The VA Loan program is an earned benefit offered exclusively to those who served and select military spouses. Because of the select nature of the program, there are specific advantages that are unavailable to the general public. In fact, the VA Loan is generally considered to be the one of the most unique and advantageous loans available today.
There are numerous benefits to using a VA Loan to purchase your home, including no money down, no private mortgage insurance and competitive rates. Borrowers who compare the benefits of the VA Loan to other loan types available typically come away with the peace of mind that comes with selecting the perfect loan option for them.
Considering the strengths of the VA Loan, it is no surprise that its popularity has increased almost exponentially in the last several years. In 2010 alone, the Department of Veterans Affairs guaranteed more than 314,000 loans totaling more than $65 billion.
No Down Payment
Saving money and building credit can be difficult for service members who are constantly on the move. With the VA Loan, qualified borrowers can finance 100 percent of the home's value. Take a look at the chart below to see how much you can save through the no money down benefit of the VA Loan.
VA Loan Savings at Closing
| Loan Amount | 0% Down | 5% Down | 10% Down | 20% Down |
| $150,000 | $0 | $7,500 | $15,000 | $30,000 |
| $250,000 | $0 | $12,500 | $25,000 | $50,000 |
| $350,000 | $0 | $17,500 | $35,000 | $70,000 |
| $450,000 | $0 | $22,500 | $45,000 | $90,000 |
Many conventional lenders require borrowers to pay private monthly mortgage insurance unless they're able to put down at least 20 percent, which is a tough task for many veterans. Private mortgage insurance (PMI) is insurance that protects lenders in case of a borrower default.
However, avoiding PMI is not easy. For example, a 20 percent down payment on an $180,000 house is $36,000. Unfortunately, not many veterans and military families have that kind of cash at their disposal, which makes PMI a necessity on many conventional loans.
With a VA Loan, however, there is no PMI. Because the government backs the loan, lenders do not require the additional expense of PMI.
With a VA Loan, however, there is no PMI. Because the government backs the loan, lenders do not require the additional expense of PMI.
PMI Savings per Month
| Loan Amount | Monthly Savings |
| $150,000 | $115 |
| $250,000 | $191 |
| $350,000 | $268 |
| $450,000 | $345 |
This VA Loan advantage allows you to build more and more equity in your house, effectively saving you thousands of dollars over the life of your mortgage.
Lower Interest Rates
Interest rates on home loans are based on risk assumed by the bank to finance the loan. Because the VA backs each VA Loan with a guaranty, financial institutions carry less risk and can offer interest rates that are typically 0.5 to 1 percent lower than conventional interest rates.
Pair that lower interest rate with the ability to purchase a home with no money down and no private mortgage insurance and the savings start adding up significantly.
Lower Interest = More Savings
| Loan Amount | $150k | $250k | $350k | $450k |
| Savings from a 0.5% reduction in interest | $14,760 | $24,480 | $34,200 | $43,920 |
| Savings from a 1% reduction in interest | $28,800 | $48,240 | $67,320 | $86,400 |
Basic Allowance for Housing
For those active duty military service members, the Basic Allowance for Housing (BAH) is a significant benefit. Lenders can count your Basic Allowance for Housing as effective income, which means you can use BAH to pay some or all of your monthly mortgage costs. Not only that, applying your BAH to a mortgage payment helps you build wealth through the VA Loan program.BAH varies based on your pay grade, your geographic location and the number of dependents you have.
No Pre-Payment Penalty
With many different type of loan types, paying off a home loan before it matures results in a pre-payment penalty. This is because lenders miss out on additional opportunities to collect interest payments. The pre-payment penalty is a way for financial institutions to recoup some of that money.The VA Loan allows borrowers to pay off their home loan at any point without having to worry about a pre-payment penalty. With the absence of a pre-payment penalty, borrowers are free to consider future home purchases and refinancing options.
*All values are estimates and are based on many factors.
