credit, though. One way to do this is to reduce your credit card balances and keep your debt utilization ratio low.
Another way to improve your credit score is by paying your bills on time and in full. This will help you lower your debt-to-income ratio, which lenders use to assess your ability to repay a monthly mortgage payment.
Getting a co-signer on your VA loan can also help you qualify if you have no credit history or low credit scores. You will need to prove to your lender that you can meet your loan obligations, so the co-signer should have excellent financial credentials to make the approval process a little easier.