VA Loans - The Pros, The Cons, and What You Need to Know
For most military borrowers, VA loans represent the best lending program on the market. It's just one way our country honors the service of our men and women in uniform. VA Loans are flexible, no-down payment loans that have helped more than 22 million service members become homeowners since the program began in 1944.
Even though it is an established and well-known program there are still some unique benefits and lesser-known restrictions that you should know about!
- No Down Payment
- No Mortgage Insurance
- Higher Debt to Income Ratio
- Lower Closing Costs
- No Down Payment = Nervous Sellers
- Only for Primary "Move-in Ready" Residences
- Added Funding Fee
- Specific VA Loan Limits
GOOD TO KNOW
- You can use a VA loan more than once
- VA loans can be expanded with additional down payments
- Your eligibility never expires
- Borrowers with a service-connected disability are exempt from paying the funding fee.
- Usually not allowed to co-borrow with anyone other than a spouse or another veteran.
VA Loan Overview
1. They’re reusable and don't expire. You can use your VA loan over and over again as long as you pay off the loan each time. (Or if the buyer of your home is also VA eligible your mortgage can be transferred.) Moreover, if it's been years or decades since your service - you are still as eligible as you ever were.
2. They’re for primary residences only. Your VA loan will not let you buy a beach condo on Maui - sorry? VA loans are only for primary residences, although you can use this benefit to buy a duplex or another multiunit property, provided you actually live in one of the units. The VA does offer exceptions, and lenders can have their own standards.
3. They’re only for certain types of homes. If you're dreaming about your own farm or restaurant, or even putting in some sweat equity into a fixer-upper, your VA loand might not cover it. It's mainly designed for properties in "move-in ready" condition, including single-family homes, condos, modular housing, some multi-unit properties and more.
4. They’re not issued by the VA. The VA doesn't issue your loan it "only" provides a guaranty. If you have a VA entitlement, the agency, ie, the government, typically guarantees up to a quarter of the loan amount. This id an amazing safety net that gives lenders confidence and gets you great terms and rates.5. They’re available despite foreclosure or bankruptcy. Have you had a bankruptcy or foreclosure and thought homeownership is out of reach? Not so fast! Even borrowers who have had a VA loan foreclosed on can still utilize their VA loan benefit.
5. They don’t have mortgage insurance. Usually, when you don't put more than 20% down you're required to pay what is known as mortgage insurance as a monthly premium on top of your mortgage payment. The VA's guaranty eliminates the need for any mortgage insurance, thus saving you money every month!
6. They come with a mandatory fee. There’s no mortgage insurance with VA loans, but there is the VA Funding Fee. This fee helps the VA keep the program going and is required on both purchase and refinance loans. It can be rolled into the loan amount and is waived entirely for those with service-connected disabilities.
7. They have limits on co-borrowers. Some loan programs let you get a loan with just about anybody. That’s not the VA loan program. Having a co-borrower who isn't your spouse or another veteran with VA loan entitlement will require a down payment. This is good to know if you're thinking of co-signing a loan for your children, for example.
8. They don’t have a prepayment penalty. You can make extra payments any time you want, saving you a boatload in interest over the life of your loan. You can even structure your payments to automatically deduct a little extra every month. Just an extra $100 per month can shave years and tens of thousands of dollars from the balance.
9. Some sellers might look askance at a VA Loan. If you're competing in a multiple offer situation, many times the strength of your offer is more than just the dollar amount. Sellers also look at how well a buyer can perform financially - if say, the house doesn't appraise for the full price, can the buyer make up the difference? Having a larger down payment or more earnest money up front is one of the ways you can demonstrate your ability to follow through. Taking advantage of the no down payment part of a VA loan isn't a deal breaker - just be prepared to show you can meet any shortfalls and communicate your options with your agent.
So Are You Eligible for a VA Loan?
VA home loans are available to active service members, veterans (unless dishonorably discharged), and in some cases, surviving family members. You’re probably eligible if:
- You’ve served 181 days of active duty during peacetime
- You’ve served 90 days of active duty during wartime
- You’ve served six years in the Reserves or National Guard
- Your spouse was killed in the line of duty (and you have not remarried)
Your eligibility never expires. Veterans who earned their benefit decades ago are still using their benefit to buy homes.
Still have questions? Get in touch with us and we can start you on the path to homeownership.