Are you thinking of buying a home and wonder if using a VA home loan is the right choice for you? In this episode of Hella Smart, I’m going to give you the pros and cons of using a VA home loan. We’ll examine everything from down payments to inspections so you can make the right choice with your home financing.
If you’re eligible to use a VA home loan, that means that you’re a service member, a veteran, or the spouse of a deceased service member or veteran. So first, I want to thank you for your service. Getting a VA home loan is great, but it’s important that you understand everything about it and how it works before you go shopping for your home.
The Pros Of Using A VA Home Loan
Let’s examine three reasons why using a VA home loan is a hella smart option. The first and biggest pro is that the VA home loan doesn’t require a big downpayment to use it. In fact, it doesn’t require a downpayment at all. This is not like some kind of homebuyer grant or downpayment assistance program you may have heard of, where you have to pay back a part of the loan or the grant when you sell or refinance the home. None of that applies here; this is a true zero downpayment loan option that you’ve earned with your military service.
The second pro for using a VA home loan is that this program is more forgiving for homebuyers with lower credit scores, higher debt to income numbers, and less money in the bank when they’re buying their home. I’ve seen homebuyers who were not able to buy a home using a conventional loan or an FHA loan program successfully buy a home using the VA home loan benefit. This is not like other government programs that you may have heard of, with FHA being the most common. This gives veterans an advantage when trying to buy a home using their VA home loan benefit.
The third pro for using a VA home loan is that it doesn’t have any monthly mortgage insurance payments. Lots of low downpayment or no downpayment loan programs require the homebuyer to pay a monthly mortgage insurance payment for being able to use a low or zero downpayment loan. The VA loan program does not work like that. While it does involve something called VA loan insurance, that doesn’t involve monthly payments—which make it harder for you to qualify to buy a home
The Cons Of Using A VA Home Loan
Of course, not everything’s perfect. If you’re serious about buying a home, it’s important you know the cons of using a VA Home loan. The first con is that a VA home loan may have higher total loan costs compared to other loan options. The reason for that is the VA funding fee. This is a fee that the VA charges on VA Home Loans to pay for VA Mortgage Insurance. This insurance financially protects home loan companies if the veteran defaults or stops paying on their VA home loan.
The benefit of the insurance is that it’s what allows home lenders to make these loans with generally lower interest rates and more forgiving financial requirements compared to other home loan programs. It’s also important to remember that this fee is not charged to veterans with a 10% or higher disability rating. So if you’re a veteran with a VA disability rating of 10% or higher, you are exempt from paying this fee—making the VA home loan likely the best option for you.
However, if you have high FICO credit scores and a large down payment, the VA loan may be a more expensive option for you overall than other types of loan programs. Let me give you an example. I worked with Marcus and Linda when they bought their first home. Marcus is a Marine veteran and was eligible to use his VA home loan benefit. However, they also both had very high FICO credit scores and a large down payment. For them, using a conventional home loan option with no mortgage insurance was actually cheaper overall than using a VA home loan. This means we need to look at your whole financial picture to find out which is the best home loan option for you.
Stigma And Inspections
The second con to using a VA home loan is—and I really hate to have to say this—that there is some stigma to using the VA home loan program. It’s important to have a loan officer who can help explain the benefits of this program to sellers and their real estate agents so they understand that you’re a strong homebuyer. Be sure your loan officer is trained on the VA home loan program and has a good team behind them. You don’t want to get stuck working with some boot loan officer or a Blue Falcon who’s going to make a rookie mistake on your home purchase.
The third con you may need to deal with is the VA termite report and pest inspection. This only applies in some states, and sometimes it only applies to some counties in some states. However, you need to find out if this is something you need to deal with because it is a difference between VA home loans and other types of loans.
This pest report inspection is for certain areas where the VA wants to make sure the home you’re buying doesn’t have any termite or pest problems, as that would affect your ability to safely live in the home. Compared to other loan programs that don’t require them, this can be a con if you’re competing with other buyers who are using loans that don’t require this.
Buying Your New Home
I hope this helped you understand the pros and cons of using the VA home loan program to purchase your house. If you have any questions about how this works, please reach out and ask. I’d be happy to help walk you through your options.
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