The cons of a VA loan- know this before you get one!
The VA home loan guarantee is one of the many benefits that Veterans Affairs offers to the present and former members of the United States’ Armed Forces. It aims at helping them lead better lives by having their own homes and better affording them. With 100% financing or zero down payments, attractive rates, no pre-payment penalties and many such features, it does look like the easiest and the cheapest way for veterans to afford a house.
However- is it really the best available option? Like everything else, there are some significant downsides to getting a VA loan guarantee as well. The bigger ones among those go as follows.
Overlays and loan limits
One of the best things that come with VA loans is no association of any limits and minimum credit scores, including no need for appraisals during refinancing. Requirements like these are known as overlays. Laws dictate that VA lenders’ guidelines cannot be less strict than the ones that are already in place by the Department of Veterans Affairs- however; they can be tougher.
While at first, lending out money guaranteed by the VA may seem like a good thing to do for them, they could end up losing their VA approval if they witness more than the usual number of defaulters on their loans, regardless of how well they follow their guidelines. Thus, in order to stay on the safer side of all of it, lenders keep stricter guidelines to reduce the number of defaulters.
The funding fee gets higher when you reuse these benefits
The VA loan benefit is available for use more than once. However, after your first time on a VA guaranteed loan, the associated funding fee will increase. For instance, when you buy the first home with no down payment, your funding fees can be around 2.15%, which could increase to 3.3% on the second time. You can still stay at the same rate, provided you put down at least 5% of the total amount.
VA Loans are not loved by sellers
Some of the best property rates come around times when the housing market is not doing that great, or when you go out to buy a property that is under foreclosure or a short sale. In such conditions, you will have some trouble in getting an approval on your offer if it is associated with VA finance. If you are going to do that with no down payment, then you will still have to put down some money into escrow as may be required by your seller and agent, irrespective of the fact that you are using VA financing.
Many lenders and agents still carry perceptions like mortgages by the VA take more time to close and come with stingy appraisals- however, these are now quite outdated since most of them are approved and unwritten through UAS, taking no longer than normal loans. If you wish to go for a VA loan, going with an educated agent may just be the best thing to do for making the right choices.