The Pros and Cons of VA Loans

As with any mortgage loan option, there are advantages and potential disadvantages to VA loans. However, VA loans are an optimal home financing option for eligible veterans, active-duty members, or a qualifying spouse. Here we will examine some VA loan pros and cons to help you make beneficial decisions when choosing your mortgage.

Pros of VA Loans

No down payment required

This is one of the biggest advantages of a VA loan. VA loan applicants can borrow as much as a lender is willing to lend while putting $0 down. Other loans, like FHA loans, will usually require a minimum down payment amount of 3.5 percent.

No private mortgage insurance

Typically other common loans will require private mortgage insurance when a borrower does not put 20% down at closing. However, VA loans never require private mortgage insurance, no matter the 0% down payment.

Easier credit check (no min. score & lower interest rates)

Another pro is that the Department of Veterans Affairs does not set a minimum credit score for the VA loans it guarantees. This assures that lenders assess the full profile of the applicant rather than basing qualification on minimum credit score requirements.

No prepayment penalty

With VA loans, the borrower has the freedom to pay off the mortgage early or make additional payments without the possibility of being penalized for it. Again, with FHA and conventional loan products, prepayment penalties are a possibility. For VA loan borrowers, this can help with saving money in the long run.

Relaxed home eligibility

VA loans have relaxed eligibility requirements for the types of homes that qualify. You can use a VA loan to purchase various types of properties, including stick-built houses, condominiums, and even manufactured homes. This flexibility expands your options when choosing a home with a VA loan.

Cons of VA Loans

For primary residences only

VA loans are intended for borrowers buying primary residence homes only. Therefore, if you are looking to buy a second home or investment property, this loan option is not applicable.

VA funding fee required upfront

The VA Funding Fee is a common fee VA borrowers will be required to pay upfront. This helps keep the program up and running.

Limited to those eligible

Obviously, a con of this loan product is that it is only applicable for veterans and their spouses. This means that there is limited eligibility and that the program is not open for many borrowers.

May have less equity in your home

One potential drawback of a VA loan is that it may result in less equity in your home. With the advantage of being able to buy a home with little or no money down, you won’t need an initial out-of-pocket payment. However, this means your property will be 100% financed, potentially leaving you in a negative equity position.

Is a VA loan right for you?

A VA loan may be right for you if:

• You are a veteran or active-duty military member, as VA loans are designed specifically for military personnel and their families.
• You want to buy a home without making a down payment, as VA loans offer 100% VA financing, which is beneficial for those with limited savings.
• You have a lower credit score, as VA loans have more lenient credit requirements compared to conventional loans, making them suitable for those with imperfect credit.
• You already have a VA loan and wish to refinance, as the VA’s IRRRL program allows you to potentially lower your interest rate and monthly payment.

VA Loan Alternatives

While VA loans offer numerous benefits, it’s important to explore other loan alternatives. Direct Mortgage Loans is a trusted VA loan lender and offers a variety of home loans to fit your specific needs. Get started on your loan process today by downloading our app and connecting with one of our expert Loan Officers!

Conventional Loans

These loans meet Fannie Mae or Freddie Mac requirements and offer down payment options as low as 3%.

FHA Loans

Governed by the Housing of Urban Development (HUD), FHA loans have flexible guidelines for borrowers with limited down payment funds and imperfect credit history, popular among first-time homebuyers.

USDA Loans

Backed through the Rural Housing Division of the United States Department of Agriculture, these loans are available to eligible buyers with low to moderate incomes and limited down payment funds.

Specialty Loans

Tailored mortgages for unique circumstances, such as the Good Neighbor Next Door program, providing housing incentives to qualified professionals, and Fannie Mae Homeready/Freddie Mac Home Possible Advantage Loan, offering low-to-moderate income borrowers financing options with as low as 3% down payment.

Conclusively, VA loans carry many benefits, and it is important to consider any financial challenges that come with it. Direct Mortgage Loans is a qualified VA loan lender. Download our app to start your loan process today!