Although, VA loan offers a host of benefits, but is it the best way to buy a home? Shouldn’t the home owner consider other available options as well? VA loans certainly have lots of benefits but there can be situation when turning to a conventional mortgage is more beneficial for the borrower. Let’s study the pros and cons of VA loans.
Advantages of VA Loans
Borrowers don’t have to struggle to gather cash for the down payment as VA guarantees at least one quarter of the loan amount. This is another reason why an individual doesn’t have to buy mortgage insurance. However, upon taking a conventional loan, the borrower has to buy mortgage insurance if he is making a down payment less than 20 percent of the value of the property.
VA loans also have a limited closing cost as the lender’s fee is 1 percent of the loan amount.
The maximum amount a borrower gets in VA loans is more than what he will get in FHA or conventional Fannie Mae loan.
Obtaining forbearance on a VA loan is easier than on other home loans if the borrower makes a default or faces a financial crunch.
There’s no need to have a high credit score to get approval for the VA loan. However, low credit score might become a major hurdle in approval of a conventional mortgage loan.
Disadvantages of VA Loans
Borrowers have to pay upfront funding fees to get VA loan. This fee can vary from 0.5 percent to 2.8 percent of the loan amount. Down payment, service history and previously obtained VA loan are also other factors in calculating funding fees payment. However, in FHA loan, the upfront fee is flat 1 percent.
The approval process of VA loan takes longer time because of the additional paperwork involved. Also, the home that borrower is intending to buy will be inspected before the loan is approved. This further delays the process.
If an individual is buying a fixer-upper, VA loan isn’t a good choice because it doesn’t give additional money for the other renovation expenses involved in home improvement.
When to Go for a VA Loan?
Despite a few consequences, VA Loans are still preferred by veterans and servicemen because they have more advantages over disadvantages. An individual should opt for VA loan if he:
● Doesn’t have enough amount for down payment
● Have a low credit report
● Fears of making a default payment in later years
● Isn’t in urgent need of property
● Is buying a brand new property or even an old home that doesn’t require any improvement
VA loans are definitely better than conventional loans because of the lenient terms and conditions they have for the borrowers. The process might take little longer to close but the efforts won’t go waste at the end.