For many veterans, service members and military families, VA loans are the best option available for buying a new home. They make it possible for veterans to obtain loans who would otherwise be unable to get financing.
VA loans do not require a down payment or private mortgage insurance. They also have very affordable rates and terms, which allows you to buy a home with little to no out of pocket expenses.
Saving up for a down payment is often one of the biggest hurdles that holds people back from purchasing a home. Since service members are constantly on the move, it can be particularly difficult for them to save up enough money for a down payment. With VA loans, qualified borrowers can finance up to 100% of the home’s value, so that no down payment is required.
| Loan Amount | 0% Down | 5% Down | 10% Down | 20% Down |
|---|---|---|---|---|
| $150,000 | $0 | 7,500 | $15,000 | $30,000 |
| $250,000 | $0 | 12,500 | $25,000 | $50,000 |
| $350,000 | $0 | 17,500 | $35,000 | $70,000 |
| $450,000 | $0 | 22,500 | $45,000 | $90,000 |
Private Mortgage Insurance (PMI) is a type of insurance that protects lenders in the event that the borrower defaults on the loan. With most conventional loans, borrowers are required to pay private monthly insurance unless they are able to pay a 20% down payment. This can be difficult for many veterans.
With a VA loan, PMI is not required because VA loans are backed by the federal government. The government takes on the risks that would normally be covered by PMI. Not having to pay PMI allows you to have more equity in your home and potentially save thousands over the course of your mortgage.
| Loan Amout | Montly Savings |
|---|---|
| $150,000 | Save $115/mo |
| $250,000 | Save $191/mo |
| $350,000 | Save $268/mo |
| $450,000 | Save $345/mo |
Interest rates on mortgage loans are determined by the risk the bank is taking by financing the loan. Since the VA backs the loans with a guaranty, there is less risk for the bank or financial institution. As a result, they are able to offer interest rates that are 0.5-1% lower than conventional interest rates.
The lower interest rate combined with little to no money down and no PMI, allows you to save a substantial amount of money when you purchase your home.
For many types of mortgage loans, there is a penalty for paying off a home loan before it matures. This penalty is added because when you pay off your loan early, lenders lose out on additional interest payments. Pre-payment penalties allow lenders to be able to collect some of that lost revenue.
With VA loans, you do not have to worry about pre-payment penalties if you pay off your home loan early. This will free you up to consider future home purchases as well as refinancing options.
To learn more about the benefits of VA loans in Virginia, Maryland or Washington DC, call First Meridian today at 703-799-5626 to speak to one of our qualified loan officers.