If you’re a veteran or on active military duty, you’ve likely heard of a Veterans Affairs (VA) mortgage loan and are wondering if it’s a good choice for you. You could also be eligible for a VA loan if you’re the spouse of a military member who passed away while on active duty.
A fundamental difference with VA loans is that the VA guarantees the loans made by lenders, but doesn’t lend money. The VA’s backing for private financial institutions serves as insurance against losses if a borrower defaults on a loan.
Is a VA mortgage loan right for you? Here are some pros and cons to help you evaluate:
Pros:
There’s no need to be a first-time buyer, and if you’ve used this benefit in the past, you can use it again on a future home purchase.
You could qualify for a VA loan with 100% financing, and no Private Mortgage Insurance (PMI); which is required on conventional loans if your down payment is less than 20%.
With a conventional or an FHA loan, you’ll need to make a down payment anywhere between 3 to 20%, but if you’re using a VA loan to purchase a private residence, there’s no down payment needed.
VA mortgages allow a higher debt-to-income ratio of up to 41% as compared to a conventional loan program which could only be 36%. A debt-to-income ratio is the percentage of your income to the amount of your monthly loan payments plus all other monthly debt payments such as car loans, credit card minimum payments, child support, and student loans.
Cons:
While there’s no limit to how much you can borrow on a VA loan, there are limits that may affect you based on your state and county, and how much of a financial burden you can withstand.
While there’s no down payment required, you may need some cash for an earnest-money deposit and closing costs.
There’s a mandatory funding fee of 2.15% of the loan amount if it’s your first time using the benefit, or a fee of 3.3% if you’ve used the benefit in the past.
VA loans can only be used for a primary residence, and not for an income property.
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