3 VA Home Loan Program Advantages

In this historically low interest rate environment, the VA Home Loan program could make buying a house more affordable than ever for a qualified military veteran.

The VA home loan program was introduced in 1944 to help veterans ease back into civilian life after World War II. It was a lifeline for men and women who hadn’t been able to establish credit or save for a down payment while serving in the war. Since that time, more than 20 million loans have been guaranteed by the Department of Veterans Affairs.

Today’s veterans and active duty service members continue to reap the benefits of the 75-year-old-loan program. And over the past 10 years, VA loans have become increasingly popular. More than 40% of government-backed mortgages are VA loans, compared to 16% a decade ago, according to Ginnie May.

“VA home loans are one of the most important financial benefits for our military servicemembers,” said Ben West, Military Relations director for Zions Bank. “These loans give our nation’s veterans the opportunity of homeownership with many vital benefits that often get overlooked.”

West, who is also a Captain and Company Commander in the Army National Guard, obtained his own VA Home Loan through Zions Bank and appreciated the knowledge and care his mortgage loan officer put into the loan process.

"Applying for a home loan is a daunting task that can be difficult to navigate for those new to the process,” he said.  “As bankers, we need to step up and be willing to help our veterans understand the process and the benefits they can receive through a VA loan.” 

A VA Home Loan has several advantages over a conventional mortgage loan.

VA Home Loan Advantage #1: More relaxed credit standards

Like conventional loans, VA loans are issued by private lending institutions and subject to credit approval. But unlike conventional loans, they are backed by the Veterans Administration (VA), which often allows lenders to relax credit standards. The loan lets a qualified veteran, servicemember or surviving spouse finance 100% of the cost of a home without a down payment and does not require private mortgage insurance. Other types of loans typically only finance up to 95% of a home’s value and are required to obtain private insurance.

VA Home Loan Advantage #2: No minimum credit score requirements

Compared to traditional mortgages, VA Home Loans offer more lenient guidelines for applicants. There are no minimum credit score requirements from the VA. Debt-to-income ratio also does not play a part in the application process. Instead, lenders review the amount of money borrowers have left over each month after paying all their bills, also known as residual income. Additionally, the VA also considers credit re-established when a borrower has two years of clean credit following a foreclosure or bankruptcy.

VA Home Loan Advantage #3: Lower interest rates

The interest rate on a VA home loan is typically lower compared to a non-VA home loan, giving borrowers even more bang for their buck.

VA Home Loans Offer Home Refinancing Options

The advantages of VA loans extend not only to new building or buying a home, but also to refinancing or improving your house. In fact, VA-backed mortgage loans skyrocketed in 2020, driven by a nearly 600% increase in interest rate refinance loans nationwide.

Thanks to record-low interest rates, hundreds of thousands of veterans, service members and their survivors were able to refinance their VA loans at a lower interest rate in 2020.

If you have an existing VA-backed home loan, an interest rate reduction refinance loan (IRRRL) can help you reduce your monthly mortgage payments or stabilize your payments. It can be used to refinance an adjustable-rate mortgage into a fixed-rate mortgage, as long as the new mortgage has a lower interest rate. Alternatively, a VA cash-out refinance loan lets you take cash out of your home to pay off debt, pay down student loans, make home improvements, or meet other needs.

Keep in mind that, as with any loan, interest rates on a VA IRRL or VA cash-out refinance loan will vary between lenders, and you’ll want to make sure you understand how your new loan amount relates to the value of your home.

Weighing the Pros and Cons of VA Loans

With no money down, low closing costs and no monthly mortgage insurance premium, VA loans offer significant upfront savings. But they may not be the best option in all cases. For example, if the servicemembers have enough for a down payment of at least 20% of the purchase price of a new home, a conventional loan may make more sense. That’s because most military mortgage loans come with a VA funding fee — a one-time charge calculated as a percentage of the loan amount in lieu of mortgage insurance.

With a 20% down payment on a conventional loan, you won’t be required to buy mortgage insurance — and you can avoid the VA funding fee.

 

Other Facts to Know

VA Home Loan Fact #1: You can get a VA loan at any age. Qualifications are based on length of time served and duty status, regardless of how long ago you served. The World War II veterans VA loans were originally created for are still eligible today. Learn about VA home loan eligibility requirements here.

VA Home Loan Fact #2: You can reuse the benefit multiple times. Whether you get relocated or decide to move to another home, you can use a VA loan again and again. In most cases, you’ll need to sell the house and pay off the first loan in order to re-use the benefit. However, eligible individuals can receive a one-time restoration when they pay off their VA loan but keep the home.

VA Home Loan Fact #3: Not everyone pays the VA funding fee. VA loans typically charge a funding fee between 0.50% and 3.6% of the loan amount, depending on service history and the loan type. However, you may be able to avoid the one-time funding fee if you meet certain requirements. For example, disabled veterans who are receiving compensation for a service-connected disability are exempt. Likewise, the surviving spouse of a veteran who died in service or from a service-connected disability, or who was totally disabled, may have the fee waived.

Let Zions Bank help you with a VA home loan*. Our experienced mortgage loan officers are ready to assist at all stages of the process. They understand the importance of the VA Home Loans and are eager to help our military veterans realize their home ownership dreams.

“Helping our service members get into a home is a small way we can say thank you for all that they have done for our country,” West said.

*Subject to credit approval. Terms and conditions apply. See banker for details.