Benefits of a VA Hybrid Loan
VA hybrid loans come with 1/1/5 caps, which are mandated by the government. This means that the highest your interest rate can increase the first time is 1 percent, and each annual adjustment is also limited to a 1 percent increase. Additionally, your loan’s interest rate cannot increase more than 5 percent for the entire life of the loan.
Government loans adjust four times a year (on January 1, April 1, July 1, and October 1). The loan’s first adjustment occurs with the first adjustment period after the fixed-rate portion of the loan ends. For instance, if the fixed-rate period ends in March, your interest rate will adjust in April and every April afterwards until the loan reaches maturity. Your new rate is based on the amount you still owe, not on the original amount of the loan.
VA hybrid loan interest rates are tied to the stable U.S. treasury index. VA hybrids use an average of activity from the 1-year Constant Maturity Treasury for their index, so rate adjustments are generally smoother and less volatile than they are for other adjustable-rate loans.
The shorter your fixed-rate term is, the lower your interest rate will be. By taking on the risk of a fluctuating interest rate, you save a lot of money. If you want to pay your home down more quickly, your savings can go directly to the principal of the mortgage, making the hybrid a great option for you.
VA hybrid loans are ideal if you plan to move in the near future (less than 10 years). You’ll get to take maximum advantage of a low interest rate and then move before your interest rate has a chance to increase very much.
One of the key factors in securing a good deal on a home purchase is having a high credit score. In fact, you often need a good credit score to get a mortgage at all. But it’s different with VA loans—you can usually get a good loan even with a low credit score and a short credit history. The lack of an established credit history does not mean that you cannot get approved for a loan. A satisfactory payment history for utilities or rent can show that you are responsible with monthly payments.
Guidelines are often more flexible for VA loans than they would be for conventional loans.
The VA does not require a minimum credit score, although lenders usually have some requirements to minimize their risk. But because this is a benefits program, guidelines are often more flexible than they would be for conventional loans.
You can even apply for a VA loan just two years after a bankruptcy has been discharged. A full explanation of the bankruptcy will be required. Job stability is a must in this situation. It is also possible to apply for a VA loan just two years after a foreclosure.
The world where you could buy a house without a down payment has largely disappeared—unless you’re lucky enough to be eligible for a VA loan. You can actually get a loan without a down payment at all, making it significantly easier for you to get into your new home more quickly.
If you take out a conventional loan and pay less than 20% down, you have to have private mortgage insurance (PMI) on the loan, adding significant cost to the total price of the home. But even if you finance the entire cost of the home, you do not need PMI with a VA loan, saving you a lot of money.
The VA limits what closing costs the buyer can pay, which is another way you can save a lot of money over a traditional loan.
The VA limits what closing costs the buyer can pay, which is another way you can save a lot of money over a traditional loan. The borrower of a VA loan is allowed to pay for things like an appraisal, credit report, title insurance, and origination fee, among a few other costs.
There are some necessary fees that the veteran is not allowed to pay for, like escrow, processing, and underwriting (among others). One option is for the seller to pay such fees. In some cases, a real estate agent who represents the buyer can contribute to the closing fees in the form of a credit. Lenders can also offer a credit to the buyer by adjusting the borrower’s interest rate. Another option is that the lender can charge the borrower a one–percent origination fee (which is an allowable charge).
There are a few more benefits to getting a VA loan. First, there is no pre-payment penalty for paying your mortgage off early or for making extra payments. Additionally, if you have trouble making your monthly payments, the VA has counselors that can help guide you and figure out what to do. These counselors can sometimes negotiate with the lender to keep you in your home.
Find the best VA loan for your situation