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So, you’ve served our country and want to buy a house. The Department of Veterans Home Loans, better known as VA Loans (VAHL) for short, was created to help veterans and their families achieve the dream of home ownership. The program has benefited more than 18 million veterans and dependents. VAHLs, which are available to some veterans, active duty military personnel and reservists, offer several advantages, although there are also some drawbacks.
Benefit
One of the major advantages of VAHL is that they do not require a down payment. In addition, there are limits on closing costs, origination fees, and appraisal fees. Another great advantage of VAHL is that there is no private mortgage insurance. The VA also prohibits lenders from requiring private mortgage insurance because they stand as a guarantee on the loan. Borrowers can save thousands of dollars by not having to pay for private mortgage insurance. Generally speaking, VAHL is a more affordable alternative to conventional home loans.
Applying for a VAHL is just like applying for any traditional home loan, except you’ll also need to obtain a Certificate of Eligibility from the VA. The VAHL process takes two to six weeks, which is comparable to the time it takes for a traditional loan process. Any lender that offers conventional loans or FHA loans also handles VA loans, so it shouldn’t be difficult to find a lender to help you.
Harm
Despite the many advantages that VAHL offers, there are also some drawbacks. One disadvantage of VA loans is that the maximum guaranteed loan amount is $240,000. While this may buy you a nice home in the higher priced markets in California than in most parts of the country, it may not be enough. What’s more, not all veterinarians are eligible for the $240,000 loan. The actual loan amount varies based on the borrower’s income, assets, credit history and credit.
In some ways, VA loans aren’t all that different from traditional mortgages. For example, it is not easier to qualify for a VAHL than a traditional home loan. Don’t count on getting approved for VAHL if you have low income or bad credit. Additionally, it is a common misconception that VAHL interest rates are better than conventional home loans. The fact is that VAHL interest rates are in line with conventional home loans. The primary advantage of VAHL is the fact that you are not required to make a down payment.
A one-time funding fee is also charged for VAHL’s. Congress has imposed this fee on VA loans since 1982. This fee ranges from 1 1/4 percent to 3 percent, depending on a variety of factors, such as the veteran’s length of service and whether it is the first or second loan. However, this fee can be reduced if you make a down payment of at least 5 per cent. For VA refinance loans, the fee can be anywhere between 1/2 percent to 3 percent. Many buyers finance the fee along with their home, but doing so can be quite costly in the long run, amounting to tens of thousands of dollars over the entire term of the loan.
Ultimately, the choice between a VAHL and a conventional loan will depend on your individual circumstances. For most veterans and service members, VAHL is a great deal, but in some cases, going with a conventional home loan or FHA loan may be a better option.
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