If you are a veteran, an active military personnel, or the spouse of a member of the armed forces that has fallen in the line of duty, the VA loan program could be a great option to help you purchase a home. VA loans, or Veterans Home Loans, allow homebuyers to purchase a home with no down payment, a low-interest rate, and often lower closing costs compared to other types of mortgages.
VA loans are a common way for veterans and their families to purchase a home, with a total of 187,307 loans going to veterans that were previous homebuyers in 2015. If you think that maybe the VA loan program could be right for you, here are some VA loan advantages and disadvantages to consider:
Advantages of VA Loans
According to the terms of the loans set by the Department of Veteran Affairs, 100% financing is allowed with loan amounts up to $453,100 in most areas. VA loan limits are available for even higher amounts in some higher cost areas. If a loan amount of more than $453,100 is needed, it is possible if the veteran pays 25% of the difference of $453,100 and the actual purchase price.
TThe VA loan program offers 100% cash-out refinancing, but is often capped at 90% by many lenders.
VA loans require no minimum credit score, and underwriting is much more flexible than it is with a conventional loan. However, most lenders often require a score of at least 620. Our current requirement is 580 or higher.
VA funding fees can be added to 100% of financing, reducing the out-of-pocket costs that your family has to provide tremendously.
Disadvantages of VA Loans
VA lenders cannot, by law, have guidelines less strict than those set out by the Department of Veterans Affairs. But they can actually be more strict. Lenders are often afraid of losing their VA approval, which can happen if they have a high default rate, so they may tighten their guidelines.
Another disadvantage is that some home sellers are resistant to VA loans. They believe that VA mortgages take longer to close, are more complicated, and have more strict and stingy appraisals, although these perceptions are largely outdated. They also may want a substantial deposit in escrow if they accept an offer, which can be an undue burden for those using VA home loans and the VA loan program in general..
These are just some of the VA loan advantages and disadvantages that can be present on the market at the present time. There could be more that appear as the market evolves.
If you have any questions about VA loan advantages and disadvantages or just VA loans in general, contact us. We'll be happy to help.