Noteboom The Law Firm

VA Mortgages Have Benefits and Disadvantages

May 14, 2010 - It was not long ago Department of Veterans Affairs (VA) mortgages were so difficult to handle lenders refused to process them. Further, people selling homes were reluctant to accept offers from those buyers who had been backed by VA loans. Because of these difficulties, the VA made their loans easier to obtain and began to offer distinctive benefits.

The VA does not supply the actual loans but instead persuades private lenders to make the loans. The VA then guarantees repayment of a considerable percentage of any loans entering default. Because the VA does not supply the loan, however, the VA does not determine eligibility.

The VA program is just about the only way to still get a 0%-down loan. For buyers, not having to make that down payment is a key benefit to utilizing a VA loan. The amount of money buyers can save by not putting money down can be substantial.

Significantly, VA loans do not require the borrower to pay private mortgage insurance (PMI). Not paying monthly PMI payments allows buyers to pocket more money each month for other uses. In the end, the long-term cost of owning your home will be lessened.

VA loans do have downsides to them. While VA loans are easier to get, they are only easier to get for those who qualify. Every applicant must get a certificate of eligibility from the VA to prove they are qualified to receive the VA loan. People eligible for VA loans include:

• Veterans;
• Active duty personnel;
• Reservists;
• National guard members; and
• Some surviving spouses.

 Further, VA loans are limited in use for owner-occupied primary residences. On a separate note, the VA imposes a funding fee for their loan, which might be the biggest drawback. Depending on your situation, this fee will range from 2.15% to 3.3%. This fee does not work towards the equity of your home and most people will not be able to avoid paying the fee.  

Federal Housing Administration (FHA) loans are also a possibility for many people. While there are certainly benefits to both, you must weigh if you want to make a down payment versus paying the VA fee.