VA Loans - Advantages and Disadvantages
In 1944, the United State Congress launched the Veterans Affairs (VA) loan guarantee program, which authorized the US Department of Veterans’ Affairs to guarantee home loans made to veterans by qualified lending institutions. VA loans enable eligible active-duty service members, veterans and their families to purchase a home with no money down.
If you qualify for a VA Loan, here are the items to consider.
Advantages of VA Loans
• No Money Down
A VA loan doesn't require a down payment, a huge benefit when conventional loans typically require a 10-20% down payment.
• No PMI
Private mortgage insurance (PMI) is not required with a VA loan. PMI normally is an added 0.2-0.9% monthly expense for conventional loans when borrowers put less than 20% down.
• Fewer Restrictions
Qualification guidelines are less restrictive with VA loans than with other conventional loans. They allow higher debt-to-income ratios, and are more lenient with your credit score history, typically only looking at the previous 12 months.
• Easier Home Loans to Refinance
You can usually refinance to a lower rate through the VA Streamline Refinance Loan Program, which allows you to refinance quickly with a reduced funding fee.
Disadvantages of VA Loans
• Difficult Sellers
Sellers can be more hesitant to sell their home to a buyer who is financing the purchase with a VA loan, due to the strict conditions that come along with these loans. Since there is a limit to what fees can be charged to the buyer using a VA Loan, a seller could find themselves being forced to pay more at closing.
• Strict Appraisal Process
While this can also be seen as an advantage, VA loans require more strict home inspections and sometimes can make it extremely tough to buy a home "as is". For example, if a seller doesn't agree to certain repairs, a home may not be approved with a VA loan.
Qualifying for a VA Loan
• Must be current or ex military personnel
• Have no past record of loan defaults within the last 12 months
• Have not declared bankruptcy within the last two years