Zero Down Payment and No PMI
The VA loan program, backed by the U.S. Department of Veterans Affairs, is one of the most powerful mortgage benefits available to eligible veterans, active-duty service members, and surviving spouses. The most well-known advantage is the ability to purchase a home with zero down payment, but the benefit that saves the most money over time is the elimination of private mortgage insurance, or PMI.
On a conventional loan with less than 20 percent down, PMI typically costs between 0.5 and 1.5 percent of the loan amount annually. For a $350,000 mortgage, that means $1,750 to $5,250 per year in additional costs that build no equity. VA borrowers skip this expense entirely, saving tens of thousands of dollars over the life of the loan.
Combined with typically lower interest rates than conventional loans, the zero-down and no-PMI advantages make the VA loan one of the most cost-effective paths to homeownership available anywhere in the mortgage market.
Flexible Credit and Income Requirements
VA loans are more forgiving than conventional mortgages when it comes to credit scores and qualifying criteria. While the VA itself does not set a minimum credit score, most lenders look for scores of 580 to 620, compared to the 620 to 680 typically required for competitive conventional loan pricing. This accessibility makes homeownership possible for veterans who may have experienced financial challenges during or after their service.
The VA also uses a unique residual income calculation in addition to the standard debt-to-income ratio. Residual income measures how much money a borrower has left over each month after paying all major obligations, including the mortgage, taxes, insurance, and estimated utilities. This approach provides a more complete picture of affordability and can help veterans with higher debt-to-income ratios qualify when they might be turned down for a conventional loan.
The VA Funding Fee and How to Reduce It
While VA loans do not require PMI, they do include a one-time VA funding fee that ranges from 1.25 to 3.3 percent of the loan amount, depending on your service category, down payment, and whether it is your first VA loan. This fee funds the program and can be financed into the loan amount, meaning you do not need to pay it out of pocket at closing.
Several groups are exempt from the funding fee entirely, including veterans receiving VA disability compensation, Purple Heart recipients on active duty, and surviving spouses of veterans who died in service or from a service-connected disability. If you believe you may be exempt, discuss this with your loan officer before closing, as the exemption can save thousands of dollars.
Making a down payment of 5 percent or more also reduces the funding fee significantly. Even though the VA loan allows zero down, contributing even a modest down payment can lower your upfront costs while also reducing your monthly payment and total interest.
Reusable Benefit and Assumption Advantages
One of the least-known features of the VA loan is that it is a reusable benefit. You can use a VA loan multiple times throughout your life as long as you have available entitlement. When you sell a home purchased with a VA loan and pay off the mortgage, your full entitlement is restored. In some cases, you can even have two VA loans at the same time if you have sufficient remaining entitlement.
VA loans are also assumable, meaning a qualified buyer can take over your existing VA loan at its current interest rate and terms. In a rising rate environment, this feature can make your home significantly more attractive to buyers, since they could assume a lower rate than what is currently available on the market. The assumption process requires lender approval and the buyer must meet VA creditworthiness standards.
If you have served in the military and have not yet explored your VA loan benefits, now is the time. Your TAM Mortgage VA loan specialists can verify your eligibility, explain your entitlement, and guide you through every step of the process.
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Whether you are buying your first home, refinancing, or exploring loan options, the TAM Mortgage team is here to help you navigate every step of the process.