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A VA loan is a mortgage offered by the U.S. Department of Veterans Affairs , designed to help veterans, service members, and eligible surviving spouses purchase homes.
VA loans often feature favorable terms, including no down payment and competitive interest rates, making homeownership more accessible for those who served their country.
Below, we outline the pros and cons of a VA loan to help you decide if it’s the right path for you.
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- Veteran lending specialist available to you, no matter where you are
- In-house processing and underwriting
- Express Loan Approval program, which allows you to be done with the whole process (minus the contract and appraisal), so you can focus on finding your home.
- Rate Protect (Lock & Shop) lock in your rate before you even find a home!
VA Loan Pros
The benefits of a VA loan often outweigh any potential drawbacks.
No down payment required
One of the most significant advantages of a VA loan is the ability to buy a home without a down payment.
This feature is particularly beneficial if you want to purchase a property but have yet to save a significant amount for a down payment.
This benefit allows veterans to become homeowners sooner and helps preserve their savings for other expenses.
Competitive interest rates
VA loans often come with lower interest rates compared to conventional loans.
These competitive rates can result in significant savings over the life of the loan.
Lower interest rates mean lower monthly payments, making managing your budget and investing in other areas of your life easier.
No private mortgage insurance (PMI)
Unlike many other loan types, VA loans do not require private mortgage insurance (PMI), even when financing 100% of the home’s value.
PMI can add hundreds of dollars to your monthly mortgage payment, so avoiding this fee can significantly reduce overall housing costs, making homeownership more affordable.
Flexible credit requirements
VA loans offer more flexible credit requirements, making them accessible even with less-than-perfect credit.
The VA’s backing gives lenders confidence, which means they may be more willing to approve your loan, even if you wouldn’t qualify for a conventional mortgage.
Closing cost limits
VA loans limit the amount you can be charged for closing costs, making the upfront cost of buying a home more predictable and manageable.
Additionally, sellers can cover some or all of your closing costs, further reducing your financial burden at the time of purchase. This benefit helps you move into your new home without unexpected expenses.
VA Loan Cons
While the VA home loan offers many benefits, some drawbacks should be considered.
Funding fee
A VA loan requires a funding fee, which helps offset the program’s cost to taxpayers.
This fee can be a percentage of the loan amount and varies based on your military status and down payment. While it can be rolled into the loan, it still increases the overall cost of borrowing.
Property restrictions
VA loans can only be used for primary residences, meaning you can’t technically use them to purchase vacation homes or investment properties.
However, suppose you want to use your VA home loan for an investment property. In that case, it’s possible to finance the purchase of a multi-family property if you live in one of the units. You’re then free to rent out the additional units.
Additionally, the home must meet specific standards the VA sets, which can limit your choices and may require additional inspections or repairs to qualify.
Limited availability of VA-approved lenders
Not all lenders offer VA loans, which can limit your options when shopping for a mortgage.
It’s essential to find a lender experienced in VA loans to ensure you receive the best terms and understand the unique requirements of this type of financing.
MyPerfectMortgage.com can match you with a VA-approved lender who can discuss your options.
Appraisal process
The VA appraisal process can be more stringent than conventional loans, potentially leading to delays or additional costs.
The VA requires an appraisal to ensure the property meets its standards and is worth the loan amount. If issues arise during the appraisal may need to be resolved before closing.
Lengthy approval process
Obtaining a VA loan can sometimes take longer than a conventional loan due to the additional paperwork and approval steps involved.
This longer process can be a drawback if you’re hurrying to close on a home.
Being prepared and working with a knowledgeable lender can help streamline the process.
Questions to Ask Yourself Before Applying for a VA Loan
Now that you understand the pros and cons of a VA loan, it’s time to make your next move.
But before you do so, you need to answer some key questions. These will help you make an informed and confident final decision.
Am I eligible for a VA Loan?
To qualify for a VA loan, you must meet specific service requirements, which include serving a minimum number of days on active duty or in the National Guard or Reserves.
It’s crucial to verify your eligibility before applying, as this will determine if you can access the benefits of a VA loan.
What are your financial goals?
Consider your long-term financial objectives, such as how long you plan to stay in the home or how you plan to pay off the mortgage.
VA loans offer favorable terms, but understanding how they align with your financial goals is essential to making the best decision for your situation.
Can I afford the funding fee?
The VA funding fee can be significant, especially if you don’t qualify for an exemption.
Determine whether you can pay this fee upfront or if rolling it into your loan makes more sense. Financing the fee will increase your monthly payments and total loan cost.
Do I have enough savings for closing costs?
Even though VA loans can minimize upfront costs, you still need to budget for closing costs.
Understanding the total amount required and exploring whether the seller can assist with these expenses will help you prepare financially and avoid surprises at closing.
Is the home VA loan eligible?
Ensure the property you want to purchase meets VA requirements, including being a primary residence and passing the VA appraisal process.
This step is critical, as not all properties qualify for VA loans, and addressing these criteria early can save time and avoid potential issues later on.
MyPerfectMortgage.com is Here For You
VA loans offer significant advantages for eligible veterans and active-duty military personnel, including no down payment requirements, competitive interest rates, and relaxed qualification standards.
However, weighing these benefits against potential drawbacks such as funding fees and property eligibility restrictions is essential.
You can determine if a VA loan is the right choice for you by carefully considering your financial situation and homeownership goals.
Get matched with a VA-approved lender today.Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
