by Maurie Backman | Aug. 27, 2020
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VA loans offer several benefits, and clearly, borrowers are eager to take advantage of them.
Mortgage rates have dropped to historic lows this year. As a result, many prospective homebuyers have rushed to purchase property and many existing homebuyers have rushed to refinance their existing home loans. It's not all that surprising, then, to learn that VA loan activity has taken off.
Specifically, VA loan activity has climbed 114% since the start of the 2020 fiscal year (which ends on Sept. 30), according to Veterans United Home Loans. During the first three quarters of the 2020 fiscal year, the VA loan program has backed over 865,000 loans, which represents a record high. VA purchase activity is also up 7% year over year, with younger homebuyers driving a lot of the growth.
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Not everyone will qualify for a VA loan, as these mortgages are reserved for active members of the U.S. military, former members of the military, or the spouses of those who have died in the line of duty. But if you are eligible for a VA loan, it pays to apply, especially with mortgage rates being so low today.
Perhaps the greatest benefit of getting a VA loan is that you don't have to come up with a down payment for your home. If you can swing an ongoing mortgage payment but don't have a lot of cash on hand for the purchase of a home, a VA loan could make a lot of sense.
It also tends to be easier to qualify for a VA loan than a traditional mortgage, since they're backed by the U.S. Department of Veterans Affairs. In fact, there's technically no minimum credit score requirement with a VA loan (though some VA lenders may impose their own standards in this regard).
Another great thing about VA loans is that you won't risk getting hit with private mortgage insurance, or PMI, if you fail to make a 20% down payment. PMI is an added premium that protects mortgage lenders when borrowers don't put enough money down at closing, and it's one that can cost you over time.
Of course, VA loans aren't perfect. One drawback is that these loans come with a funding fee. Your fee will depend on whether it's your first VA loan and the amount you're able to provide as a down payment, if anything. That said, it is possible to roll your funding fee into your mortgage and pay it off over time, just as you can do for closing costs (which also apply to VA loans; your funding fee doesn't take the place of traditional closing costs).
If you're in a strong enough financial position to pay the ongoing costs associated with a new home, then a VA loan could be your ticket to a place of your own. You don't need to have much of a down payment on hand.
The important thing is to crunch the numbers, including your mortgage, property taxes, homeowners insurance, maintenance, and repairs, so you know for sure you can afford those ongoing housing payments. While mortgage rates are low, the country is also in the middle of a major health and economic crisis. It's natural to want to capitalize on those low rates, but you don't want to buy a home only to realize you can't really afford it after the fact.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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