VA Loans Are the Best Home Mortgage Program Out There

In 2007 when subprime mortgages were widely available, it seemed almost anybody could buy a home with zero down payment, even with less than stellar credit. Guess what? You can do that in 2016 -- if you qualify for a Veterans Administration Loan Guaranty.

The federal VA loan program lets eligible veterans borrow under uniquely favorable terms to pay for buying, building or fixing up a home. VA loans don't require down payments, offer low interest rates and are less demanding when it comes to credit history.

Borrowers don't even have to be ex-soldiers -- officers of the National Oceanic and Atmospheric Administration, U.S. Public Health Service officers and former and current employees of some other non-military organizations also can qualify, for instance. So can surviving spouses of veterans.

The VA loan program dates to 1944, when Congress set it up to help veterans and surviving spouses purchase homes. It has been a popular benefit. The program closed on more than 631,000 loans last year, according to John Bell, VA's assistant director for loan policy and valuation.

"The volume of loans we do continues to increase," Bell says. "Two of the last three years are the best years in the 70-year history of the program."

The big appeal is that borrowers don't need a down payment. By comparison, loans backed by the Federal Housing Administration (FHA) require at least 3.5% down. Conventional loans without government backing require 3% down.

VA borrowers also don't have to pay for mortgage insurance. This insurance protects lenders if borrowers fail to pay back the loan. Most lenders require it on loans for more than 80% of the property's value. Paying premiums for mortgage insurance can add thousands of dollars to a borrower's upfront costs and hundreds to the monthly payment.

VA borrowers also get lower interest rates than many borrowers. And VA is more accepting of borrowers with low credit scores and less strict about the debt-to-income ratios that other lenders heavily rely on when approving borrowers.

Eligibility is the biggest limitation. To get a VA loan, a veteran must have served six months of active duty in peacetime, or three months during wartime, or six years in Reserves or the National Guard.

Spouses of veterans who die in the line of duty or from a service-related disability are also eligible. And other exceptions may also apply, so veterans who aren't sure they qualify should ask their lender to request a free eligibility certificate from the VA.

Another catch is a special funding fee unique to VA loans. To keep the program self-supporting so it doesn't require any government subsidy, most VA borrowers pay these fees, which go directly to the VA.

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