There are advantages and disadvantages to any type of loan. However, the government-backed VA Home Loan offers one of the best deals in the industry for Veterans and active-duty military personnel who want to begin their path toward generational wealth. There’s a lot to appreciate with a VA Loan, not the least of which are the distinct advantages of not having to put up a down payment — not a cent — or private mortgage insurance (PMI). Plus, VA Loans offer lower interest rates than conventional loans.
So, instead of waiting years to save up for a down payment to purchase a house, you can buy your ideal home right away. And, of course, your benefit doesn’t expire, so you can use your VA Loan as many times as you like.
Although VA Loans offer many advantages and benefits to potential homeowners, as an informed consumer, you should be aware of any challenges that might come with a VA Loan, depending on your specific situation. Because knowledge is power, arming yourself with all aspects of VA Home Loans will help you smoothly navigate the path toward securing your family’s future. And remember, our experienced loan officers at Aligned Mortgage are always available to answer any questions you may have regarding VA Home Loans.
Let’s take a look at some challenges you could face with a VA Home Loan:
Sellers who are not familiar with VA Home Loans. You could meet resistance from sellers who think VA Loans are more complicated than traditional versions — they are not. And if the seller is using a real estate agent unfamiliar with the VA Home Loan process, you could meet with double resistance. Make sure you have a real estate agent well-versed in VA Home Loans who can help to smooth out any difficulties you encounter with a seller.
VA appraisals. VA and conventional appraisals are done to get the property’s fair market value. The property must appraise for the purchase price to qualify for a VA Loan. And VA appraisers have minimum property requirements imposed by the Department of Veterans Affairs to ensure the buyer is purchasing a sound house. In other words, to protect the borrower and lender from investing in a money pit. Some sellers unfamiliar with VA Loans could be cautious of the VA appraisal process. Again, that’s why dealing with a real estate agent experienced with the VA Loan home buying process is essential.
Download your free VA Mortgage Guide.
Are you ready to take the first step towards homeownership? This comprehensive booklet is filled with expert advice and helpful tips to guide you through the VA Home Loan program and the homebuying process. From understanding your benefits to finding the right home, our guide covers it all. Don’t wait – click below to download your copy now and start your journey towards homeownership!
VA Loans can’t be used to buy vacation or commercial property. Congress created the VA Home Loan Guaranty Program as part of the Servicemen’s Readjustment Act of 1944, also known as the GI Bill of Rights, to help ease the post-war economic and sociological problems of the millions of people who served in the military. The chief purpose of the program was to aid Veterans, active-duty military members, and qualifying surviving spouses to purchase primary residences with favorable terms, including lower interest rates than those charged by traditional mortgages.
Although buyers can use a VA Loan to purchase up to four one-family residential units in a multiunit property – think duplex, tri-plex, and four-plex – the military buyer must use one of those units as their primary residence.
However, you cannot purchase a vacation home, rental property, or a business. In other words, the VA will not back a loan for a mountain cabin you can winter in, a second home to stash your mother-in-law, or a burger franchise.
You should note, however, that if you move, it’s possible to convert that property into an investment.
You may not have much equity at first. Of course, one of the most tempting advantages of using your VA loan is purchasing a home with no money down. And if you can get the seller to pay all closing costs, it’s even possible to buy a house without using a single dollar of your own money. That’s a sweet deal, but it comes with a price –that home is now 100% financed. The upside, however, is that this is only a temporary issue because as you begin paying down your mortgage and your property’s value increases, you will start building equity.
Most VA Home Loans have a funding fee. In 1982, funding fees for all VA loans were set. Borrowers do not pay the funding fee to the lender; instead, it is an administrative fee paid to the VA to help keep the program running smoothly. The funding fee is waived for qualifying Veterans, including those with service-connected disabilities. The amount varies based on your circumstances; first-time buyers with zero down pay a 2.3% funding fee of the purchase price, while repeat VA loan users could pay up to 3.6%. So, yes, the funding fee goes up with subsequent use.
But it goes down with higher down payments. For instance, those with a down payment of 5% to 9% pay a funding fee of 1.65%. Loans with a down payment of 10% or higher land a funding fee of 1.4%. Note that you can roll the fee into your loan balance, so you won’t have to pay it upfront.
As you can see, there’s very little reason to get discouraged about any of the minor disadvantages of a VA Home Loan because they are easily managed or even circumvented. Ultimately, there are so many more reasons to use your hard-earned VA Home Loan benefits than not.