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What Are the Pros and Cons of VA Loans?
What you'll learn: If a VA loan is right for you after considering the pros and cons
EXPECTED READ TIME: 3 MINUTES
Updated April 7, 2023
If you served or are serving in the Military, National Guard, or Reserve and are eligible, a VA loan can be a really attractive option when planning to buy a home. The fact that VA loans require little to no down payment can become a major factor in getting into your dream home. Despite a long list of benefits, a VA loan may not be right for everyone. Let's take a look at the advantages and disadvantages of a VA loan so you can make a fully informed decision.
What is a VA loan?
VA loans are government-backed loans that offer highly competitive interest rates with little to no down payment required.
Who is eligible for a VA loan?
The U.S. Department of Veterans Affairs is a great place to start to determine the eligibility requirements for a VA loan. To be eligible for a VA loan, you generally need to be able to confirm one of the following:
- You have served 90 consecutive days of active service during wartime.
- You have served 181 days of active service during peacetime.
- You have six years of service in the Reserves or National Guard.
- You are the spouse of a service member that has died in the line of duty or as a result of a service-related injury.
What are some of the advantages of a VA loan?
If you qualify, there is a long list of benefits that make VA loans an beneficial over a conventional loan. VA loans typically offer the following:
- VA loans offer better terms and interest rates than most other home loans.
- 100% financing — typically, there is no down payment required for a VA loan, as long as the purchase sales price of the home does not exceed the appraised value of the home.
- There is no need for private mortgage insurance (PMI) or mortgage insurance premium (MIP). PMI is designed to protect a lender when the down payment for a home is less than 20% of the mortgage amount and MIP Federal Housing Administration (FHA) requires to self-insure your loan against potential loss.
- There is no penalty for paying off the loan early.
What are some of the disadvantages of a VA loan?
Even with all of those advantages, there are some factors you need to be aware of before deciding to get a VA loan:
- You will be required to pay VA funding fees. This is a one-time payment that helps to lower the cost of the loan for U.S. taxpayers, since the VA home loam program does not require downpayments or monthly mortgage insurance.
- Consider the total cost of loan compared to total cost of house. Since you need to factor in the cost of the VA funding fee, you could ultimately end up with a loan that exceeds the market value of your house.
- Manufactured homes may require a minimum down payment and may not be eligible for a 30-year term.
- You cannot use a VA loan for rental properties.
Is a VA loan better than a conventional loan?
Ultimately, the answer to this question depends upon your unique circumstances and your financial situation. With the option of 100% financing, better terms, and lower interest rates, you should consider your eligibility, options, and work with your lender to determine the best loan for your situation.
the Mortgage CenterSIMILAR ARTICLES
10 Things New Homebuyers Need to Know
If you are looking to buy a home, a VA loan can be a great option. Some of the benefits of VA loans include no down payment and no insurance.
What Are the Benefits of a VA Loan?
If you are looking to buy a home, a VA loan can be a great option. Some of the benefits of VA loans include no down payment and no insurance.
Can I Refinance a VA Loan?
A VA Loan can improve your financial situation, especially when it’s time to refinance your home. PenFed explains how to approach the VA refinance process and your best options.
What Are the Different Types of Mortgages?
There are different types of mortgages for all financial situations. PenFed Credit Union provides details on different mortgages and which might be right for you.
Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
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