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VA Loan Advantages and Disadvantages

By Stevie Duffin-Lutgen Updated on 7/9/2013

Veteran Family loanLoans guaranteed by the Department of Veteran Affairs (VA) provide military veterans with additional home loan benefits not available to most civilian borrowers. While the benefits outweigh the drawbacks in almost all circumstances, borrowers should consider the following advantages and disadvantages before applying for a VA loan to ensure that it is the optimal home loan program for their unique situation.

VA Loan Advantages

VA mortgages offer substantial benefits to qualified veterans, including:

  • No down payment
  • Minimal closing costs
  • No private mortgage insurance
  • No early prepayment penalties
  • Easier refinancing
  • Access to low VA mortgage rates 

No Down Payment: The main advantage VA loans is that they do not require down payments. Unlike FHA loans which require a minimum down payment of 3.5% and conventional loans which typically require between 10-20%, VA loans are extraordinarily cheap up-front.

Closing Costs: Aside from the most basic fees, VA loans do not allow for any extraneous charges during the closing of the loan.

No Mortgage Insurance: Unlike FHA loans, VA loans do not require borrowers to pay for private mortgage insurance. Considering that conventional loans include mortgage insurance fees of approximately 0.2-0.9% per month for borrowers putting down less than 20%, this is an incredible advantage.

No Prepayment Penalties: While conventional mortgage loans may include unfavorable terms such as prepayment penalties, the Department of Veteran Affairs prohibits such penalties for VA borrowers.

Easier Refinancing: VA borrowers can typically refinance to a more favorable rate through the VA Streamline Refinance Program, which is much simpler than traditional refinances and includes a reduced funding fee.

Low Rates: VA loans offer qualified borrowers access to some of the lowest mortgage rates available. For veteran borrowers with poor or damaged credit, VA loans will have much lower available rates than conventional loans.






Disadvantages of a VA Loan

Though a VA home loan is by far the best mortgage option for a qualifying veteran, they do have negative aspects to consider; these disadvantages, while few, are worth noting:

  • Funding fee.  When closing a VA loan, borrowers must pay a mandatory funding fee. While sometimes minimal, this fee can represent to up 3% of the total mortgage amount, although it may be reduced or waived if the borrower agrees to make a small down payment.
  • Complexity.  Backed by the Department of Veteran's Affairs, these loans involve additional steps when processing a VA loan application, similar to those involved with an FHA mortgage.  These additions can be confusing to some borrowers and can lengthen the approval process.  If you are a veteran and you're pursuing a VA home loan, be patient and ready to provide all necessary paperwork.
  • Sellers. Unfortunately for VA borrowers, some sellers will be reluctant to sell their homes to buyers financing with a VA loan, due mostly to the strict regulations set by Veteran Affairs. While borrowers can take advantage of VA limits to closing fees, sellers may be forced to pay them, discouraging many from considering VA buyers.
  • Appraisal. The Department of Veteran Affairs enforces rigid requirements for home inspections, which can delay the process and even impede buyers who would like to purchase the home “as is.” For instance, if the home requires any sort of repair be made and the seller is not willing to enact these repairs, the home may not be approved for VA financing.
  • Qualification. Eligibility for a VA loan is complicated and requires some consideration for most borrowers. Before applying for a VA loan, obtain a Certificate of Eligibility to ensure that you qualify.

For borrowers who qualify and are ready to make a home purchase, the benefits of a VA mortgage greatly outweigh the disadvantages in almost any scenario. However, it is always important to be aware the pros and cons of your mortgage loan options, as you will be more equipped to deal with problems if they arise.
If you are hoping to acquire a VA loan, visit our Lender411 Find a Lender page to conveniently locate nearby lenders in your vicinity; give it a try today and take the first step toward a smart mortgage.

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About The Author:
Stevie Duffin-Lutgen
Stevie Lutgen is the Senior Editor at Lender411. She manages the site's Authorship Program and social media pages. Stevie graduated from UC Santa Barbara with a BS. Contact her: stevie@lender411com.

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