When it comes time to buy a new home, veterans and active-duty military members have one more option than the rest of the population, VA loans backed by Veterans Affairs. The program is top-rated, but it has both pros and cons. Carefully consider the following points before deciding if this type of loan is for you.
Pro: No Down Payment
The most significant benefit of VA loans is that you can get one without having any down payment. By contrast, most traditional mortgages prefer 20% down payments with a requirement of at least 5%, and FHA loans require 3.5%. The lack of down payment means that you don’t have to save up for years before buying a home.
Pro: No PMI
If you have a down payment of less than 20%, most loans require private mortgage insurance. This comes with an extra monthly fee or an initial fee. By contrast, VA loans do not require private mortgage insurance.
Pro: No Prepayment Penalties
There are no prepayment penalties with VA loans. This is not always the case with other loans.
Pro: Debt-to-income Ratio
All borrowers will look at your debt-to-income ratio to decide whether to approve your loan. The VA has a higher benchmark, making it easier to get approved.
Pro: Better Following Foreclosures and Bankruptcy
You may receive approval for a VA loan just two years following a foreclosure or bankruptcy. You would have to wait several times as long for other loan types.
Con: Limited Availability
The most obvious con of VA loans is that only veterans are eligible. Spouses are also eligible if their veteran spouse died from a service-related disability or in the line of duty.
Additionally, you can only use them for your primary residence.
Con: Funding Fee
While there is no PMI, VA loans do have a VA funding fee.