Last week we wrote about five things veterans and active duty service members looking to be new homeowners should know about VA Loans. But since then, we came up with a few more!
The housing market has seen some significant peaks and valleys over the last few years, with bidding wars, low inventory and a rollercoaster of interest rates. But great homebuying benefits are still available to veterans even in a wild market!
Let’s run through 5 more tips about VA Loans.
1 – VA Loans require no down payment, so there’s no mortgage insurance
What’s the most significant advantage of a VA loan. You don’t need a down payment. None. Niente. Zilch. In the past, when homes were much less expensive, homebuyers aimed for a 20% downpayment.
Today, FHA and Conventional loan programs require a down payment of 3.5% to 5%. But still, for a $300,000 home, that’s up to $15,000 you’ll need to save up. And we’re not even yet considering the savings required for closing costs, inspections and other fees.
With a VA Loan, you can get started on your loan application immediately, rather than waiting until you’ve saved up enough for all the fees described above. Plus, with a VA loan, you can avoid private mortgage insurance (PMI), which lenders collect on loans where the buyer puts down less than 20%. On a $300,000 loan, PMI can add hundreds of dollars to your regular monthly mortgage payment.
Without the necessity to save for a down payment or to pay private mortgage insurance, a VA loan could get you into a new home faster and with fewer hurdles than a typical loan offered to non-military homebuyers.
2 – VA Loan entitlement can be used over and over
The VA Loan benefit is not a one-time thing: qualified veterans and military personnel can use it repeatedly, as often as needed.
Let’s assume that you first used the VA loan benefit to purchase a starter house. Then you start a family and need something a little bigger with more room. Once you sell the home, using the proceeds from that sale to satisfy the payoff of the VA Loan, your benefit is restored in full and becomes available again to purchase another home.
Let’s look at another scenario. Perhaps you purchased your home with the VA Loan long ago and have since paid the loan entirely. Or the home you bought with a VA Loan has been refinanced with a non-VA refinance loan. Paying off the original VA Loan in total, but keeping the home, restores the VA entitlement so you can use it again!
3 – Use a VA Loan to refinance a mortgage
You probably didn’t know that VA Loans can be used to refinance an existing home mortgage, whether or not the homeowner purchased their home with a VA Loan. Eligible homeowners who pay mortgage insurance can definitely benefit from refinancing with a VA loan. Besides eliminating PMI, it can help you pay down a second mortgage, get you into a stable fixed-rate loan or reduce your rate to make homeownership more affordable.
The Interest Rate Reduction Refinancing Loan, or IRRRL, can be used to drop a mortgage loan’s interest rate and monthly payment amount without necessitating a home appraisal or proof of bank statements, employment W2s or even paystubs. Commonly known as the Veterans Affairs Streamline Refinance, this program — which makes sense only when rates have fallen a bit — gives military homeowners with a VA Loan a faster, less expensive way to access even lower refinance rates.
4 – Use a VA Loan to get cash
There’s also the VA cash-out refinance, which can be used to tap into your home’s equity. Eligible applicants use it to take out a loan that’s larger than what is currently owed on a mortgage. And the difference is issued to the homeowner in cash at closing — up to 100% of your home’s value. That cash can be for any purpose – home improvements, college tuition or even a new car — as long as the rate is lower than what you would pay on those loans from any other lender, it might make sense for you.
And remember, you don’t have to take out cash to use this VA loan option; IRRRL and Cash-out refinancing with a VA Loan can be applied to any mortgage, even those that were not originally VA Loans.
5 – If eligible, you might be able to avoid paying the VA Loan funding fee
The US Department of Veterans Affairs typically charges a funding fee to defray the cost of the VA Loan program and make the homebuying program sustainable for future veterans. That fee, depending on the loan type and the applicant’s service history, is between 0.5% and 3.5% of the loan amount.
However, not everyone is required to pay the VA funding fee. Veterans who receive compensation for a service-related disability are exempt. Similarly, Veterans who are eligible for disability compensation but instead receive retirement or active duty pay are also exempt from paying the fee.
Still have questions?
Call us to discuss your options. Don’t let any unknowns hold you back from exploring the benefits you’ve earned from your time in the service. Find a loan officer in your area to get started to take advantage of your VA benefits.