5 Benefits of a VA Loan for Veterans

VA loans are a great way to utilize the VA’s benefits for eligible currently serving military members, certain surviving spouses of military members who have died on active duty (or as a result of active duty), and veterans. When purchasing your dream home, consider the many benefits of a VA loan listed below.

Benefit #1: Zero Down VA Home Loans

VA mortgages require no money down in most cases. Zero down for a home loan is a huge advantage, especially for lower-ranking junior enlisted personnel.

There are some situations where a down payment is required; your FICO scores and credit history may affect whether a lender is willing to offer you a no-money-down loan (lender credit standards will apply).

There are also situations where money up front is required because the home’s asking price exceeds its appraised value. In such cases, the borrower must pay the difference in cash.

Benefit #2: No VA Loan Funding Fee For Certain Qualifying Service Members

Borrowers who receive or are eligible to receive VA compensation for service-connected disabilities may be eligible for an exemption from the VA funding fee.

Imagine a no-money-down VA loan with no down payment OR funding fee. Many service members qualify for the exemption because of their status as VA-rated disabled veterans, but some may be waiting for a final determination from the VA when they apply for a VA mortgage.

If your VA rating is not yet official when it’s time to pay the funding fee, you may be required to pay the fee at the appropriate time and apply for a refund (they are not automatic) when the VA disability rating has been officially established.

As of Jan. 1, 2020, Purple Heart recipients who are on active duty are also eligible for a VA loan funding fee waiver as long as they submit proof of the award prior to loan closing time.

Advantages For Borrowers Who Choose To Make A Down Payment On A VA Mortgage

If you apply for a VA loan and decide to make a down payment, and if you are required to pay the VA loan funding fee, a down payment can reduce the amount of that fee based on the percentage of money down.

You can qualify for a lower VA loan funding fee by paying 5% or 10% down. If you are not required to make a down payment but choose to, this can help lower the overall cost of your loan over time.

No VA Loan Limits

Starting in 2020, the VA removed the VA loan limit for VA-backed mortgages, potentially giving VA borrowers more buying power, including the ability to apply for a so-called Jumbo Loan that exceeds the Fannie/Freddie conforming limit for that housing market.

According to the VA official site, those with full VA loan entitlement “may now obtain no-down payment VA-guaranteed home loans in all areas of the country, regardless of housing prices”.

Benefit #3: No Private Mortgage Insurance (PMI) and Limited Closing Costs

One of the biggest advantages of a VA loan? No private mortgage insurance (PMI).

Most conventional loans require PMI when you put down less than 20%. That monthly fee protects the lender and can add hundreds of dollars to your annual payment.

VA loans don’t require PMI. Because the loan is backed by the federal government, lenders take on less risk, which helps keep monthly payments more affordable.

No Private Mortgage Insurance

The VA also places restrictions on some lender fees, helping reduce upfront expenses.

For example, VA guidelines prohibit veterans from being charged certain fees, including:

• Attorney fees in some cases
• Brokerage fees
• Inspection fees for new construction supervised by HUD

In addition, veterans are free to compare lenders and negotiate interest rates, closing costs, and loan terms. The VA doesn’t set rates — lenders do — which means shopping around can make a real difference.

These protections are designed to make homeownership more affordable and accessible for veterans and service members.

VA Loan Benefit #4: VA Loans Are Flexible

VA loans aren’t one-size-fits-all. The program offers flexibility that can work for many different homeownership goals.

Eligible borrowers can use a VA loan to:

• Buy a single-family home
• Purchase an approved condo
• Buy a manufactured home (if it meets VA guidelines)
• Build a new home
• Improve or refinance an existing home

This flexibility makes the VA loan program adaptable to different life stages — whether you’re buying your first home or upgrading later in your career.

Energy Efficient Mortgage (EEM) Option

The VA also offers an add-on program called the Energy Efficient Mortgage (EEM).

This allows borrowers to add up to $6,000 to their loan for energy-saving improvements, such as:

• Solar panels
• Insulation upgrades
• HVAC improvements
• Weatherproofing

The goal is simple: lower your long-term utility costs.

Keep in mind, adding energy improvements increases your total loan amount. If the higher payment pushes your debt-to-income ratio above certain limits, your lender may need to re-qualify you for the loan.

BAH (Basic Allowance Housing) Can Count as Income

If you’re on active duty, lenders can count your Basic Allowance for Housing (BAH) as qualifying income. This can help you qualify for a higher loan amount.

However, the Post-9/11 GI Bill housing stipend does not count as income, since it has a defined expiration date.

VA Loan Benefit #5: Refinancing Options Available

The VA permits Interest Rate Reduction Refinancing Loans. These are like traditional streamlined refinancing loans obtainable via additional federal housing programs and traditional lenders. Interest Rate Reduction Refinancing Loans are made to assist veteran home buyers in refinancing existing mortgages to obtain a lower interest rate and a lower monthly mortgage payment.

The VA version of a streamline refinance is for existing VA mortgages only, but VA applicants can also apply to refinance a non-VA mortgage with a cash-out or no-cash-out refi loan option.

Changes To VA Loans Which Began In 2020

In January 2020, certain changes to the VA loan program took effect, including a temporary increase in the amount of funding fee rates for “certain loans closed on or after Jan. 1, 2020,” plus an overall reduction of funding fee rates for Reservist and National Guard borrowers.

The changes there eliminated a disparity in the VA loan funding fee between active-duty and Guard and Reserve members (who had to pay higher fees).

Other changes to the VA loan program included a provision for Purple Heart awardees (see below) and the elimination of the VA loan guaranty limit (see below), effectively ending VA mortgage loan limits and placing the responsibility for the final loan amount on the lender.