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VA LOANS

VA loans exist for borrowers that are members in active duty, or veterans of the U.S. military and their families.  Consequently, a down payment is not usually required. Also, fees can usually be rolled into the loan amount. Additionally, other benefits include not requiring private mortgage insurance, and flexibility with credit scores.

VA loans are becoming vastly popular for military homebuyers.  This is due to their flexible requirements with credit scores and down payments.  This type of loan allows for 100% financing – meaning you won’t need money upfront.  It is perfect if one of your concerns is affordability.

However, if you are able to make some kind of down payment, it will result in lower monthly mortgage payments.  This could benefit your ongoing budget. As a result, this type of loan has much flexibility. We will help you tailor this option to your exact needs and financial abilities.

This type of loan is guaranteed by the United States Department of Veterans Affairs (VA).  It requires no private mortgage insurance. They are provided by private lenders such as banks and mortgage companies.

A review of the pros and cons of a VA loan

There are major financial advantages when choosing a VA loan.  At the same time, you must consider the drawbacks and make a decision based on your specific financial profile.

Pros

  • Affordability is the main advantage of this type of loan.  A down payment is not required. This is a significant advantage considering FHA loans require 3.5 percent and conventional loans five percent.  Closing costs and upfront expenses can be rolled into the loan. As a result, this makes it very easy for people who can afford a monthly mortgage, but don’t have initial funds
  • Lower mortgage rates are consistently offered for VA loans compared to other loan products. Lower rates mean lower monthly mortgage payments. The important consideration is to monitor changes to interest rates.  You should enter the loan when rates are low. Locking in a low rate is a major beneficial move that prevents you from having to refinance down the road.
  • VA loans do not require private mortgage insurance (PMI) because they are guaranteed by the government.  PMI is a significant expense which can make a big impact on your budget.  Conventional loans are also exempt from PMI, but only if you can contribute at least 20% to the down payment.  Therefore, VA loans allow you to be exempt from PMI while putting zero down.
  • A prepayment penalty does not apply to VA loans.  You’ll be able to pay off your mortgage faster without any penalties for paying ahead on your debt.  Certainly, you can pay as much as you want when your finances permit and go back to the lower set monthly payment at any time.

Cons

  • A VA home appraisal is required that guarantees minimum home standards are met.  Also, that the price of the property has been determined fairly.  The appraisal can be challenging for all parties involved. Certainly, our experience in dealing with VA appraisals will take you through this step without stress.
  • A mandatory VA funding fee is a closing cost that can be financed into the loan.  The fee contributes to the continuation of the VA program for future borrowers.  A basic funding fee is 2.15 percent, but in certain cases, you might be exempt. We will check and determine if you qualify for an exemption.
  • You must use the property as your primary residence.  You will have to choose another loan product if you’re looking to buy an investment property or a second home.  The VA has determined the reasonable amount of time to occupy the home after the loan closes to be 60 days. We will help you discover your unique occupancy options.   There are exceptions if you are in a situation that needs more than 60 days to move into the home.
  • VA loans are not meant for an expensive home.  The VA does not set loan limits, but they do put a limit on the amount guaranteed to lenders to 25% of the total loan amount.  These types of loans will limit you to certain markets and a particular price range.

Overall, VA loans make a lot of sense for those who are concerned with high initial costs.  As in all loans, the benefits and disadvantages need to be put on a scale. Although guidelines can be particular, it can be worth the effort depending on your financial options.  Positively, our goal is to help you chose what makes the most sense in your case.