In the dearth of PMI and down payment, the VA Loan is proof that some mortgages might after all be islands in a mortgage sector awash with billowing tides of high rates and other charges that this particular one waives.
The Advantage of the VA Mortgage
*A historical Note: The year 2011 saw the Department of Veterans Affairs back three hundred and fifty seven thousand mortgages equal to seventy four billion dollars.
Veterans, active servicemen and their spouses never had a better credit dispensation with which to buy homes than the dynamic VA Loan scheme. It is adjustable, with full backing from the Federal State, besides having extra advantages that support domestic needs, thereby meeting needs of veterans that are not easy to fulfill by other financial programs.
VA loans neither have money down regimen nor the common insurance fee known as PMI. Their rates are quite fair and allow borrowers to access residences without much monetary commitment.
In the wake of the housing bubble of 2008, the VA loan scheme must receive commending for standing its ground even as others raise their rates as a sign of the hard times. No wonder VA loans have remained ever-popular. Indeed the foregoing half-a-decade has seen applications increase tremendously.
The following are some of the magnificent advantages of this popular arrangement:
Zero Money Down
It is not a fallacy that setting some funds aside for a rainy day can be a daunting task for servicemen on duty, for their profession subsists on pedantic action. This is why the VA loan comes to their rescue by settling the whole loan-to-value amount at once. There are no upfront costs since the entire fee base, including closing costs, can be attached to the entire loan.
Here is a look at how much one can save using the VA loan savings scheme. NB: the down payment percentages above 0% in the chart are for conventional mortgages, not VA.
| TotalMortgage($) | 0% MoneyDown | 5% MoneyDown | 10% MoneyDown | 20% MoneyDown |
|---|---|---|---|---|
| 100000 | $0 | $5000 | $10000 | $20000 |
| 200000 | $0 | $10000 | $20000 | $40000 |
| 300000 | $0 | $15000 | $30000 | $60000 |
| 400000 | $0 | $20000 | $40000 | $80000 |
No PMI
Private Mortgage Insurance(PMI) is a bitter pill for many borrowers of conventional home finance because it can go up to 20% of the buying value, a reason why veterans need to find an alternative. This insurance is usually collateral for commercial lending institutions in case the borrower breaches promise.
Here is an example of how PMI works on a typical family’s funds:
House Value: $240000
Money Down: 20%
Total Deposit: $48000
Add some PMI costs to the above $48000 and the veteran is rendered bankrupt. Because lenders know that not many families can afford this when they are in search of credit, they offer a lower down payment rate of, say, 10%, and cover the breach with PMI. For VA mortgages, however, this insurance does not count even when money down is zero.
It therefore acts as saving stimulus throughout the life of a loan.
Competitive VA Interest Rates
The rate of interest is normally dependent on the risk nature of the monetary commitment that the bank is shouldering when giving out a loan. But for VA mortgages, the risk is minimal because of the guaranteeing power of the government. This explains the reason the rates can go to as little as 0.5 or even 1 percent.
Merging these low rates with the nonobligatory down payment leads to substantial savings in the lifetime of the loan.
Here is an example.
| Loan Sum | $150000 | $200000 | $300000 | $450000 |
|---|---|---|---|---|
| 0.5% InterestReduction | $14760 | Est.$19000 | Est.$29000 | Est.$39000 |
| 1% InterestReduction | $28800 | $38800 | $58800 | $78800 |
Extra Benefits
Basic Allowance for Housing (BAH) ranks as one of the more prominent kickbacks for eligible men in uniform and veterans. Indeed, lending institutions can pass on monthly installments for the loan to the BAH, deeming it as one’s source of earnings.
The variation of BAH’s appropriation emanates from one’s grade of pay, the area code, as well as family members.
There is No Pre-Payment Levy
Borrowers of traditional loans cannot remit the entire loan together with interest before the maturity period as this denies the banks their wholesome interest. The case is different for VA and one can remit the balance any time.
Without constant thoughts about pre-payment levy, veterans can concentrate on more important areas including other property purchases and refinance.