In this section we are going to give a quick breakdown of the advantages of a VA home loan, so our veterans can get a general understanding of the home buying process when using their VA benefits to purchase a home in Texas. Some of these benefits are not offered on other loan programs including FHA and conventional loans.
The VA home loan program allows veterans with qualifying credit and income to purchase a home without a down payment as long as the property is a primary residence. Also, the home must appraise for a value equal to or greater than the sales price. Even though the veteran is not required to put any money down towards the sales price of the home, they will be required to come up with closing costs on the day of closing. We recommend all veterans to have money in the bank in case they are required to pay their own closing costs.
Although the VA loan does not require a down payment as mentioned above, the veteran will be responsible for closing costs associated with the loan transaction. These closing costs can be paid by the seller, and a VA loan allows the seller to pay up to 4% of the sales price towards the lender and title fees. Keep in mind, the VA regulates how much lenders can charge the veteran at closing, so veterans will not pay more than fair market costs. Also, there are certain fees the veteran cannot pay which are called VA non allowable fees, and these fees are explained in more detail under the VA Guidelines section on our home page.
The Department of Veteran Affairs (VA) does not set the interest rates for VA loans, and the VA does not offer direct financing to veterans. The interest rates are set by the lenders and their investors. These same lenders and investors also provide the actual financing for a VA mortgage. The VA guarantees a portion of the mortgage which protects the lenders against a loss if the veteran defaults on the loan. This mortgage protection is why the VA charges a funding fee, and this allows VA approved lenders to give lower 30 and 15 year fixed rates that are comparable to a conventional loan with a 20% down payment.
The VA does not have a credit score requirement, but the lender you are working with most likely does. The minimum credit score required here at VA Loan Center of Texas is a 620. However, the credit score is just the beginning. Other factors such as length of credit history on open and active accounts, negative derogatory accounts, and too many credit inquiries can be considered, as well. A more detailed list of these factors can be found under our VA Guidelines section.
Another great benefit to a VA loan is the veteran is not charged PMI. PMI is a mortgage insurance policy that protects the lender in case a borrower defaults on their mortgage payments. So, as a borrower, they would pay the premiums, and the lender is the beneficiary.