other home loan in that you will still need to provide proof of income and meet any debt-to-income guidelines or credit score required by the lender. But because VA loans are backed by the U.S. government, they are not as 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 loan is partially guaranteed by the U.S. government, 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 that are lower than conventional loan rates.
ADVANTAGES OF VA LOANS
One big advantage of a VA-backed loan is that it can make home ownership possible to veterans who haven’t saved up a hefty down payment.
No Down Payment
Most home loan programs require a down payment of 3, 5, 10 or even 20% of the purchase price, to be paid upfront in cash. With a VA loan, you can finance 100% of the purchase price, meaning a VA loan is a real no-money-down opportunity to buy a home. However, if the veteran is purchasing a home with a non-veteran (other than spouse) they will need a 12.5% down payment to be able to take advantage of no PMI. Keep in mind down payment and closing costs are two different things. That can be appealing for younger veterans and first-time homebuyers because it can mean the difference between owning a home and building equity, or renting.
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