If you're a veteran or active-duty military member, you may have heard about the advantages a VA mortgage can give you. These loans were designed after World War II to allow service members to purchase a primary residence without making a down payment. Today, VA loans are used by millions of former and current military members.

There are a number of advantages to using a VA loan. These are just some of the biggest ones, as suggested by AZ House Treasure.

No Down Payment

The lack of a required down payment is the most well-known advantage of a VA loan. While there are some limits on the total amount that a VA borrower can take out without putting down a down payment, most VA loan users do not need a down payment to purchase a house.

To compare, consider that conventional and FHA loans typically require a minimum down payment of 3.5 to 5%. A down payment on a $500,000 mortgage could run anywhere from $25,000 to $17,500. For many families, saving that kind of down payment could take years. For military families who often lose thousands of dollars to multiple moves, it may be impossible to save that much money.

No Private Mortgage Insurance

It surprises many new homeowners that a bank will charge them PMI or Private Mortgage Insurance. This is a monthly fee paid each month, and it's meant to protect the bank if the borrower defaults on the mortgage. Essentially, by not putting down at least 20% as a down payment on a home, the bank becomes concerned that a borrower could walk away from the house in the event that they run into a financial or personal problem that makes paying the mortgage difficult.

PMI is only meant to protect the bank, and it can often add anywhere from $50 to $150 a month to a mortgage payment. People forced to pay PMI must pay until they have built up at least 20% equity in their homes. In the event of a default, only the bank is protected; the borrower will never receive any funds from PMI.

While VA loans come with a mandatory funding fee directly to the Department of Veterans Affairs, no borrowers have to pay for PMI. Note that borrowers with a service-connected disability are exempt from paying this fee. The mandatory funding fee is usually included in the closing costs and is often wrapped up in the monthly payment for the home. Over the life of the mortgage, a typical borrower will save thousands of dollars by paying this fee upfront instead of dealing with PMI.

Looser Credit Score Requirements

You typically need a credit score of 720 or higher to get a good rate on a conventional loan when you're preparing to bid on real estate for sale. With a VA loan, however, you need a credit score of at least 620. You may still need to work on improving your credit history. Still, military families often can qualify for a VA loan before they can qualify for a conventional mortgage.

Families with a bankruptcy or foreclosure on their record may discover that getting a VA loan is easier than applying for a conventional loan. From the lender's point of view, there are more protections on these loans, making many lenders more willing to take risks with them. In addition to being backed by the federal government, many VA loan borrowers are military members who face various consequences if they enter into bankruptcy or foreclosure. Many lenders see this as an additional incentive to borrowers to keep them from filing for these consumer protection methods, offering a more secure way for the lender to make a VA loan than they would with a conventional mortgage.

Higher Allowable Debt to Income Ratios

Because the federal government backs VA loans, many lenders are willing to take more risks than conventional mortgages. Allowing for higher debt-to-income ratios is one way this can happen.

A debt to income is the relationship between the minimum amount a family owes in debt each month and their monthly income. For example, a family who has to pay a $500 car payment, a $200 student loan payment, and a $100 credit card payment would have a total monthly debt of $800. If that family makes $5000 a month, their DTI ratio would be 16%.

Conventional loans typically require a DTI ratio of no more than 41%. Many VA lenders, however, are willing to let the DTI ratio go to 55% or more. This is typically the case with active-duty military families who can show proof of a service commitment.

Curbing Closing Costs

Closing costs will be part of every mortgage, regardless of the type of mortgage used to purchase a home. A VA loan, however, actually limits what fees and costs veterans can pay at the time of closing.

This means that closing costs are more predictable and often lower than the closing costs associated with a conventional mortgage. Under VA rules, a homebuyer can ask the sellers to pay all or any portion of their loan-related closing costs. Homebuyers can also ask for up to 4% of the property's purchase price for line items such as prepaid taxes, insurance premiums, collections, and legal judgments.

If you're a current or former military member considering using your VA benefits to purchase a home, contact us at AZ House Treasure. We have years of experience helping customers throughout Arizona find the right home loan for their needs. Not only can we help you find a loan, but we'll guide you through the application process.