Potential homebuyers who have served stints in the U.S. military, or are on active duty are eligible to take advantage of the VA home loan program that is administered by the Department of Veterans Affairs. Over the years, this program has helped people purchase homes or secure loans that would have otherwise been out of their range. There are a number of benefits to this program, and more veterans are using it every year.
The Statistics
The VA has guaranteed more than 18 million home loans since the program was initiated in the original GI Bill back in 1944. The value of those loans has topped $911 billion, and in a single year, hundreds of thousands of veterans, active duty service members, and survivors of veterans will receive a loan that was guaranteed by the VA. 90% of those mortgages will be no-down-payment loans.
The Benefits
The VA purchase loan program allows veterans with qualifying income and credit levels to purchase a primary residence with no money down and the potential to get 100% financing (this is all assuming that the sale price does not exceed the appraised value of the home). Veterans also do not need to put money towards closing costs or have earnest money. This program also allows the seller to pay for the closing costs.
VA home loans are also assumable, as long as the person assuming the loan meets the necessary qualifications. Closing costs are limited by the VA, so veterans won’t be asked to pay more than a fair price for those costs.
One of the reasons why this program so appealing is that while the veteran does have to have a qualifying income and credit, lenders seem to be more willing to work with borrowers when the VA is backing them up.
The Cost
It’s important to remember that the VA doesn’t actually make the loans, so they do not have any control over the interest rates. Each individual lender will have their own methods for determining this rate so potential home owners may still want to spend time doing some comparison shopping before signing anything.
Who Is It For?
A VA loan is a great option for veterans who do not have enough money to make a significant (or any) down payment. If the seller is willing to pay the closing costs, the buyer may not really need much money at all. Since the basic entitlement under the program is capped at $144,000, borrowers should be aware of exactly how much the VA will cover. There are some situations, however, in which the veteran can still get a loan up to $417,000 with no money down.
With a conventional loan a mortgage may require a 10 to 20% down payment, which puts ownership out of reach for many prospective buyers. The VA loan program is one of the few programs that can still offer 100% financing with no money down, which makes home ownership a real possibility.