Is a VA Loan Right for You?

VA Loan Right For You

How to Determine if a VA Loan is Right for You?

VA loans are mortgage loans that are readily available for service members, veterans, and eligible surviving spouses. These loans are supported by the federal government and are provided by private lenders such as banks and mortgage companies. The VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms.  But how do you know if a VA loan is right for you?

In order to receive a VA loan, you need to meet the requirements to be eligible. These requirements depend on your service history or status. To make sure you’re eligible, please visit the VA website.

There are many benefits of obtaining a loan through the VA such as no down payment, lower interest rates, and lenient standards for credit scores. Although there are many benefits, it may not always be the right choice. Before you continue with the VA loan process, it’s best to consider all of your options and goals that you have in mind.

Benefits of a VA Loan

Down Payment and Mortgage Insurance

Unlike conventional loans, the VA doesn’t require a down payment nor mortgage insurance. Conventional loans generally require a down payment which can be as low as 3%. Although this is low, if your down payment is less than 20%, mortgage loans require private mortgage insurance (PMI).  Since no down payment or mortgage insurance is necessary, you can save thousands of dollars with a VA loan.

Credit Score

There is no minimum credit score requirement by the VA. Instead, the VA requires a lender to review the entire loan profile. The private lenders who issue the loans may have their own minimum credit score which can range from 550-620. Usually, lenders are more lenient with their credit qualifications if the mortgage payment is reasonable compared to your total income.

Rates and Costs

VA loans tend to have lower interest rates and closing costs than conventional loans. The average VA loan rate is about 0.25% lower than conventional loans. The VA also sets limits on the amount lenders may charge for specific closing costs and fees which help to minimize costs.

Property and Improvements

You’re not limited to a single-family home and can purchase different types of property. These properties can include condominiums, a home of up to four units, or you can build a home. If you already have a home, the VA loan allows you to refinance your existing mortgage and make repairs or improvements.

Disadvantages of a VA Loan

Funding Fees

You can use your benefit more than once, however, you will be charged a funding fee. This is a fee that helps to offset the cost of the loans for U.S. taxpayers. It is due at the time of closing and changes depending on how many times you have used your benefit. Although it’s more of a minor disadvantage, the funding fee can go up to 3.6% the second time you use your loan.

Down Payment

If you have enough money for a 20% down payment, the VA loan may not be your best option. With this down payment, you can be exempt from the PMI on a conventional loan as well as avoid the funding fee that is required on all VA loans.

Investment Property

Those who are looking to purchase an investment property will not find this ideal. Although you can buy a multi-family unit of up to four units, one unit must be occupied by the veteran. VA loans are to be used on a home you are planning on living in and not for a purchase investment property.

Occupancy

The VA requires you to move into your new home within 60 days after closing. A spouse can satisfy the occupancy or if you are retiring then you have 12 months to move into your new home. If you do not meet these criteria and you don’t plan on moving into the residence any time soon, then it may be best to either wait or choose another option.

 

RELATED: