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VA Loans: Know the Potential Pros and Cons

By John Brown

If you’re a veteran or active member of the military, you may be considering a VA loan. This type of mortgage loan is guaranteed by the United States Department of Veterans Affairs. They are available to military veterans and their families. Eligible borrowers can use VA loans to purchase a home, build a home, or refinance an existing mortgage.

However, when you need cash now and don’t have time, you can request an emergency loan from online lending institutions. These institutions provide a secure, hassle-free, and fast way to get a loan even when your credit score is far from perfect.

A VA loan has several advantages, but it has its drawbacks as well. That’s why it’s crucial to understand and weigh the pros and cons before making a final decision, and that’s what we’re here to talk about.

Who Qualifies For a VA Loan?

Before we delve into a VA loan’s benefits and disadvantages, let’s dive into its eligibility requirements. To qualify for a VA loan, you need to be:

  • On active military duty
  • An honorably discharged veteran who meets the minimum service requirements
  • Military personnel who served 90 consecutive active days or more during wartime or 181 days or more during peacetime
  • A spouse of military personnel who died, went missing, or was held captive in war

If you belong to any of these categories, you need to acquire a COE or certificate of eligibility to show that you indeed qualify.

Pros of VA Loans

Those who qualify for VA loans can take advantage of the following benefits.

No Required Down Payment

Traditional mortgages require borrowers to put a down payment of at least 3% of the total purchase price. On the other hand, VA loans allow qualified borrowers to take out a loan without paying anything upfront. This makes a substantial difference for people who can’t afford a down payment, especially since it can be quite a hefty sum.

No Mortgage Insurance Required

This is where VA loans stand out among other types of loans available today. You don’t need to pay the mortgage insurance that you must pay on all Federal Housing Administration (FHA) loans. With traditional loans, you pay a premium, both upfront and annually, for the entire loan duration. If you pay a down payment of below 20% on traditional mortgages, you’d also need private mortgage insurance.

Lower Rates

Lenders typically charge lower interest rates for VA loans compared to traditional loans. So, you can save a massive sum of money long-term. The typical interest rates for VA loans are 0.5% lower than traditional loan rates. Additionally, the closing costs of VA loans are often lesser than other loan types. This is because lenders cannot charge more than 1% of the mortgage as it is a policy by the VA.

Easier Qualification

The VA is not strict when it comes to credit scores. They don’t have a minimum requirement, but it’s important to state that the criteria for approval are up to the lender.

Cons of VA Loans

While the potential benefits of using a VA loan to purchase a home are worth noting, there are also some potential drawbacks.

Funding Fees

This fee covers the costs of the VA loan program and can either be added to the loan balance or paid in cash at closing. This fee can be anywhere from 1.4% to 3.6% of the total loan amount, depending on whether you put a down payment and whether you’re a first-time or repeat borrower. You need to place at least a 10% down payment to pay the least funding fee.

Less Flexibility

With VA loans, you can’t waive some contingencies (like appraisals or home inspections) to make your offer more appealing to the seller. That said, some sellers are also not as enthused about accepting offers associated with VA loans.

Property Restrictions

VA loans come with some restrictions on how you can use them. For example, borrowers cannot use a VA loan to purchase investment properties or take out home equity loans. You can only use them on residential properties that you plan on living in.

Are VA Loans Right For You?

Overall, it seems that VA loans offer many advantages for eligible homebuyers. However, it is also essential to be aware of the potential disadvantages. By understanding the pros and cons of VA loans, borrowers can make an informed decision about whether this loan type is right for them.

Author’s Bio:

John is a financial analyst but also a man of different interests. He enjoys writing about money and giving financial tips, but he can also dive into relationships, sports, gaming, and other topics. Lives in New York with his wife and a cat.