Are VA Loans Better Than Conventional Mortgages?
A VA loan is often a better option than a convention mortgage for veteran and active duty military home buyers who are interested in purchasing a Las Vegas home.
With Nellis Air Force Base located near North Las Vegas, we have several VA eligible first-time homebuyers contacting Shelter Realty about taking advantage of the historically low housing prices in the valley.
Unfortunately, the national media has many buyers convinced that the only way they can qualify for a home loan is if they have perfect credit and a huge downpayment.
Over the next several weeks, I’ll be tearing apart the common myths and misunderstandings about mortgage financing in order to help shed some light on the truth about getting approved for Las Vegas mortgage.
Even though each qualifying scenario is unique and requires a full loan approval from a mortgage professional who has experience with VA financing, the following list highlights the main benefits VA loans have over conventional mortgage programs:
1. 100% Financing –
A typical convention mortgage requires an initial down payment that can range from 5% – 20% of the appraised value on a purchase.
I say “appraised value” vs “purchase price” because there are instances when a property does not appraise for the full value of a homeowner’s asking price. At that point, the borrower would have to pay the difference between the asking price and appraised value, as well as the standard 5% – 20% down payment.
Either way, VA loans generally do not require that initial large down payment based on the standard Loan-to-Value lending guidelines that come with a conventional mortgage program.
2. Lower Interest Rates –
Another major benefit is that VA loans have comparatively better interest rates. In some cases, a VA loan mortgage rate can be as much as .50% lower than on a similar conventional program.
Over the course of several years, a $35 – $75 a month payment will definitely add up to a significant savings.
The process of shopping mortgage rates is the same with any program, so it’s a good idea to have a basic understanding of how the markets work if you’re concerned with comparing quotes between a few lenders.
3. No Mortgage Insurance –
Private mortgage insurance (PMI) is generally required on conventional loans when the loan amount being borrowed is greater than 80% of the value of the property.
The Department of Veterans Affairs does have a funding fee requirement for VA loans. This funding fee can be anywhere between 0.5% to 3.3% of the loan total. However, veterans who were classified as disabled during at least 10% of their time in active duty do not have to pay the fee.
Mortgage insurance is basically in place to protect the lender in the case of payment default or foreclosure.
4. Qualifying Guidelines –
It is also typically easier to qualify for a VA mortgage loan than a conventional mortgage, especially if you have a recent bankruptcy or foreclosure within the past four years.
There isn’t a hit to the interest rate for lower credit scores, and VA underwriters tend to give special circumstances more consideration if there is a good letter of explanation.
In addition to the benefits mentioned above, VA loans have two payment term options – Fixed or Adjustable Rate.
The difference between the two options is as follows:
- Fixed rate loans have one payment tied to the same interest rate for the entire term, which is typically 15 or 30 years.
- Adjustable rate loans start off with a set interest rate for a predetermined period of time, and then the rate may change based on the specific terms set forth on the note. Know you options, and make sure you understand which program you are choosing.
Refinancing with a VA loan also has many benefits over refinancing with a conventional loan.
Some of refinance benefits include:
- A higher refinance limit (up to 90% and some 100%) than the majority of conventional loans.
- Easier credit requirements, which often make refinancing with a VA loan simpler and less stressful.
- Help from the Department of Veterans Affairs for borrowers currently in default because of financial hardship.
- No requirement of private mortgage insurance.
- The ability to include the VA funding fee with the total amount of the refinance.
Between the tremendous savings and streamlined qualifying guidelines, any veteran who is in the process of purchasing or refinancing a home should strongly consider using their VA benefits.
Shelter Realty works with several qualified and experienced mortgage professionals that specialize in helping Las Vegas Veterans qualify for a VA loan.
Please feel free to contact us if you have any questions about VA approved properties or speaking with one of our trusted lenders.