What Makes a VA Loan Different?
Military service members and Veterans have access to a unique loan option called the VA Loan. The VA Loan differs from a standard loan in a number of ways, and carries with it special benefits. If you’re a veteran or active duty service member, you should understand the perks of the VA Loan and what they might mean for you and your family. After all, it’s a right you’ve earned.
Limited Availability, Federal Backing
VA Loans are only available to Veterans, Active Duty Service Members, and in some cases their dependents. The loan is offered by qualified lenders, the same lenders that provide various loan options for homebuyers, but is backed by the Department of Veterans Affairs. This means if a borrower defaults on the loan, the VA will pay the lender a percentage of the entire mortgage. This helps the buyer get more flexible loan agreements, offering them more buying power and other benefits than other programs.
No Down Payment
With a VA Loan, borrowers are not required to put down a down payment on their loan. This allows a VA Loan buyer to buy a home without significant savings, and allows qualified individuals to become homeowners earlier in their lives. Down payments are the number one barrier for Americans looking to buy their first home, so this gives Veterans and service members a sizeable head start building equity.
No PMI
While there are programs available to buy property without the traditional 20% down payment, they require something called Private Mortgage Insurance (PMI). PMI is a fee required in addition to a borrower’s monthly payments if they are unable to provide a 20% deposit on the loan at closing. It protects the lender from a defaulted mortgage and can cost the borrower .5% to 5% of the total loan amount.
With VA Loans, even when providing $0 for a down payment, the PMI requirement is waived. Because the VA is backing the loan itself, there is no need to insure it. This saves the borrower the PMI costs each month (again, up to 5% of the total loan amount) and allows them to pay off their principal faster than their civilian counterparts.
Rate Transfer
One of the most unique benefits of the VA Loan is that it can be passed on to other qualified borrowers. Imagine Sergeant John buys his house using a VA Loan in 2022 at a 4.75% rate. Over the next few years the FED raises rates, and by the time SGT John is ready to sell his home and move on to something new the standard rate is somewhere around 8.25%. If he sells his home to another buyer who is eligible for a VA Loan, the new buyer can simply take over John’s mortgage and inherit his 4.75% rate.
Transferring an insurance rate half of the standard loan rate is a massive incentive for buyers. It means SGT John can sell his home for more money than a similar, even more valuable home, and still save the buyer money over the long term. It’s a win-win, with both service members benefitting from the original VA Loan agreement.
Move-in Ready Guarantee
Because the VA Loan is being backed by the Department of Veterans Affairs, they have strict requirements about the condition of the home that have to be met before closing. This means the seller has to make certain repairs, work with a VA inspector, and generally provide a home ready for residence instead of a “money pit.”
The downside to this is that it largely prevents borrowers from buying “fixer-upper” homes and flipping them for profit, but it strongly benefits the buyer by minimizing some of the risk inherent in buying a new home. It also inconveniences the seller, forcing them to come out of pocket for certain repairs they would have otherwise been able to pass on to a buyer. While this perk is a double-edged sword of sorts, it largely benefits the buyer and is unique to VA Loan programs.
More Benefits, More Information, More Reason to Contact Lynch Rigsby.
There are a number of additional benefits to using the Veterans Affairs Loan, such as greater flexibility in debt qualifications, term flexibility, and the option to roll certain fees and costs into the loan amount to reduce cash needed on hand at closing. If you’ve served our country in its armed forces, we’re happy to help you put your VA Loan benefit to use.
Reach out to and speak with a Lynch Rigsby expert today to see how the VA Loan affects the purchasing process, and to see if we’re the right team to help you find your new home anywhere in Middle Tennessee.
You’ve already served us, we’d be honored to serve you. Contact Lynch Rigsby at (931) 967-1672
