Loans 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 mortgages offer substantial benefits to qualified veterans, including:
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.
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:
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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