What are VA loans?
VA loans are home loans that are only available to the borrowers qualifying for military service issued by the US Department of Veterans Affairs. The VA department only issues the loans and is not the lender. The borrowers may have to pay a VA funding fee.
In order to qualify for this loan, you need to request your Certificate of Eligibility, which is COE, from the Department of Veterans Affairs through the eBenefits portal of the administration. The eligibility criteria vary depending on various factors, but there are certain basic requirements that must be fulfilled by the borrower. These are
The borrowers must be current service members who must be active for at least 90 days of continuous service.
The borrowers or the veterans who must have served continued for 90 days in peacetime or 181 days of continuous service during wartime. A borrower can still qualify for the loan if he was discharged for a disability.
Generally, it is very easy to qualify for a VA loan because there are no specific credit score requirements to get this loan.
Current VA loan rate trends
The mortgage rates have increased because the Federal Reserve increased its benchmark interest rates. The internet rates of VA loans are comparatively lower than conventional loans. The mortgage rates are expected to remain high in 2024.
Request your certificate of eligibility
Before you apply for a VA loan, you must collect some of the documents that are required to apply for the loan.
The VA loan limits are not applicable to all borrowers. For example, there is no loan limit for people who are taking a home loan for the first time or those who have paid their previous VA loan completely and sold the property.
Getting pre-approval helps to get a home loan more easily as it depicts that you’re a qualified buyer.
The lenders offering the loan are different.You must compare the interest rates and also look for the offers available, such as discounted fees, additional incentives, etc.
The borrower must meet a certain set of minimum requirements that are needed to get the VA loan.
After your loan application gets approved by the lender, you have to close the loan. To close the loan, all you have to do is sign various documents and pay closing costs.
What factors determine VA loan rates?
The VA loan rates are not determined by a single factor; instead, a number of factors determine the VA loan rates. These factors are your credit score, the size of the down payment, the debt-to-income ratio, etc.
There are other factors also that affect the rate of VA loans, like economic conditions such as inflation and recent rate hikes etc.
What are the pros of VA loans?
Almost all types of home loans require certain amounts of down payments, but if you take a VA loan, you need not pay any downpayment to buy a house.
Lower credit score requirements
A high credit score of around 620 is required by most of the loans, but you can get VA loans easily if your credit score is lower than 620.
The interest rates of VA loans are comparatively less than that of conventional loans.
No mortgage insurance is required
Mortgage insurance is not required for a VA loan, no matter what the size of your down payment is. However, conventional loans do require mortgage insurance.
What are the cons of VA loans?
Narrow eligibility requirements
If you are not a current or an ex-member of the military, then you’re not qualified to get a VA loan.
The VA loan funding fee is required. This fee is not required by other types of loans.
Generally, you can use a VA loan to buy a primary residence only. You cannot use these loans to buy a second house or some other property.
A 10-year mortgage is like other mortgages in which you have to pay the whole amount back in 10 years instead of paying it in 15 or 30 years. Thus, paying your full mortgage amount in 10 years costs you less and helps you save money.
Around 90% of Americans opt for a 30-year mortgage. The homebuying process is the same for a 10-year and a 30-year mortgage. You have to pay the same closing and origination fees.
Getting the best 10-year mortgage rate?
By comparing the rates and the fees that the lenders charge, you’ll be able to find a lender whose rates and fees best suit your needs and requirements. But before searching for a lender that suits your needs, you must ensure that your application is complete.
Pros of a 10-year mortgage
The interest rate of a 10-year mortgage is lower as compared to 15 and 30-year mortgages because you pay less time. However, the monthly instalments are greater for a 10-year mortgage.
As discussed above, you have to pay off a loan in less duration of time; this helps you get debt-free and pay off the loan faster.
The monthly payments of a 10-year mortgage are higher than others, such as 15 or 30-year mortgages. Some people might not be able to afford these high monthly instalments.
As you have to pay off the loan in a shorter period of time and also the monthly instalments are high, you need to show a high and constant source of income to the lender. Thus, it isn’t easy to qualify for a loan.
Should you get a 10-year mortgage?
A 10-year mortgage can be a great option if you want to pay your loan in a shorter period of time and can afford to pay high monthly instalments. Everyone may not prefer it because of its high monthly Installments. One should choose a 10-year mortgage only if he can fulfil certain criteria, such as
The borrower can afford to pay larger payments each month.
If the borrower wants to pay off his loan faster and get debt-free quickly.
The term of a 20-year mortgage is 20 years, which means that the loan has to be repaid within 20 years. Depending on the inflation, the rates may remain the same or may increase up to a certain value.
Qualifying for a 20-year mortgage?
The process of applying for a 20-year mortgage is similar to that applied for other mortgages.
Your income must be high so that you can pay the high amount of monthly instalments. The lender wants you to have a high and consistent income source.
Generally, lenders accept high credit scores to give loans.
You have to submit your other documents as well in order to get the loan. These documents include your tax returns, pay stubs, etc. Also, the loan-to-value ratio will be considered by the lender.
Pros of a 20-year mortgage
A 20-year mortgage will help you save lots of money that otherwise you would have paid as interest if the term of your loan was longer.
This helps to pay off your loan faster, that is, in 20 years rather than the time taken in a 30-year loan. So you’ll get debt-free early.
As you have to pay back the loan in only 20 years, the payments you make every month are higher. Thus, this is a disadvantage because not all people can afford such high monthly payments.
An FHA is a type of loan that is backed by the government, which helps the borrowers get a loan even with a low credit score or a small down payment. This loan is very useful for borrowers who are planning to own a home for the first time.
A person can still go for this type of loan if he already has a house and a very low credit score. The only requirement is that you should pay the mortgage insurance premiums and additional monthly insurance payments on time.
Qualifying for an FHA loan
The borrowers can get this loan even if their credit score is low.
Most lender’s requirement for a DTI ratio is around 43%, but some lenders provide you with a loan even at a DTI of 50%.
The lender asks for proof of your income and the employment history. This is to ensure the lender that you have a good income source to repay the loan.
How to get the best FHA rates?
The term of your loans affects your interest rate. You should consider a loan having a short term. This will help you to save on interest. Also focus on improving your credit score.
Pros and cons of FHA loans
A major advantage of an FHA loan is that you get it even at a low credit score. But you have to pay higher monthly instalments because of shorter loan term.
Conclusion
This article first studied VA loans and who qualifies for a VA loan. In order to get a VA loan, the borrower must have served the military for 90 continuous days and so on. Then we learned the process of applying for a VA loan and its advantages and disadvantages as well.
Then we discussed ten and 20-year mortgages and how they help in saving money as compared to a 30-year mortgage, followed by the process of getting the loans and its benefits and drawbacks.
At last, we discussed about FHA loans. The borrowers with a low credit score can get this loan at lower interest rates. Thus, this helps them to save money. The pros and cons of an FHA loan are also discussed.
