What Are the Pros and Cons of VA Loans?

If you served or are serving in the Military, National Guard, or Reserve and are eligible, a VA loan can be a really attractive option when planning to buy a home. The fact that VA loans require little to no down payment can become a major factor in getting into your dream home. Despite a long list of benefits, a VA loan may not be right for everyone. Let's take a look at the advantages and disadvantages of a VA loan so you can make a fully informed decision.

What is a VA loan?

VA loans are government-backed loans that offer highly competitive interest rates with little to no down payment required.

Who is eligible for a VA loan?

The U.S. Department of Veterans Affairs is a great place to start to determine the eligibility requirements for a VA loan. To be eligible for a VA loan, you generally need to be able to confirm one of the following:

• You have served 90 consecutive days of active service during wartime.
• You have served 181 days of active service during peacetime.
• You have six years of service in the Reserves or National Guard.
• You are the spouse of a service member that has died in the line of duty or as a result of a service-related injury. 

What are some of the advantages of a VA loan?

If you qualify, there is a long list of benefits that make VA loans an beneficial over a conventional loan. VA loans typically offer the following:

• VA loans offer better terms and interest rates than most other home loans.
• 100% financing — typically, there is no down payment required for a VA loan, as long as the purchase sales price of the home does not exceed the appraised value of the home.
• There is no need for private mortgage insurance (PMI) or mortgage insurance premium (MIP). PMI is designed to protect a lender when the down payment for a home is less than 20% of the mortgage amount and MIP Federal Housing Administration (FHA) requires to self-insure your loan against potential loss.
• There is no penalty for paying off the loan early.

What are some of the disadvantages of a VA loan?

Even with all of those advantages, there are some factors you need to be aware of before deciding to get a VA loan:

• You will be required to pay VA funding fees. This is a one-time payment that helps to lower the cost of the loan for U.S. taxpayers, since the VA home loam program does not require downpayments or monthly mortgage insurance.
• Consider the total cost of loan compared to total cost of house. Since you need to factor in the cost of the VA funding fee, you could ultimately end up with a loan that exceeds the market value of your house.
• Manufactured homes may require a minimum down payment and may not be eligible for a 30-year term.
• You cannot use a VA loan for rental properties.

Is a VA loan better than a conventional loan?

Ultimately, the answer to this question depends upon your unique circumstances and your financial situation. With the option of 100% financing, better terms, and lower interest rates, you should consider your eligibility, options, and work with your lender to determine the best loan for your situation.