6 Exceptional Advantages of VA Home Loans: Unlocking the American Dream for Veterans

Instituted shortly after World War II concluded, VA home loans have been instrumental in aiding numerous veterans, active service members, and their families in acquiring their own homes. With increasing numbers of people utilizing this program, its financial benefits are becoming even more crucial for many veterans who might not be eligible for conventional loans.

Below, we dive into the six major advantages of VA home loans:

Zero Down Payment

The standout feature of the VA home loan program is undoubtedly the zero down payment requirement. 

In contrast, conventional and FHA loans require buyers to make a minimum down payment of 5% and 3.5%, respectively. For instance, for a $400,000 property, that translates to a $20,000 down payment for a conventional loan and $14,000 for an FHA loan.

The zero down payment provision enables military homebuyers to become homeowners without years of saving.

No Need for Private Mortgage Insurance

Conventional and FHA loan recipients not only face down payment hurdles but are also responsible for mortgage insurance unless they can offer a substantial down payment—typically around 20% of the property value. For a $400,000 home, this means forking over an eye-watering $80,000.

Unlike these options, VA home loans have no mortgage insurance requirements. However, they do require a funding fee, payable to the Department of Veterans Affairs. Borrowers with service-related disabilities are exempt from this fee and certain amounts put down towards the loan will reduce the funding fee by a set percentage.

More Lenient Credit Standards

While credit requirements are gradually relaxing, achieving them remains a challenge for many military applicants. Most VA lenders seek a credit score of at least 620, which falls under FICO's "Fair" category. This is often lower than the minimum required for conventional loans. Loan officers that work at Mortgage Broker shops like myself work with multiple Lenders (Investors) that allow all different FICO scores on VA loans. Be sure to ask about this, as all investors are not the same. I can personally offer VA loans for Veterans down to 500.

Flexible Debt-to-Income Ratios

VA does NOT have a dead set requirement when it comes to debt to income ratio on your file. Instead, the investors place their own overlays and control what they'll allow. As long as your loan file is "Approve/Eligible" then you most likely will not be subject to any overlays governing the "DTI" on your file. This added flexibility, as opposed to other loan types, allows VA buyers to extend their purchasing reach.

Reduced Closing Costs

While closing costs are a fixed component of any mortgage process, the VA places restrictions on the fees and costs that veterans are required to pay at closing. Moreover, sellers can be asked to cover all loan-related closing costs and up to 4% of the home’s purchase price for other expenses like prepaid taxes and insurance (or even the Veteran's personal debts).

Resilience Against Foreclosure and Bankruptcy

Financial missteps like foreclosure or bankruptcy don’t necessarily eliminate your eligibility for a VA loan. You can still secure a VA home loan two years after experiencing a foreclosure, short sale, or bankruptcy. Some Chapter 13 bankruptcy filers can even qualify just one year after filing. This is much shorter than the waiting periods for conventional or FHA loans.

Taking the Next Step