VA loans in Texas and other parts of the U.S. are provided to eligible veterans or their spouses. These loans are guaranteed by the VA and are one of the most popular loan programs due to the benefits such as no down payment requirements, and lower interest rates that come with them. That said, as is the case with other loans, there are some drawbacks of VA loans, too. Opting for VA loan is necessarily not a better alternative every time. To provide a balanced perspective when deciding whether to opt for a VA loan, the post lists some pros and cons of the loan. Read on.
Benefits No Down payment Requirement Unlike some other government and conventional loans, VA loans do not require any down payment. That said, lenders usually offer better terms to borrowers who pay a downpayment (of 20 percent or more). No Private Mortgage Insurance Required An added cost for FHA borrowers who cannot pay at least 20 percent down payment is the yearly private mortgage insurance premium. This cost is spread throughout the life of the loan and can run into thousands of dollars. VA does not have any PMI requirements which helps save precious dollars, thereby, reducing the total cost of the loan. Relaxed Debt-to-income Ratio Requirements DTI ratio is the ratio between the debt you owe and your income for a given period. VA has relaxed DTI norms a compared to FHA and conventional loans. It is not rare for the body to approve borrowers with a high DTI ratio (41 percent or more), thereby, making these loans more accessible. No Prepayment Penalties Unlike some other loans that require a prepayment penalty in case the borrower wants to pay their loan at an earlier period, VA does not have a prepayment charge for borrowers who want to pay off a part or all of their loan before the stipulated period expires. Limits on the Closing Costs Paid by the Buyer Closing costs, on an average range between 2-5 percent of the home’s purchase price. The VA does not allow the veteran to pay certain closing costs such as attorney fee, escrow fee, document preparation fee, and underwriting fee, which helps in reducing the loan cost for the borrower. Drawbacks Funding fee VA loans carry a funding fee that helps the VA to run the program and keep on providing the benefits. This fee varies in the range of 1.25 percent to 3.3 percent depending on the down payment amount. Veterans with a service connected disability are exempt from this fee. Other borrowers can get this charge rolled into their loan. Property Restrictions One of the eligibility requirements for a VA loan is that the borrower must intend to use the property as their primary residence. These loans are not provided to finance a second home or an investment property. Stringent Appraisal Process VA has a stringent appraisal process and can reject a loan application if the seller does not agrees to certain repairs, thereby, making it difficult for the buyer to buy the house “as is”. Hesitant Buyers VA restricts the amount of closing costs the borrower can pay, which can result in additional expenses for the seller. Many sellers are, therefore, hesitant to sell their house to a VA loan borrower. Conclusion There is no set answer to the question whether a VA loan is good for you. To reach at an informed and judicious decision you need to consider these factors. You must also consult your lender or an experienced mortgage consultant who will study your personal info to help you choose a program that best suits your needs.
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AuthorDarrick encourages readers to post issues that need immediate attention in terms of home buying; such interactions will enhance reader engagement and provide a road-map for others Archives
November 2017
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