VA mortgages continue to help veterans buy homes while approval through other home loan programs becomes more difficult.
The road to buying a home can be a lengthy one with many twists and turns along the way. And unbeknownst to many realtors is that quite a few military borrowers have difficulty moving forward with conventional home financing.
Tough credit score requirements, down payments and mortgage insurance can all become major obstacles. That’s where the U.S. Department of Veteran's Affairs (VA) loan program can make a tremendous difference. The program is designed to give those who’ve served our country significant benefits to help them achieve the dream of homeownership.
Here’s a look at why VA loans can be a better home financing option – and sometimes the only one – for veterans, service members and military families.
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No down payment
The minimum down payment on a FHA loan is 3.5 percent and it’s around 5 percent for a conventional loan. There’s no down payment requirement on a VA home loan.
Not having to make a down payment to purchase a home might sound implausible, but it’s a reality for about 90 percent VA homebuyers. It’s also one of the biggest perks of the program amongst the other VA Loan benefits. Veterans and active military members can save thousands of dollars with these mortgage programs. Plus, they don't have to save for years to get into a home.
Relaxed credit score requirements
A low credit score can quickly stall a home purchase. Conventional lenders have begun to loosen underwriting requirements after a tight stretch, but their benchmark is still tough to hit for many veterans and service members. Most conventional lenders are looking for a credit score of at least 740.
The requirement is typically lower for FHA loans (around a 690), but VA lenders may accept a score as low as 620. Even with those relaxed credit score requirements, VA borrowers are still able to get interest rates that rival those associated with a conventional loan.
Flexible debt-to-income ratios
Lenders want to make sure prospective borrowers have a solid financial base to support a mortgage before approving them for a loan. Part of that evaluation is a healthy balance between a borrower's monthly income and monthly debt - the debt-to-income ratio (DTI).
Conventional and FHA loans require a DTI ratio threshold around 36 percent, but the VA standard is 41 percent. VA borrowers may qualify even if they have a higher DTI ratio, provided they meet additional requirements.
No private mortgage insurance
Unless you can muster a sizable down payment (usually at least 20 percent), conventional and FHA borrowers have to pay private mortgage insurance (PMI). This is a monthly cost in addition to your regular mortgage payment.
VA loans have no private mortgage insurance, which saves those homeowners tens of thousands of dollars over the life of their loans. There’s no PMI, but VA loans do have a funding fee, which helps keep the nearly 70-year-old program running for future generations. While other mortgage lenders are tightening purse strings, the VA program has grown 370 percent since 2007.
Rebound from foreclosure or bankruptcy
Veterans going through foreclosure or bankruptcy struggles don’t automatically lose their shot at getting a loan, which may be the biggest perk of all. The VA home loan's two-year waiting period after foreclosure or bankruptcy is a short wait compared to other mortgage programs that require three to seven years.