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Pros and Cons of the VA Home Loan Process

2020-12-02

VA Home Loans provide military servicemembers and Veterans with a flexible way to buy a home or refinance an existing mortgage – with unique benefits compared to other types of mortgages such as conventional or traditional mortgages. But before securing a VA Home Loan, it’s important to weigh the pros and cons to determine if it’s the right mortgage solution for you. Let's take a closer look at VA Home Loan pros and cons.

What are the advantages of a VA Home Loan?

The pros include:                 

Zero down payment. While many conventional and FHA loans typically require a minimum down payment of 3% to 5%, VA Home Loans do not require a down payment if the borrower is qualified, regardless of the loan amount. Therefore, you may be able to buy a home with little to no money down if you qualify.

No monthly mortgage insurance. Mortgage insurance, also referred to as “MI” or “PMI,” is usually required on conventional loans when borrowers have a down payment of less than 20% of the home value. With a VA Home Loan, there is no monthly mortgage insurance. There is, however, a VA funding fee—although disabled Veterans may qualify to pay a reduced amount or have the entire funding fee waived.

Lenient DTI ratio. When it comes to conventional and FHA loans, debt-to-income ratio (DTI) is typically a major disqualifying factor. Your DTI is how much you pay on your monthly debt obligations divided by your gross monthly income. The DTI benchmark for VA Home Loans, however, is significantly higher, allowing more Veterans and military servicemembers to qualify for a mortgage.

Refinancing. In addition to using a VA Home Loan to purchase a home, a qualified borrower can refinance a home with one of two types of VA loans: the VA Interest Rate Reduction Refinancing Loan (IRRRL) and the VA Cash-Out Refinance.

What are the drawbacks of a VA Home Loan?

The cons include:

Eligibility requirements. Since the VA Home Loan program is exclusively available for military servicemembers and Veterans, these loans are not as accessible as some conventional and FHA loans. There are several requirements a borrower must meet to qualify, including a minimum amount of time served that varies based on the conditions of your service (i.e., 90 consecutive days of active service during wartime versus 6 years of service in the National Guard or Reserves).

VA Funding Fee. All VA Home Loans come with a funding fee that varies based on whether or not you’ve used your VA benefit before and if you put money down. However, not all borrowers are required to pay the funding fee.

You may be exempt from paying the funding fee if: 1) you’re a Veteran receiving VA disability pay for a service-connected disability; 2) you’re a Veteran who would be entitled to receive disability pay for a service-related disability if you weren’t receiving retirement or active duty pay; or 3) you’re the surviving spouse of a Veteran who died while on duty or as a result of a service-related illness or disability.

Additional VA Home Loan FAQs

Am I eligible for a VA Home Loan?

To qualify for a VA Home Loan, you must meet one of the following eligibility requirements:

  • You have served 90 consecutive days of active service during wartime
  • You have served 181 days of active service during peacetime
  • You have 6 years of service in the National Guard or Reserves
  • You are the surviving spouse of a servicemember who has died in the line of duty or as a result of a service-related disability

Although it is not required before applying, it is helpful to have a VA Loan Certificate of Eligibility (COE) available when applying for a VA Home Loan. Your COE provides mortgage lenders with confirmation that you qualify for VA Home Loan benefits.

To obtain your VA Loan COE, you can:

  • Apply through a VA-approved lender
  • Apply online for a COE through the VA website here
  • Apply by mail with VA Form 26-1880

Can I refinance with a VA Home Loan?

Yes, there are two refinancing options through the VA Home Loan program: VA Interest Rate Reduction Refinancing Loan (IRRRL) and VA Cash-Out Refinance. The VA IRRRL is an easier, faster, and less expensive refinancing option that allows qualified borrowers to take advantage of lower interest rates or to shorten the mortgage repayment period. The VA Cash-Out Refinance loan gives Veterans and military servicemembers with qualified credit the ability to refinance their current home loan into a lower rate, while accessing money from the equity in their home.

Have VA Home Loan questions? Contact us.

For a comprehensive discussion on VA Home Loan pros and cons, we recommend you always contact a qualified, state-licensed loan officer. They can walk you through all the fees and costs that will come your way during the home purchase process.

AAFMAA Mortgage Services LLC (AMS) offers VA Home Loan purchase and refinancing options for current and former U.S. military servicemembers with qualified credit. Get a free mortgage assessment today or call us at 844-246-7930 to get started. One of our licensed, experienced Military Mortgage Advisors will be glad to assist you.