The VA Loan is a powerful mortgage option that has helped more than 22 million veterans, active duty military members, and their families achieve their American dream of homeownership. Created in 1944 and guaranteed by the U.S. Department of Veterans Affairs (VA), this program offers numerous benefits that make it an attractive choice for military home buyers. In this article, we will explore five compelling reasons why military home buyers should choose a VA Loan over a conventional loan.
1. No Need for Private Mortgage Insurance
One of the most significant advantages of VA loans is that borrowers are not required to pay for Private Mortgage Insurance (PMI), unlike conventional and FHA mortgages. With a conventional loan, borrowers who make a down payment of less than 20 percent are typically required to pay for PMI, which protects the lender in case of default. FHA loans also come with mortgage insurance premiums that can add to the borrower’s monthly mortgage costs.
In contrast, VA loans are backed by the federal government, eliminating the need for private mortgage insurance. This government guarantee allows lenders to offer competitive interest rates and keep closing and origination costs low. Additionally, the absence of mortgage insurance helps more veterans qualify for a mortgage by providing lenders with greater flexibility on credit and lending standards.
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2. Refinancing Opportunities
VA loans offer not only the opportunity to purchase a new home in Silicon Valley but also the option to refinance from a non-VA mortgage to a VA loan. This option is available to financially qualified borrowers who can find a participating VA lender willing to facilitate the transaction.
Veterans can also take advantage of the VA Interest Rate Reduction Refinance Loan (VA IRRRL) to refinance their existing mortgages and potentially lower their interest rates and monthly mortgage payments. The VA IRRRL program offers benefits such as no appraisal requirement, no out-of-pocket costs, and no income or credit report verification. Qualified borrowers can refinance up to 100 percent of their home’s value through this streamlined program.
3. Limitation on Closing Costs
While all mortgages involve fees and closing costs, the VA sets limits on the closing costs that lenders can charge veterans. This provides veterans and military members with the flexibility to negotiate expenses with lenders and conduct thorough research to find the best mortgage terms and rates.
Additionally, some costs and fees associated with a mortgage can be covered by other parties involved in the transaction. For example, a VA borrower can negotiate with the seller to pay all loan-related closing costs and other expenses, such as prepaid taxes and insurance. These measures make homeownership in Silicon Valley more affordable and accessible for qualified home buyers.
4. BAH as Income
The Basic Allowance Housing (BAH) is a VA benefit available to eligible service members, and lenders can consider it as income when evaluating loan applications. BAH payments are provided monthly to service members who are not provided housing by the government or who do not live in government-issued quarters. This allowance is intended to cover housing costs and can be used by active-duty members to qualify for higher loan amounts and help pay their monthly mortgage costs.
The amount of BAH a veteran or military member receives is determined by factors such as rank, years of service, pay grade, number of dependents, and duty location. By considering BAH as income, VA loans provide additional flexibility and opportunities for military home buyers to secure financing for their dream homes.
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5. Lifetime Benefit
Contrary to a common misconception, the VA mortgage program is not a one-time benefit but a lifetime benefit that can be used repeatedly. Veterans who have previously used the program to purchase a property can still be eligible to use it again today.
Furthermore, it is possible for borrowers to have more than one VA loan at the same time. Veterans are not required to pay off their current VA loan in full to be eligible for a new one. This feature is particularly useful for military members who have a VA mortgage at their current duty station but need to make a Permanent Change of Station (PCS) move to another part of the country.
The VA mortgage program’s numerous benefits make it one of the safest loans in the market, helping veterans achieve homeownership and avoid foreclosure.
Conclusion
The VA Loan is a powerful mortgage option for military home buyers, offering advantages that are not available with conventional loans and other government-backed loans. With no need for private mortgage insurance, opportunities for refinancing, limitations on closing costs, the inclusion of BAH as income, and the lifetime benefit of the program, VA loans provide military home buyers with a pathway to affordable homeownership and financial security. If you are a military home buyer, considering a VA Loan can be a wise choice as you pursue your American dream of owning a home in Silicon Valley.
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