When purchasing a home with a loan, buyers have the option to use one of a few mortgage products to finance their purchase. The VA loan allows military service members, Veterans, and spouses in some cases to finance their mortgage with a 0% down payment.
Understanding the VA Loan
Why would a lender allow a home buyer to purchase a home without any sort of down payment? VA loans are backed by the U.S. Department of Veterans Affairs, the VA.
The VA loan program began in 1944 to assist Veterans returning from war in establishing themselves as homeowners. The government believed that these individuals missed out on opportunities to build credit and financial stability that their civilian counterparts had during the war. The VA loan was the benefit that leveled this playing field.
The VA loan underwent various revisions over the years and is now provided as a benefit for service members, Veterans, and some spouses to enjoy the benefits of homeownership earlier based on their military service.
The VA loan has a number of special provisions and circumstances that are designed to protect the home buyer and provide favorable financing terms. Learn more here about the process of determining eligibility, applying for, and using a VA loan or talk with a lender to get started.
Benefits of a VA loan:
- 0% Down: The “no money down” aspect of the VA loan is one of its most attractive features. This means that qualifying home buyers are able to purchase a home without putting any of their own money down for a down payment using the VA loan. Other loans, such as an FHA loan or conventional loan, require anywhere from 3.5% to 20% or more.
- No Private Mortgage Insurance Required: Mortgage products that allow a buyer to finance more than 80% of their purchase (meaning they put less than 20% down as a down payment) often require Private Mortgage Insurance, or PMI. This additional expense is not required when using a VA loan.
- Low Interest Rates: Because the VA loan is guaranteed by the government through the Department of Veterans Affairs, lenders are often comfortable offering lower interest rates to buyers. This also makes it easier for buyers to qualify for their loan.
Limitations of a VA loan:
- Loan Limits: VA loans are only able to be used on purchases up to a certain monetary value. This value changes based on the location of the purchase, with some high cost areas having higher limits. This amount may be able to be split between multiple homes, as long as the total VA loan entitlement value does not exceed the limit. Recent changes to the VA loan lifted this cap on an initial VA loan, but lenders will still limit the amount based on income and your ability to pay back the loan.
- When using the VA loan, a funding fee will be charged to the buyer as part of their loan. This administrative cost goes towards keeping the VA loan program running. This fee is waived for those with a service-connected disability.
