However, because the U.S. government backs VA loans, they are less risky for lenders. The VA guarantees lenders that if a veteran defaults on a loan over $144,000, the VA will pay the lender up to 25% of the loan amount. Since the U.S. government partially guarantees the loan, the standards veterans need to meet are not as strict as those applying for a conventional mortgage. Because the loan is guaranteed to be repaid, lenders often offer VA loan rates lower than conventional ones.
ADVANTAGES OF VA LOANS
One significant advantage of a VA loan is that it can make homeownership possible for veterans who have not saved up a hefty down payment.
No Down Payment
Most home loan programs require a down payment of 5, 10, or 20% of the purchase price to be paid upfront in cash. With a VA loan, you can finance 100 percent of the purchase price, meaning a VA loan is a real no-money-down opportunity to buy a home. That can appeal to younger veterans and first-time homebuyers because it can mean the difference between owning a home and building equity or renting.
Lower closing costs
The VA also limits the amount lenders can charge in closing costs to VA loan applicants. This can make a VA loan more affordable than other types of loans. Saving thousands in closing costs means you can use that money you would have spent on closing costs to move in, make improvements, or buy furniture
71
Powered by FlippingBook