The Major Benefits & Drawbacks to VA Loans

by Mac Chinsomboon 06/11/2024

If you're a veteran, a VA loan might seem like the perfect option for financing a home. However, there are some important differences between VA and conventional loans which could affect your decision. Here are some of the major pros and cons of VA loans to help you make the best financial choice:

VA Loan Pros

No Down Payment

VA loans do not require a down payment, which could potentially save you thousands of dollars on your home purchase. Conventional loans require down payments of a minimum of 3% of the home's purchase price, and higher down payments are often encouraged in tough markets. However, with a VA loan you can skip the down payment step.

No PMI

Private Mortgage Insurance is required by lenders if you fail to meet a specific financial criteria. Examples could be a lower than normal down payment, low credit score or a high debt-to-income ratio. The policy protects the lender in case you default on the loan. VA loans don't require you to buy a PMI policy, saving you time and money.

No Prepayment Penalty

Some loan options on the market charge a penalty for paying off your mortgage before the end of its established term. VA loans don't have any penalties for prepayment, so you're free to spend your money however you choose.

VA Loan Cons

VA Funding Fee

VA loans do come with a specific upfront cost called a funding fee. Funding fees go toward keeping VA loans available to future veterans. There are some ways to be exempt from paying the fee, but it's a mandatory expense in most cases.

Primary Residences Only

Another major drawback to VA loans is that they are restricted based on property use. You can only use a VA loan to finance a primary residence. Therefore, you couldn't use it to buy a vacation home, rental property or other type of investment.

Is a VA loan the right choice for you? Consider these pros and cons when making your decision to determine whether it's the best solution for your homebuying needs.

About the Author
Author

Mac Chinsomboon

Degrees: BS Engineering, MBA Finance, Juris Doctor.

I'm named by Boston Magazine as Top Real Estate Agent, and RealTrends ranking of #125#125 of all MA Agents (see https://youtu.be/LdZw5E6WeFM). Please feel free to reach out for a consultation, and here is a direct link to my schedule for a 1-1 video conference call: https://meetfox.com/en/e/mac 

Feel free to check out my new Relocation and Remote Work blog at https://www.relo.ai - I can refer you and your friends to any location Worldwide.

Massachusetts Institute of Technology (MIT Sloan), MBA - Finance

University of Colorado - BS Electrical Engineering

Purdue Global - Concord Law School, Juris Doctor