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.
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:
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.
Related Article: Adaptive Housing Grants
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.
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.
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:
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.
|Percentage You Must Pay for First Loan|
|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.
Related Article: Housing Assistance