VA Home Loan Costs and Benefits

VA home loan rates are typically lower than those for conventional loans, which makes this benefit from the Department of Veterans Affairs (VA) a highly desirable option for veterans and service members.

However, many veterans do not apply for loans simply because they are unaware of the benefits or believe that the process is too complicated. In 2016, only about 6 percent of veterans and service members had taken advantage of home loans from the VA in the previous 5 years. There are countless VA home loan benefits that veterans can enjoy and the process of taking out a loan may be easier than many veterans and service members realize.

Veterans will want to learn about VA home loan limits and discover what their interest rates may be before applying for a loan. In many cases, VA home loan interest rates and the other benefits of this program are better than most other loans, which make a VA loan a highly attractive option. Learn more about the benefits of getting a loan from the VA and discover what costs are associated with this program in the sections below.

What are the benefits of a VA home loan?

There are countless reasons to consider applying for a VA loan when you are ready to buy a house, get a lot or even refinance your existing mortgage. Perhaps the best benefit of a VA loan is that you do not have to make a down payment on your home or get private mortgage insurance (PMI). Conventional loans usually require that you make at least a 3.5 to 5 percent down payment, which may create a financial burden or postpone your homeownership plans until you have saved up enough money. By eliminating the need to pay PMI or cover a down payment, you can get a more valuable house than you would by using a conventional loan.

Eliminating the need to make a down payment is one of the biggest perks of getting a loan from the VA.  Some of the other VA home loan benefits are as follows:

  • You can usually get approved if you have a low credit score, even when you may be turned down for other types of financing.
  • If you are qualified for a home loan from the VA, you never lose your eligibility. Even if you served 50 years ago, you can still use your benefit now.
  • VA home loan benefits can be used more than once. If you have paid off a loan from the VA, you are eligible to apply for another loan to buy a new home.
  • Your loan is guaranteed by the government, which means that the VA will back you in the event you are unable to make payments on your mortgage. This guarantee makes you more appealing to lenders, who will usually result in great loan terms.

Interest Rates for VA Home Loans

When asking what the VA loan interest rates are, it is important to understand that private lending companies issue these loans, and not the VA. In other words, private banks, mortgage companies and credit unions are in charge of taking your application, approving your loan and distributing your loan funds. What the VA does is guarantee your loan, which is another way of saying that the VA insures your loan and will pay the lender if you fall behind or are no longer able to make payments.

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With that in mind, the interest rates for VA home loans are determined by the lender, which means that not all veterans will get the same rates. However, the rates are usually about .25 percent lower than you would receive if you applied for a conventional loan.

What are the VA home loan limits?

There is no maximum amount that you can take out for a home loan, but the VA has limits on how much liability it can assume for each loan. Furthermore, your VA home loan limit will vary based on where you plan on buying a home and whether or not you are making a down payment. In general, you can get up to $36,000 for basic benefit entitlement. However, most lenders will grant you four times the amount of your VA entitlement.

In most of the country, you can borrow up to $453,100 without even making a down payment. However, the VA loan limits are higher in some areas, where you can borrow anywhere from $517,500 to $679,650.

In any case, you will generally only be eligible for a VA loan amount that is reasonable based on your income. Your credit score may affect how much you can borrow as well, but lenders are required to look at all of the factors surrounding your credit in order to make a fair assessment. There is no minimum credit score that you must have to get approved, and in many cases, you can get approved for a VA loan with a lower credit score than you would need to have for conventional loans.

VA Home Loan Costs

In order to receive VA home loan benefits, you may need to pay something known as a funding fee, which is a percentage of the loan amount that you take out. Because the VA does not require a down payment or PMI, the funding fee is a way to offset the burden to taxpayers. The amount of your funding fee will vary based on factors such as:

  • The military category that you are in.
  • The amount you are borrowing.
  • Whether you are a first-time borrower or have borrowed before.
  • Whether you have made a down payment.
  • How much your down payment is if you made one.

VA home loan costs are generally higher if you were in the Reserves or National Guard as opposed to the regular military. Refer to the table below to see what your funding fee percentage will be.

Veteran Category Down
Payment Amount
Percentage You Must Pay for First Loan
Military None 2.15 percent
5 percent or more 1.5 percent
10 percent or more 1.25 percent
Reserves/National Guard None 2.4 percent
5 percent or more 1.75 percent
10 percent or more 1.5 percent

 

Note: You are exempt from paying the funding fee if you are a veteran currently receiving payments for a service-related disability or if you are eligible to receive service-related disability payments but receive retirement or active-duty pay instead. Furthermore, you do not need to pay the fee if you are the surviving spouse of a veteran who died in the line of duty or as a result of a service-connected disability.

While VA loan interest rates and funding fees will affect how much you pay overall, there are other costs to consider as well. It is important to be aware that lenders will usually charge you for things such as closing costs, home appraisals and running a credit report. Furthermore, you may be responsible for covering local and state taxes. However, the VA does not allow realtors to charge you commission or broker fees.

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