How veterans can get low-cost mortgages with no down payment
No-down-payment VA home loans are an incredible benefit for service members, veterans and military families. It's true: You can buy a home with no money down.
Down payments aside, it's important to fully understand how a VA loan works before you apply.
Here are the five most common things that many would-be borrowers need to know about VA loans.
1. The VA isn't your lender
VA loans come with favorable interest rates — currently as low as 2.25% for a 30-year mortgage.
You don't borrow from the Department of Veterans Affairs. Instead, the loans are issued by private mortgage lenders; the VA simply backs you up. It guarantees that it will pay a portion of the loan amount if you default.
The VA's guaranty is what allows you to get the loan without a down payment and avoid mortgage insurance, which borrowers normally have to pay if they put less than 20% down.
2. A VA loan isn't a one-time-only thing
A VA home loan isn't a use-it-and-lose-it benefit. If you've already gotten one, you can still get another — provided you've paid the existing VA loan off.
But in some situations you might even have two VA loans at once. For example, if you have a VA mortgage on your primary residence and get transferred for duty, you can rent out that home and take out a second VA loan to buy a home where you're going.
3. You can get a VA loan after bankruptcy or foreclosure
The VA believes in second chances. Service members and veterans can land a VA loan even if they've been through bankruptcy or foreclosure. And that includes a foreclosure on a previous VA mortgage.
However, VA lenders expect borrowers to have decent credit, meaning a credit score of at least 620.
4. The VA loan fee can be avoided
While VA loans come without a down payment and no mortgage insurance, you do have to pay an upfront "funding fee" that ranges from 1.4% to 3.6% of the loan amount. That's up to $7,200 on a $200,000 loan.
But the fee can be rolled into the mortgage, so you won't even see it. And several categories of borrowers are exempt from paying the fee, including veterans with service-related disabilities and many surviving spouses.
5. You won't be slapped for getting ahead
When you use a VA mortgage, you'll never face a penalty for paying off the loan early. You're welcome to pay extra any time you want and get out from under your mortgage sooner.
Just making the equivalent of one extra mortgage payment each year can cut years and thousands of dollars in interest charges off your loan.
It takes only minutes to find out if you're eligible for a VA home loan.
