Understanding Your VA Benefits On A Mortgage

How Does Your VA Mortgage Benefit Work on a Mortgage?

A VA mortgage has several advantages over a regular Conventional loan or even an FHA loan. The two biggest advantages are:

1. No down payment requirement
2. No monthly mortgage insurance

These two benefits are huge. Down payment money is the biggest obstacle for most first-time home buyers. Mortgage insurance premium is a monthly fee that gets added to your loan. This monthly mortgage insurance premium amount is pretty hefty — the lower your down payment percentage, the higher your monthly mortgage insurance premium. Most homeowners only put 3%–3.5% down, which translates into a very high monthly mortgage insurance premium. VA loans do not require any monthly mortgage insurance. This savings is significant — borrowers can expect to save $100 or more per month depending upon the loan size.

VA Mortgage Rates

VA mortgage rates tend to be lower than a Conventional mortgage loan. Why? Because the U.S. Government is backing them. As a military member this is one of your perks — you served our country, and the government offers you a lower mortgage interest rate compared to a regular conventional loan. They also do not charge you any down payment or mortgage insurance premium.

When you combine those three benefits — a lower mortgage rate, no down payment, and no mortgage insurance premium — you can see why most eligible borrowers choose a VA mortgage.

Why Would a Person Not Obtain a VA Mortgage?

Usually it is because they did not know they even qualified for a VA mortgage loan. A lot of first-time home buyers find out after they have already purchased a home with an FHA loan or a Conventional loan. A few years later these borrowers decide to refinance. At that point, when we qualify a borrower, we always ask: "Have you ever served in the military?" and "Do you have VA benefits?" If they answer yes, we go over the VA home mortgage loan and its requirements.

Credit and FICO Score Requirements on a VA Loan

Unlike a regular Conventional loan, VA loans allow borrowers to have less-than-perfect credit. Our lowest VA FICO score requirement is 580. However, borrowers with a 580 score should not expect to receive the same rate as a 720-score borrower.

VA loans also allow borrowers to obtain a loan sooner after a bankruptcy or short sale compared to a Conventional loan:

• Chapter 7 bankruptcy: Two-year and one-day wait requirement from the discharge date.
• Chapter 13 bankruptcy: One year of the payout plan must elapse, payment performance must be satisfactory, and the buyer must receive permission from the court to enter into a mortgage.