A veterans affairs loan is a home loan program guaranteed by the US government for individuals who serve in the armed forces. It doesn’t have a down payment, and there is no monthly interest for those who get approved. That being said, it isn’t all rainbows and sunshine when you go for a VA loan. There is a mandatory funding fee that must be paid, the property you want to purchase must pass strict safety checks, and the mortgage approval process can take a while. If you want to apply for a VA loan program, the following article goes over a few disadvantages that you should be aware of.
VA Mortgage Drawbacks: What Military Members Should Know
Are you studying your options for a residential purchase down the line? Or maybe you’ve already retired from the armed services and want to settle down? While a VA loan is a fantastic program for serving and retired members alike, there are a few things that can make it off-putting to some. You cannot get it for a secondary residence, and finding sellers willing to engage with a VA loan can prove to be a challenge. Below are some VA loan disadvantages for your perusal.
- VA Funding Fee
Even though there is no down payment, a VA loan does require a funding fee between 1.25% and 3.3% of the total loan amount. This is how the program runs. However, this fee can be waved off if you have a service-connected disability.
- Strict Property Standards
The property you’re interested in purchasing must be livable. This means no leaky plumbing, peeling paint, or damaged roofs. If you’re wondering, it’s hard to get a loan to buy a house. A fixer-upper may not meet VA loan requirements because the property must satisfy certain safety and livability standards.
- Zero Equity
Since there is no payment upfront toward the house, you initially don’t have any equity. This means that getting a refinance and a reverse mortgage is going to take much longer than it would have with a conventional home loan.
- Negative Equity Risks
While not having to pay a down payment may sound like a dream to some, it can become a nightmare. This is because if the market value of the property drops at some point, you’ll be stuck paying a higher price for the house till the end of the loan term.
- Longer Closing Time
Another addition to your VA loan disadvantages is the fact that it takes a little longer than traditional loans. This is because there is more paperwork and stricter mortgage requirements that must be met before the seal of approval can be offered.
- Entitlement Limits
Under normal circumstances, the DVA guarantees 25% of your mortgage in case of default. However, if you’re already paying off another VA loan or have previously defaulted on one, your entitlement may be limited. This makes buying a house difficult.
- Seller Fee Increase
While the lower closing cost is great for the borrower and all, guess where the rest of the closing fee goes? The sellers can become responsible for paying off the rest of the closing cost, which frustrates and discourages many of them.
| Note: This is not mandatory. |
- Primary Residence Only
A VA loan cannot be used to purchase a second house or a vacation home. This means that you must satisfy the DVA that you’ll actually be living in the house fulltime to have them approve the mortgage application.
- Seller Hesitation
When you’re purchasing a property with a VA loan, you’ll find that not all sellers are willing to engage. This is because they know that the process can be slow and might even fall through at the end if the property doesn’t meet strict standards.
- Second-Time Fee Increase
Adding to the list of VA mortgage drawbacks is the fact that getting a VA loan for the second time will raise your funding fees. Either you’ll have to pay a down payment, or you’ll have to pay a 3.3% funding fee this time to get approved.
Conclusion
To summarize, although a VA loan is an excellent way to buy a house if you’re in the armed services, there are a few dark sides to the mortgage program that not many people consider. There are stricter minimum property requirements that must be met; applying for a veterans affairs mortgage for the second time makes the funding fee rise; and you cannot purchase a property that you don’t intend to live in. We hope this article gave you a better understanding of the VA loan disadvantages. For more questions, please contact us.
FAQs
Do I need a PMI for a VA loan?
No; you never need private mortgage insurance for a VA loan.
How many times can I get a VA loan?
It can be used for a lifetime if you meet the requirements.
What is the 4% rule on a VA loan?
It restricts seller concession to 4% of the property value upon sale.