So just the other day, my client locked in on a VA loan rate of 2.50 percent and a credit back in points. That got me excited to create this blog. I’m writing about the pros and cons of VA Home Loans, or loans available from the US Department of Veterans Affairs. And speaking of loans, if you didn’t catch my other blog on “Should I Refinance My Mortgage Now,” please check it out, here’s the link (https://realestateofhawaii.com/real-estate-blog/should-i-refinance-my-mortgage-now/).
Here are the top 5 positives of VA loans:
#1 No Down Payment:
Probably the most noteworthy benefit of the VA loan is you don’t have to put anything down to buy your home. And on top of that, there is no longer a limit on the size of the loan as there used to be. Keep in mind that although technically there is no limit to the amount you can borrow, you still need to qualify with sufficient income and credit requirements to qualify for the loan amount.
#2 No Private Mortgage Insurance:
Typically, for conventional loans, if you purchase a home and put less than 20% down payment, you have to pay private mortgage insurance or PMI. This insurance in necessary because your loan is viewed as a riskier investment to the investors who are going to buy your loan. Even with no down payment there is no PMI requirement for VA loans.
#3 Looser Credit Requirements and DTI Ratios:
In general VA loan requirements are loose when it comes to credit score minimums and debt to income ratios.
#4: Multi-use benefit:
To be eligible for a VA home loan, you don’t have to be a first time home owner and you use the benefit again and again (assuming you qualify and meet all the requirements again).
#5 Foreclosure and Bankruptcy, that may be ok:
Borrowers who recently went through bankruptcy and/or foreclosure can be eligible for a VA home loan sooner than they’d be eligible for a conventional or FHA loan.
Ok now here are my top 3 negatives for VA Home Loans:
#1 No Investments or Vacation Homes:
One of the biggest limits for VA loans is that they can be only used to purchase or refinance owner-occupied properties. Shucks, can you imagine how the cash flows would change with a 2.5% loan rate compared to your current rates on your investments?
#2 Not All Properties are Eligible:
Not all properties qualify for VA loans. Vacant land and coops do not qualify. If you’re buying a condominium, you’ll need to get approval for that complex if it hasn’t already on the VA approved list.
#3 Sellers May not Pick You:
Some sellers have a negative view of VA loans, and in a multiple offer situation you may lose out to a buyer with a conventional loan. I have been on both sides of the coin. This stems from about 20 years ago when VA loans were more restrictive. Recently the VA buying process has gotten better and more streamlined. There are still factors that may make the seller avoid the VA buyer. For one, the appraisal: VA Appraisers do have minimum property requirements or MPRs for the home to pass safety and livability guidelines. Also, the home value must appraise for the purchase price. I’ve heard some say that VA appraisals seem to be more conservative so that adds a risk for the seller. I don’t know if there’s any truth to this. However, I do see a need for more precision due to the fact that if this is 100% loan, just a small decrease in market price could mean the owner has negative equity in the home.
So those are my top pros and cons on VA home loans. I just mentioned some of the big ones but there are definitely more. Also, remember, I’m not a VA loan specialist, loan officer or broker, but I do have some great people who are. If you have any questions on your situation, let me know and we’ll get the answer.
