If you are currently serving in the United States military or are a veteran, first of all thank you for your service. If you are thinking about buying a home, did you know that your military status opens up some doors for you with regard to getting a new place to live. VA loans are a special kind of mortgage available only to current and former members of the armed services, and they have a lot of great benefits.
The most spoken-about benefit of a VA loan is that there’s no down payment required on the home you plan to buy. After all, putting away money for a downpayment on a house is usually the biggest hurdle that people encounter on their quest to become homeowners. Military families often rely on the income of just one spouse, due to constant moving around, so not tying up resources on a down payment is a real benefit. That’s not to say that buying under a VA loan is without cash out of pocket: this type of loan still requires closing costs and the earnest money deposit, which is an amount of money negotiated by buyer and seller that the buyer puts in escrow to essentially "hold" the house and confirm their intention to buy. Most of this money comes back to the buyer at closing, however.
The credit score requirement for a VA loan is a lot less strenuous than the ones required for traditional mortgages as well. While a FICO score of 650-700 is usually required by banks to get approved for a home loan, the VA can usually approve a buyer with a score of just 620. Moreover, the debt-to-income ratio is more forgiving with a VA loan, meaning that a buyer with less-than-perfect credit and some debt to their name can still obtain a loan.
VA loans also do not require a buyer to pay for private mortgage insurance (PMI) if they have made less than a 20 percent downpayment. While this can be a cause of significant savings (PMI runs about $200 per month on average), VA buyers still have to cover the cost of a "funding fee,” which is an upfront cost applied to every purchase loan or refinance. Funding fees help the VA cover losses on the few loans that go into default. It’s more flexible than PMI, however: those buying a house can choose to roll it into their monthly payment, or pay it all at once. Additionally, it's tax-deductible. If you happen to be a veteran with a service-connected disability, you don’t have to pay the funding fee at all.
As you can see, there are multiple benefits to obtaining a VA loan when purchasing your new home. Those in the armed forces serve our country proudly, and it’s great that there is a benefit to help them have a home to come back to.
