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Pros and Cons of a VA Loan

There’s a reason why so many veterans choose to go with a VA loan. It offers some great benefits, making it an attractive choice. There are a few cons to this route though, so let’s take a few minutes to discuss the pros and cons of a VA loan. 

Pros of a VA Loan for Your Mortgage

No Down Payment – it’s difficult to save up a lot of money for a down payment. Life is expensive, and we’re already trying to save for a lot of other things – retirement, a new car, our kids’ college, etc. Fortunately, you can take out a VA loan without a down payment. We still recommend a down payment if you have the means, that way your monthly bill will be lower. But if you don’t have one, don’t sweat it. 

No Private Mortgage Insurance (PMI) – This is a huge one. Many people using conventional loans have to pay PMI because they didn’t have the down payment required to have 20% equity in the home. PMI is expensive, costing anywhere from 0.5% to 2.25% per year on a conventional loan. So if your mortgage is $250,000, your PMI can be up to $5,625 per year! That’s a lot of money. When you take out a VA loan, you don’t need to worry about that. Who doesn’t want to save thousands of dollars a year? 

Great Refinancing Options – If you take out a VA loan, you have access to some great refinancing options. Many people are currently taking advantage of the Interest Rate Reduction Refinance Loan (IRRRL), which is just what the name implies – a way for veterans to reduce their interest rate. Since rates are so low right now, some veterans are saving hundreds of dollars a month by taking advantage of the IRRL. 

There are even more advantages, like the fact you can prepay the mortgage without penalty and have a higher debt-to-income ratio maximum. But there are some downsides to consider as well. 

Cons

Sellers’ Concern – Some real estate professionals have a bad taste in their mouths from VA loans taking a while to process. They’ll pass those negative thoughts onto their clients, so sometimes a seller will be hesitant to work with someone using a VA loan. 

VA Funding Fee – The biggest downside to this type of loan is the VA Funding Fee. This is a one-time fee paid at the beginning of your mortgage. Most borrowers finance it to be included in the loan. Even though it is extra money paid out, think of it like this: the VA Funding Fee goes to the VA itself. That means it’s helping keep the VA around, and the door open for veterans (including yourself) to have access to VA loans in the future. 

Primary Residences Only – Unfortunately you can’t use this type of loan for a second property or rental property. You need it to be your primary home. 

Even though a few downsides exist, most veteran borrowers choose to go with this type of mortgage. The VA loan pros outweigh the cons. For personalized advice, give us a call at 844-6-VA-LOAN. We look forward to helping you figure out if a VA loan is right for you. 

Courtesy of Cuselleration

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