Many would-be homebuyers overlook the benefits of a VA loan when searching
for a home. The VA Mortgage Program is administered by the Department of
Veterans Affairs and exists as a benefit to veterans, reservists and active military
and also makes Native American Direct loans.
The program is beneficial in helping those eligible to purchase because of several
important reasons:
•For those who retain full eligibility, there is no down payment required. Most
mortgages with 100% financing have gone by the wayside, but not only has VA
maintained this benefit, VA mortgages have consistently outperformed national
averages.
•VA allows the seller of the home to pay for all closing costs. What does that
mean? It means that a veteran or active member of the armed forces can
purchase with no money down and no closing costs. Zero cash is required from
the borrower. Keep in mind that prudent financial advice and underwriting
standards may require cash reserves after closing and certainly such reserves are
a good idea even if not required by VA.
•VA requires no mortgage insurance. While a one-time funding fee is required to
help pay for the cost for the administration of the program, VA provides protection
for the lender against default. This is the part of the program which is a benefit to
the veteran. If the loan defaults, VA will absorb up to 25% of the loss. On
conventional and FHA loans, required insurance can add 1.00% or more to the
cost of the monthly payment.
There are two other important points concerning the funding fee. This fee can be
financed into the loan amount and therefore, no cash up-front is required. In
addition, those who are on more than 10% disability arising from their military
service can have the fee waived. This could mean a savings of thousands of
dollars.
As in any program, there are restrictions upon the use of VA mortgages…
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