Veterans receive many benefits from the Department of Veterans Affairs (VA), but one of the most important programs is the VA home loan program. Active duty servicemembers, veterans, and qualifying surviving spouses may be eligible to receive assistance from this program in securing a loan for a home.
When you purchase a home with the help of the VA mortgage loan program, your loan will still be serviced by a private lender. However, you will receive optimal rates because the VA and the federal government agree to insure your loan up to a specified amount. If you are unable to make your payments, a VA-backed loan will protect you by paying your lender in full or a portion of the amount you owed.
VA-backed loans offer the best rates on mortgages because there is less risk involved in borrowers who are insured by the federal government. Conventional loans are not usually insured, so the interest rates are much higher.
Additionally, most conventional loans require you to make a down payment in the amount of 5% to 20% of the total value of the home. This down payment can be difficult to make for many homebuyers because it requires them to save a substantial amount of money before even getting a loan. Conventional loans are also harder to secure because applicants will require a minimum credit score of around 620 just to get approved at all.
Here are some of the biggest advantages of a VA-backed loan:
- Lower interest rates – VA home loans offer some of the lowest interest rates on the market for 30-year mortgages. In some cases, mortgages with shorter terms can even come with rates comparable to most conventional loans.
- No need for private mortgage insurance (PMI) – Many mortgages require buyers to purchase PMI in addition to making a down payment. This can save veterans a lot of money throughout the homebuying process.
- Not limited to first-time homeowners – A VA-backed loan can be used to buy, build, or repair a primary residence. This is beneficial because many conventional loans are offered only to first-time homeowners.