VA Mortgage Loans: A More Affordable Option For First-Time Home Buyers

Buying your first home can be an exciting time, but it can also be stressful when looking for a loan that meets your budget. Qualifying for a conventional mortgage loan may be difficult if you haven't yet established a lot of credit. That's when a VA mortgage loan can help. Applying for a VA loan offers key advantages that help make buying your first home more affordable.

Who qualifies? You may be eligible to apply for a home loan guaranteed by the U.S. Department of Veterans Affairs if you are:

  • Currently serving on active duty in the military service

  • An honorably discharged veteran

  • A reservist or member of the National Guard with 6 years or more of service

  • The surviving spouse of a deceased military service member

No down payment required. With a VA mortgage loan, you can finance 100 percent of the home's value and not have to put any money down. This is a benefit to borrowers who don't have a lot of cash set aside. Conventional lenders may require up to 20 percent cash down when financing a mortgage loan.

Less stringent loan requirements. The income and credit requirements for a VA loan program are more lenient than those required by conventional mortgage loan programs. As a result, it's easier to qualify for a VA loan. A lender will consider your credit standing, debt-to-income ratio, and residual income – the amount of money you have left over each month after paying all your debts – when deciding whether you qualify for a loan.

Even though VA-approved lenders vary on the minimum credit score they will accept, generally, if you've paid all your credit obligations on time in the last year, you have a good chance of qualifying for a loan. But like conventional lenders, VA lenders like to see that you've had a regular income during the past 2 years and earn enough money to pay your mortgage and related homeowner costs each month.

Low Interest Rate. Even if you have a prior history of poor credit, you still can qualify for a VA loan at a competitive interest rate. Conventional lenders charge borrowers with low credit scores a higher interest rate. However, given that VA loans are guaranteed, VA mortgage loan programs tend to charge interest rates lower than other lenders regardless of your credit score. The lower mortgage rates translate into lower monthly payments, helping to give first-time homebuyers access to an affordable mortgage.

No need to buy private mortgage insurance (PMI). Conventional lenders typically require borrowers who make a down payment of less than 20 percent to pay for a PMI policy. Private mortgage insurance reimburses the lender in part should you default on your mortgage loan. But since a portion of VA mortgage loans are backed by the government, there is less risk for the lender. Therefore, first time buyer loans through the VA do not require private mortgage insurance, saving you money in PMI premiums each month.