The Risks & Rewards of VA Loans
The US provides leniency in some areas to the country’s veterans to honor their services to the country. This includes the VA loan, which is a mortgage loan that is set up by the Department of Veteran Affairs (VA). The VA loans allow veterans or their spouses to get a loan for their house at a good interest rate while also avoiding private mortgage insurance.
There are a lot of opportunities when it comes to purchasing a home through a VA loan. That’s because they are more flexible than conventional loans with little or no down payment options and lower interest rates. However, there are some risks involved in VA loans as well. So, this guide is to help you understand how VA loans work, their risks, and all the benefits if they get approved.
How the Loan Works
It is commonly believed that VA loans are easier to get approved than traditional conventional loans. A VA loan is to help veterans, active service members, and their spouses in completely financing a property. The loan isn’t just to purchase new properties; they can be approved for refinancing a mortgage, house repairs, or building a new home.
To qualify for the VA loan, you must be a veteran or active service member and be able to prove it. It’s a two-step process of approval that you need to follow. The first step involves you going to the VA and getting a certificate proving your service. Note that you cannot get a loan approved directly through your service papers. You must get a certificate approved by the VA.
Once you get the certificate, you show that to one of the private mortgage lenders, and your loan is approved. One important thing to know about these VA loans is that they are backed by the US government in case they default. That’s one of the reasons why the certificate from the VA holds a lot of value when applying for a VA loan.
Risks
Uninformed Real Estate Agents
A big problem that people with VA mortgage loans face is that real estate agents avoid people that have them. That’s because there is a common myth surrounding these loans. People think that because the government is involved, there will be scrutiny and limitations on a lot of things. As agents are a huge part of the real estate market, without them you’d be stuck in a seller’s market with everyone trying to take advantage of you.
No Down Payment Option
Even though this is a huge benefit for people that are getting VA loans, it’s still a risk when you’re looking to purchase a new property. That’s because sellers prefer getting a certain amount of upfront down payment as a form of security. Again, it comes down to a lack of awareness of the VA loans and if people knew that the loans were backed by the VA, it would be much easier to buy property.
Lack of Lenders
Even though these VA loans have become more popular, there are still not a lot of lenders. Therefore, big lenders can take advantage of the situation. However, it is still always advised to shop around once you have a certificate from the VA. The rates may be lower than conventional loans, but they can still vary. So, it’s always advised to shop around to find a lender that is offering you good rates. You can even go to a relatively smaller lender and get good rates.
Not Allowed to Pay Closing Costs
When you’re using a VA loan you’re not allowed to pay the closing cost, which can be a disadvantage when the real market is competitive as it is these days. A seller is not required to pay the closing cost, and if there’s someone who’s willing to pay the cost, the seller will most likely choose to sell to them instead of you.
Benefits
No Down Payment
As was mentioned earlier, with VA loans, you can finance your property completely. You don’t need to have a certain amount of savings to be approved for the loans. It’s better than most other loans that require between 3% to 20% of down payments.
No Private Mortgage Insurance
A huge advantage of VA loans is that you can completely avoid PMI. Most conventional loans need you to show 20% of the value of the property and if you don’t have that, then you must pay the PMI. It’s essentially a form of security that lenders establish. Since most veterans don’t have the 20%, VA loans are a great option as you avoid PMI and don’t need the 20%.
Flexible Credit Requirements
Credit scores are another huge hurdle many people face when applying for loans. If you have a bad or average score, then getting a loan in good conditions can be very hard. However, with VA loans, you get a lot of flexibility with your credit scores. Most of the time, the minimum requirements are much lower than conventional loans.
Lifetime Benefits
If you get approved by the VA for the loan, then you can use it again and again because there’s no expiration date on the certificate. So, you can buy multiple homes with the help of these loans, and we can help you throughout the whole process. We are mortgage consultants that help people get their loans approved. Our experts have been in the mortgage industry for decades, and they can help you through each step carefully.
Besides VA loans, we can also help you with a variety of other loan options. We have experts at non-conforming mortgage loans, FHA loans, and Investment Property Loans, so you don’t have to worry about anything. Just contact us and we’ll be there to help you.
