Pros and Cons of a VA Loan

When considering which loan type is best for you to purchase a home, there are pros and cons with all mortgage options that you should be aware of before making a decision. Any time you’re making a major financial decision, it’s important to weigh the pluses and the minuses.

What is a VA Loan?

A VA Loan is available exclusively to  eligible active-duty military members, veterans and surviving spouses to finance their home without a down payment or mortgage insurance, and with lenient credit requirements. Banks, credit unions, mortgage companies and other lenders offer the loans, which the VA guarantees in the event of a default.

VA loans are attractive financing options for veterans and military members, but it isn’t always the best option financially for borrowers. Agents at Expect Realty can assist you in finding a lender to determine if the loan is right for you to purchase a home in Gulfport, Biloxi, Ocean Springs or any other community on the Mississippi Gulf Coast.  

Pros of a VA Loan

No Down Payment – One of the biggest pros of a VA loan is the option of no down payment for qualified borrowers. FHA loans are typically a 3.5% minimum down payment, while many conventional loans require at least 5%. For those who cannot afford a down payment, this is a significant savings. 

No Mortgage Insurance – Another differentiating factor between a VA loan and other loan types is mortgage insurance. Conventional loans typically require private mortgage insurance (PMI) for borrowers who do not have a down payment of 20% at closing, while FHA loans also have a form of PMI and an upfront fee due at closing. A VA loan does not have PMI, which translates to a monthly savings for borrowers. 

Lower Interest Rates – VA loans tend to have lower interest rates offered by lenders than conventional loans. Even the smallest percentages can save you a lot of money over the course of your loan. 

Lower Closing Costs – Oftentimes the closing costs with a VA loan are lower than those offered by conventional mortgages since the VA limits the origination fee a lender can charge.    

Convenient Refinancing – For borrowers looking to refinance, VA loans offer a VA Interest Rate Reduction Refinance Loan (IRRRL), which allows current borrowers to lower their rate from one VA product to another. Another option is a cash-out refinance, which allows borrowers to refinance up to 90% of the value of their home and get cash at closing to pay down debt or for other needs.  

Bankruptcy and Foreclosure Flexibility –  Borrowers who’ve been through a foreclosure or bankruptcy, can be eligible for a VA loan after a short waiting period.

Cons of a VA Loan

As with every form of financing, including a VA loan, there are some potential disadvantages.

VA Funding Fee –  While you won’t be paying mortgage insurance with a VA loan, most borrowers will pay the VA Funding Fee at closing. This can be financed into the loan, increasing the total amount owed. If you plan on being in your home for a short period, this may not be a good option. Borrowers with service-connected disabilities, a Purple Heart or who are surviving military spouses are exempt from this fee.

Restricted to Primary Residence – VA loans must be used for primary residences, and the borrower must intend to live in the home full-time. Second homes or vacation/rental properties do not qualify. It is possible to obtain a loan if you purchase a multi-unit property and live in one unit while renting the others.  

Less Flexibility – Certain contingencies cannot be waived with a VA loan, including home inspections and appraisals. Sellers in competitive markets may not be open to VA offers, primarily due to a lack of understanding or myths and misconceptions of the loan. 

Expect Realty is a veteran-owned company with some of the best real estate agents on the Mississippi Gulf Coast who can assist you in your search to buy a home with a VA loan or put you in contact with a lender who can answer any questions you may have surrounding VA loans and help determine if it’s right for you. Call or text us today at 228.215.1861 or email expectmore@expectrealy.com.