While there are reasons for and against purchasing a home, some future homeowners do not have the option of weighing them due to an inability to secure financing.
For veterans, especially those who are relocating every couple of years, or who are forced out of service due to disabilities, the VA home loan leaves one less thing to worry about.
Who Qualifies for a VA Home Loan?
The VA loan is available to:
- Wartime veterans who have served at least 90 days of active service
- Peacetime veterans who have served at least 181 days of active service
- Reservists who have served six years
- Veterans discharged under conditions that were not dishonorable
To clarify the fourth point, if a veteran is separated from the military with a general discharge, then he or she is eligible for a VA home loan. In some cases, a veteran separated with an other than honorable (OTH) discharge also retains this benefit as well.
The only other exception to the above is veterans who have been discharged for medical reasons. For instance, if a serviceman is separated from basic training for having suffered an injury that leaves him or her unable to serve in the military, then that veteran is entitled to a VA home loan.
How a VA Home Loan Works
The VA loan is much like conventional loans in that it offers financing on property.
The differences include:
- No down payment is required
- There is a funding fee depending on the size of down payment made
- No penalties for prepayment
Not having to come up with a sizable down payment of 10-20% is a great benefit for many who utilize this program. It allows people who can afford the monthly payments of the loan to realize their dream of home ownership.
The funding fee replaces personal mortgage insurance (PMI). PMI is attached to conventional loans when home owners purchase a piece of property with less than 20% equity. It is extra insurance that lenders require, and can be a costly addition to monthly payments.
The VA funding fee is currently 2.15% of the loan amount for first time users with no down payment. If a person borrows $100,000 on a home worth that much, then the loan amount will be $102,150, barely increasing the size of monthly payments.
Penalties for prepayment can be slipped in under a conventional borrower's nose if he does not know to look out for it. A prepayment penalty is simply this: an agreement in the loan contract that if the loan is honored before the expiration date by way of payment or refinance, then the borrower must pay extra.
With a VA loan, there is no worry of such penalties coming into play, because so long as it is used wisely, this vehicle can be a great help to those who have helped their country by serving in the armed forces. Transitions from one location to another can be made with ease leading to lower financial strain in the course of buying a home, which is an incredible benefit derived from purchasing a home with a VA loan.
Sources
Guttentag, Jack. "Mortgage Prepayment Penalties". mtgprofessor.com
"VA Loan Facts". valoans.com
Federal Reserve Bank of San Francisco. "Private Mortgage Insurance". frbsf.org
Weintraub, Elizabeth. "Facts About Veterans Administration Home Loans". about.com
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