Va Mortgage Loans: Credit Life Insurance Options Explained

VA loans are offered by private lenders to active service members, veterans, and their eligible surviving spouses. They do not require a down payment and come with low-interest rates and limited closing costs. One of the biggest advantages of a VA loan is that it does not require private mortgage insurance (PMI) or any other type of ongoing mortgage insurance. Instead, VA loans have a one-time funding fee that ranges between 0.5% and 3.30% of the loan amount, which helps keep the program running for future generations. This funding fee can be paid upfront or rolled into the loan amount.

Veterans' Mortgage Life Insurance (VMLI)

VMLI offers up to $200,000 in mortgage life insurance, which is paid directly to the bank or lender holding the mortgage. The coverage amount equals the outstanding mortgage balance but does not exceed $200,000. It is important to note that VMLI is a decreasing-term insurance, meaning that the coverage decreases as the mortgage balance is paid off, and the coverage ends once the mortgage is fully paid off. Additionally, VMLI does not have any loan or cash value, and it does not pay dividends.

To apply for VMLI, veterans must first apply for an SAH grant. If approved for the grant, a loan guaranty agent will determine eligibility for VMLI. The agent will assist in completing the Veterans' Mortgage Life Insurance Statement (VA Form 29-8636). It is important to note that veterans must apply for VMLI before their 70th birthday. The VMLI premium is calculated based on the current mortgage balance, the remaining number of mortgage payments, and the desired amount of VMLI coverage.

VMLI provides valuable protection for eligible veterans and their families, ensuring that their homes are secure even in the face of severe disabilities or death.

No down payment required

VA loans are an attractive option for veterans and current military service members, largely because they don’t require down payments. This is a significant benefit for home buyers who are short on cash. A down payment of 10% on a home costing $240,000, for example, comes out to $24,000. That's a lot of money for buyers to scrape together.

With a VA loan, you can buy immediately, rather than spending years saving for a down payment. You also avoid steep mortgage insurance fees. At 5% down, private mortgage insurance (PMI) costs $150 per month on a $250,000 home, according to PMI provider MGIC.

VA loans are a type of government loan backed by the US Department of Veterans Affairs. They are available to current and former members of the US military, National Guard, or Reserve, as well as the unmarried widow(er)s of service members.

While VA loans are insured by the federal government, they are originated by private lenders. This means that, to take out a VA loan, you'll apply with a private lender.

There's a reason why VA loans don't require down payments. The federal government insures a portion of every VA loan that private lenders close. If you don't make your payments, the government pays your lender back for at least a portion of its loss. This type of safety net offers financial protection to lenders. With a conventional mortgage loan, which is not insured by a government agency, this safety net disappears. That's why lenders typically require that borrowers come up with a down payment when they apply for conventional loans.

It's important to note that there are exceptions to the no-down-payment rule. If you don't have full VA entitlement, you might be subject to VA loan limits and need to contribute a down payment. Likewise, if the sales price of a property is higher than its appraised value, you'll have to make a down payment to cover the gap.

Assuming you meet the service requirements for a VA loan, you have full entitlement if:

• You've never taken out a VA home loan
• You've paid a previous VA loan in full and sold the property
• You've used the VA home loan benefit, and your home was foreclosed or sold in a short sale, but you repaid the VA in full

No private mortgage insurance (PMI)

VA loans do not require private mortgage insurance (PMI). This is a significant benefit for VA borrowers as most home loan options have some form of monthly mortgage insurance. This insurance is how lenders protect themselves when buyers are unable to make their payments on time. With conventional loans, homeowners who can't bring a 20% down payment must typically pay PMI.

The VA loan program was introduced as World War II was coming to an end. It was designed to help returning servicemen and women buy a home when they might not otherwise have been able to afford a down payment or apply a top-notch credit rating to the purchase.

The VA guarantee minimises the risk to the bank or mortgage company offering the loan, which results in more favourable terms for the buyer. This guarantee means that, unlike other loans, VA loans do not require PMI.

Instead, VA loans have what's known as a VA funding fee. This is a one-time fee applied to VA loans to help keep the program running for future generations. The VA funding fee is typically 2.15% of the loan amount but ranges between 0.5% and 3.30%, and not every veteran is required to pay it. The fee can be paid upfront or rolled into the loan amount.

While the VA loan does not require mortgage insurance, it does offer Veterans Mortgage Life Insurance (VMLI). VMLI offers mortgage protection insurance to the families of veterans with severe service-connected disabilities who have adapted a home to fit their needs. VMLI provides up to $200,000 in mortgage life insurance, paid directly to the bank or lender that holds the mortgage.

Low interest rates

VA loans are known for their low interest rates and favourable terms. The interest rates are typically 0.25% lower than those of conventional loans. This is because the VA backs the mortgages, minimising the risk for lenders. The savings are then passed on to veterans.

VA loans also have lower foreclosure rates than other loan types, further reducing the risk for lenders. This is because veterans and service members take homeownership seriously.

VA loans are available from local lenders, including private banks, credit unions, and mortgage companies. The VA provides insurance to these lenders, assuring them that they will be repaid if the veteran can no longer make payments. This results in more favourable terms for the borrower.

VA loans also do not require a down payment, which is usually mandatory for conventional loans. This can save the borrower a significant amount of money upfront.

Additionally, VA loans do not require private mortgage insurance (PMI), which is typically required for conventional loans if the down payment is less than 20% of the total mortgage amount. PMI can be costly, ranging from $30 to $70 per month for every $100,000 borrowed. By avoiding PMI, VA loan borrowers can save a substantial amount of money each month.

The combination of low-interest rates, favourable terms, and the absence of a down payment and PMI makes VA loans a very attractive option for eligible veterans and service members.

Eligibility criteria

Veterans' Mortgage Life Insurance (VMLI) is a form of mortgage protection insurance offered by the US Department of Veterans Affairs. It is available to veterans with severe service-connected disabilities who have adapted their homes to suit their needs.

To be eligible for VMLI, you must meet the following criteria:

• You have a severe disability that was caused or worsened by your military service.
• You received a Specially Adapted Housing (SAH) grant to buy, build, or modify a home (e.g., installing ramps or widening doorways) to increase your independence.
• You own the home and hold the title.
• You have a mortgage on the home.
• You are under 70 years old.

VA-backed purchase loans are available to eligible veterans, service members, and their surviving spouses. These loans are offered by private lenders but are backed by the VA.

To be eligible for a VA-backed purchase loan, you must meet the following criteria:

• You qualify for a VA-backed home loan Certificate of Eligibility (COE).
• You meet the lender's standards for credit, income, and any other requirements.
• You will live in the home you are purchasing with the loan.

It is important to note that VA-backed purchase loans do not require a down payment or private mortgage insurance (PMI). Additionally, VA loans often offer better terms and interest rates than other conventional loans.

Frequently asked questions