What Are the Pros & Cons of a VA Home Loan?

Veterans Administration (VA) home loans are benefits earned from military service. They offer many advantages, but may not be right for everyone.

Advantages

 

No down payment 

There is no down payment required if your home is under the county loan limits (currently $484,350). If your loan amount is over the limit, you can still get a VA loan, but you will have to pay a down payment. This can be calculated by your lender.

No PMI 

Because the VA is guaranteeing the loan, you are not required to buy Private Mortgage Insurance (PMI). This reduces your overall monthly payment. This is a great benefit that could save you thousands of dollars over the life of a loan.

Pros & Cons of a VA Home - 1


PENFED Dream Makers grant 

These are special grants for veterans in a lower income bracket. To qualify for a Dream Makers mortgage grant, you must meet these eligibility requirements:

  • Be active duty military, Reserve or National Guard, or a military veteran.
  • Be a first-time homebuyer, have not owned a home for the last three years or lost your home through divorce or disaster.
  • Have a gross annual income of no more than 80% of the area’s median income, adjusted for household size, for the state and county in which you’re planning to buy. For example, in Cleveland County, Oklahoma, the maximum income can range from around $38,850 - $73,300 depending on how many people are in the household
  • Have received a mortgage pre-qualification or pre-approval letter from any lender.

 

Do You Have Reservations as to Whether or not a VA Home Loan is Right for You?

CLICK HERE TO DOWNLOAD THE VA HOME LOAN CASE STUDY FOR INFORMATION ON ONE OF OUR VALUED CLIENT'S EXPERIENCE WITH LINCOLN LENDING

 

 

Disadvantages

 

Funding fees 

This is a fee that is added to your loan. You don’t pay it out of pocket. This money goes to the Veteran’s Administration to help offset the costs of guaranteeing the loan.

  • The fee varies depending on your down payment amount and veteran’s classification (i.e. regular military or reserves) https://www.benefits.va.gov/homeloans/documents/docs/funding_fee_table.pdf. If you pay a 5% or 10% down payment, it reduces this fee.
  • It is higher than most other government backed loan programs. But since you don’t pay PMI, it tends to outweigh the higher funding fee.
  • If the Veteran is disabled, the funding fee is usually waived by VA. The Certificate of Eligibility tells us whether we have to charge a funding fee.
  • The funding fee increases as you get additional VA loans in the future.

 

Occupancy requirements 

VA loans are for your primary residence only. You cannot buy a rental property using a VA loan.

  • If you move, you can keep your home with the VA loan as a rental, but it may affect whether or not you qualify for the new home loan. This depends on multiple factors, such as cost of new home and remaining VA eligibility. This can be calculated by your lender.
  • If you sell your house, you can ask to have your eligibility reinstated, so you can qualify for a VA loan on you next house. This often happens when you sell one home and buy a new home at the same time). Your lender can help with this.

 

Appraisals 

VA appraisals may take a little longer than normal because you must use a VA-approved appraiser. The VA appraiser list is relatively small, so they tend to have pretty heavy workloads. But this is not always the case. It will all depend on the individual appraiser and his/her workload at any given time.

 

How do I decide which is best for me?

Start by talking with a lender. By reviewing your specific situation, the lender can help you weigh the options.

It’s also a good idea to get your VA certificate of eligibility from https://www.benefits.va.gov/homeloans/purchaseco_certificate.asp. This will verify eligibility for a VA loan and whether or not you are required to pay the funding fee.

Sometimes the lender will also need a DD-214. You can obtain a copy at https://www.benefits.va.gov/homeloans/purchaseco_certificate.asp.

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Every situation is different and a mortgage lender can’t give financial advice. But Lincoln Lending (NMLS # 398026) has an experienced team that can review your information and discuss options. They can review the advantages and disadvantages of a VA home loan based on your specific situation.

We offer a no-cost, no-obligation information session to help you make wise choices about home ownership. To schedule a session, please call (405) 799-5363 or email us at info@LincolnOK.com.

VA Home Loan Case Study