When I work with veterans, I always go over all of their loan options. While it seems like the default loan should be the VA loan, and for many it is, there are other loan options veteran homebuyers may consider.
I am always open and honest with my borrowers, giving you the big picture, so you can decide which option is best for you.
VA loans are for veterans only. If you have enough time served, an honorable discharge, and meet the basic qualification requirements, you may secure 100 percent financing. VA loans don’t require mortgage insurance and you can have credit scores as low as 620. It’s a great program for borrowers with little to no money saved or less than perfect credit.
Most veterans pay an upfront funding fee on VA loans unless they are disabled from their time in the service or you are a surviving spouse using your spouse’s VA benefits. First-time VA borrowers pay 2.3 percent of the loan amount in the funding fee. Subsequent users pay 3.6 percent of the loan amount, but again, VA loans don’t require a down payment or monthly mortgage insurance.
Another government loan option is the FHA loan. Anyone is eligible that qualifies for the loan; you don’t have to be a veteran or live in a specific area. FHA loans have flexible underwriting requirements and only require a 3.5 percent down payment.
FHA loans often suit veterans with less than percent credit scores as FHA loans allow credit scores as low as 580, versus the average 620 credit score many VA lenders require. FHA loans require both upfront mortgage insurance of 1.75 percent of the loan amount and 0.85 percent of the outstanding loan amount monthly. FHA mortgage insurance lasts for the life of the loan.
Veterans with great credit and money to put down on a home may want to take advantage of conventional loans. These loans aren’t backed by a government entity, so they have stricter requirements, which is why only veterans with great credit and a down payment may want to consider it.
Conventional loans don’t have any upfront fees, but if you put less than 20 percent down on the home, you pay Private Mortgage Insurance until you owe less than 80 percent of the home’s value. Unlike FHA loans, you can cancel mortgage insurance on conventional loans.
This is another government-backed program. The USDA guarantees the loan for lenders and it doesn’t require a down payment. However, the USDA loan is for borrowers with decent credit, but low income. It also restricts its boundaries to rural areas as designated by the USDA.
The USDA offers flexible guidelines with a minimum 640 credit score and a maximum 29 percent housing ratio requirement. It’s suitable for borrowers with low household income (less than 115 percent of the average income for the area) that don’t mind living in a rural area. USDA loans charge an upfront mortgage insurance fee of 1.0 percent and an annual mortgage insurance fee of 0.35 percent charged monthly. Like FHA loans, USDA borrowers pay mortgage insurance for the life of the loan.
Each loan option available for veteran homebuyers has its advantages and disadvantages. I’m happy to go over your options, look at the costs, and determine which loan suits your needs today and over the life of the loan.Purchase Qualifier Refinance Rate Checker