If you served in the military, are a veteran, or are the spouse of a veteran, you may qualify for a VA mortgage. If you meet these requirements, it’s time to find out the VA loan pros and cons. After all, you’ll be paying off your mortgage for years, so it’s essential to understand whether the loan terms are correct for you.
Benefits of a VA loan
No need to pay a down payment
The down payment is the thing that stops so many people from buying a home. According to statistics, 40% of Americans cite the inability to cover a down payment as the main reason for not buying their home. For a VA loan, you will pay a $0 down payment.
No need to pay insurance
You also won’t have to pay mortgage insurance compared to other loans. As with all FHA loans, for example, borrowers pay private mortgage insurance if their down payment is less than 20%.
You can count on low interest rates
In the long run, this will save a considerable amount of money.
Save on closing costs
By agreeing to a VA loan, you get another bonus. The loan origination fee the lender may charge must be less than 1% of the mortgage amount.
Lower closing costs
Closing costs for a VA mortgage may be less than costs for other loans because the VA limits the loan origination fee that a lender can charge to no more than 1 percent of the mortgage amount.
Fewer requirements for borrowers
Lenders are more willing to lend to people with low credit scores. Also, VA loans allow for a higher debt-to-income ratio.
No penalties for early repayment
If you want to pay off your mortgage faster or sell your home, you won’t have to pay a fine. Therefore, you can safely get rid of your mortgage earlier than planned.
Opportunity to refinance profitably
The VA provides attractive refinance options—for example, you can finance up to 90% of your home’s value. You can also choose a refinancing loan with a lower interest rate to make the loan more attractive.
It’s easier to recover from financial obstacles
With a VA loan, you can return to homeownership sooner if you previously faced bankruptcy. In other cases, the typical waiting period is 3 to 7 years, compared to two years for a VA loan.
Disadvantages of a VA Loan
An important thing to remember is that you will have to pay a financing fee at closing. Or, you can pay this fee on your loan and increase your debt. The financing fee for your first VA loan will be about 2% of the loan value (if the down payment is less than 5%). Veterans with compensation for a service-connected disability may be eligible for a fee waiver. Also, spouses of veterans can count on this option.
By choosing a VA loan, you will definitely limit your potential property choices. The housing will undergo a strict examination and inspection – also, you will have to live in the purchased property, so you will not be able to receive rental income.
Conclusion. VA loan pros and cons
When considering a VA loan, seek expert advice to help you make a more informed choice. Therefore, when choosing a home and communicating with sellers, work with a realtor specializing in VA.
We also recommend contacting a mortgage broker to bring transparency to the process and have all the information about the advantages and disadvantages of the VA. Credit has many unique benefits, but it also carries many burdens.