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One of the hidden costs that few consider is the toll their service can take on their financial profile. Constant relocation, overseas deployments and the familial strife that sometimes follows can make building credit and saving money especially difficult for the nation’s service members.
That’s one of the main reasons the VA loan remains one of the most powerful and flexible lending programs on the market. These no- and low-cost loans have helped level the playing field for millions of veterans and helped them achieve the dream of homeownership.
The VA Guaranty
The Department of Veterans Affairs guarantees about a quarter of each VA loan in the face of default. That guarantee is what encourages agency-approved lenders to issue loans to veterans, and, in turn, that protection provides qualified borrowers with better rates and terms than most conventional mortgages.
Conventional lending in general can prove problematic for military borrowers, who often come to the table with less liquidity and more credit concerns than other buyers. VA loans have less stringent requirements when it comes to debt-to-income ratios and other key indicators. In fact, about 80 percent of VA borrowers could not have qualified for a conventional mortgage.
Yet, VA loans continue to have the lowest rate of foreclosure of any major lending program. While that’s important to help safeguard the nation’s veterans, what really sets VA loans apart are the significant financial benefits. In part, those benefits stand as a way to honor those who have served.
VA Loan Benefits
The biggest benefit to military borrowers: Being able to purchase a home worth up to $417,000 (and even more in some high-cost parts of the country) with no money down. Eliminating the need for a down payment opens homeownership to scores of veterans who might otherwise struggle to scrape together the funding.
On top of that, VA loans don’t come with private mortgage insurance, another monthly cost that can limit a family’s financial flexibility. PMI is standard on conventional loans unless the borrower includes a sizeable down payment. Some other VA loan benefits include:
- Sellers can pay all or most of a borrower’s closing costs
- No financial penalties for prepaying on the loan
- Consistently lower rates than conventional loans
VA loans have made homeownership a reality for millions of service members. In fact, the military has the highest percentage of homeowners among any demographic in the nation. That penetration is thanks in large part to the financial flexibility and housing benefits earned by their service.