Tips & Special Topics
The Advantages of VA Loans for First-time Homebuyers
Added March 31, 2011
Many VA-eligible borrowers have found excellent reasons to finance a home using the VA Loan Guaranty Program. For first-time homebuyers, there may be even more reasons to take advantage of the popular home financing program for veterans.
First-time homebuyers are often young couples just starting families. Many don’t have a large amount of cash to put down on a home purchase. With a VA-guaranteed home loan, eligible borrowers can get into a great starter home with zero money down. Most other mortgage programs require between 3.5 and 20 percent in cash down – even for first-time buyers. A zero-down VA loan can save thousands up front.
Another big money saver for VA borrowers is the absence of a private mortgage insurance premium each month. Most traditional mortgage programs require borrowers to pay mortgage insurance if there is less than 20 percent equity in the home. Private mortgage insurance, or PMI, is not needed or allowed in the VA home loan program because the federal backing eliminates the need for PMI. Therefore, VA borrowers are never charged PMI. For first-time homebuyers, savings of up to hundreds each month can be important for establishing college funds and other future financial planning.
For a first-time homebuyer, establishing credit can take time. Conventional and other mortgage programs often have fairly strict qualifying guidelines when it comes to credit history. The qualifying guidelines for VA loans can be less stringent than those of conventional mortgages. Therefore, first-time homebuyers with little credit history may still qualify based on VA guidelines. The VA guidelines give the lender flexibility to determine whether the borrower is a satisfactory credit risk. Credit score, debt-to-income ratio and residual income are weighed together to determine whether a military member qualifies for a VA-guaranteed mortgage. Credit history alone typically will not prevent a borrower from getting a VA loan.
For most military mortgage borrowers, the VA funding fee is a requirement. The fee was established to offset the government expenditures for the veterans’ home loan program. Only certain surviving spouses and disabled vets are exempt from this fee. For first-time users of the VA home loan program, the fee is less than for subsequent users. For regular military members on first-time use, the VA funding fee for purchase loans is 2.15 percent. Subsequent users pay 3.3 percent.
Buying a first home can be a milestone decision in life. And, homebuyers can use all the help they can get when it comes to saving money in the process. For military members who are eligible, using home loan benefits for the first time can help make the experience easier.
For more information about using the VA home loan program for first-time homebuyers, contact an experienced veterans’ mortgage professional.
