This guest post is from Randy Prothero, a Hawaii real estate agent and team leader of “The Prothero Group” at Island Style Realty, an Oahu Real Estate Team.
The VA loan is a government-backed, but privately lended, home loan available to veterans or those currently serving in the military (including active-duty personnel, reservists/National Guard members, and some surviving spouses). If you qualify for a VA Loan, there are many benefits to this unique mortgage including:
- Up to 100% Financing
- Large Loans Available
- Zero Private Mortgage Insurance (PMI)
- Competitive Interest Rates
- Refinancing Benefits
- Low (sometimes zero!) closing costs
- No Prepayment Penalties
1. Up to 100% Financing
With the VA mortgage, qualified buyers can finance as much as 100% of the property’s value. In other words, no down payment is required.
2. Large Loans Available
Loan limits are unique for each county and are established yearly by the Department of Veterans Affairs (VA) Loan Guaranty program. For example, here in Honolulu County (the entire island of Oahu) the 2019 limit is $726,525.
Jumbo loans of twice the limit are often available as well, but require 25% of the amount over the normal limit. Using the Honolulu County limit as an example, if a prospective VA borrower wished to borrow $1,000,000, the first $726,525 would be eligible for 100% financing, but the remaining $273,475 would require a 25% downpayment of $68,368.75. In other words, you could purchase a $1M property with a $68,368.75 downpayment plus a $931,631.25 VA loan.
3. Zero Private Mortgage Insurance (PMI)
Some lenders require that borrowers pay a monthly private mortgage insurance (PMI) fee if they are unable to come up with 20% down payment. The VA guarantees 25% of the appraised value of a home, which ensures that the borrower does not have to pay the PMI.
4. Competitive Interest Rates
Again, VA loans are backed by the VA with a guaranty; financial institutions that offer the loans carry less risk and are often able to offer lower interest rates (typically 0.5 to 1 percent lower than conventional interest rates).
5. Refinancing Benefits
If a service member or veteran already has a VA loan, he or she can refinance his or her current VA loan to lower the interest rate and to include closing costs. No qualification is needed and property value does not matter.
6.Low (sometimes zero!) closing costs
This is a big one: the seller can actually pay for all (or part of) the closing costs associated with the VA mortgage.
7. No Prepayment Penalties
Unlike many conventional loans, there are absolutely no penalties for paying the VA loan off early!
What about the Downsides?
Of course, there are some cons to the VA home loan as well. Some of the potential downsides include upfront funding fees and the possibility of the loan taking a long time to close.
Upfront funding fees can vary between 0.5 percent and 2.8% of the loan amount, depending on a combination of factors including your service history, amount of the down payment you make and whether you have previously received a VA loan. However, VA Loan funding fees are waived for veterans with a service-connected disability rating.
VA loans can sometimes take longer to close than traditional mortgages as there is additional required paperwork and the target property has to pass an inspection before the VA mortgage will be approved.
Still Interested? Speak to a Professional!
This is by no means a comprehensive list of pros and cons but should hopefully provide you with a good overview. When considering purchasing it is highly recommended that you carefully weigh all of your loan options and that you seek the advice of a professional loan agent and/or real estate agent who is an expert on the VA loan.
- U.S Department of Veteran Affairs – Veterans Benefits Administration – Home Loans (The official government site with a wealth of info on the program) –
- VA Loan Limits by County.
About the Author
Randy Prothero is a Hawaii real estate agent and team leader of “The Prothero Group” at Island Style Realty, an Oahu Real Estate Team. Randy’s team is proud to serve those who serve and has helped a large number of Hawaii’s military buy and sell real estate in Hawaii. Randy can be reached at firstname.lastname@example.org or (808) 384-5645.
The Prothero Group is proud to co-sponsor twice-monthly Hawaii VA loan workshops.