The VA loan program was introduced to help the US veterans fulfill their dreams of buying a home. As the program offers several benefits over conventional and other government backed home loan programs, it is one of the most popular home loans among borrowers. While the VA loan offers several advantages, there are various disadvantages associated with VA loans, too. It is, therefore, important for you to weigh the pros and cons of VA loans before you go apply for a VA home loan to buy a home in Texas or anywhere in the US. Come, let’s take a look at what they are. Pros of VA loans 1. Zero Down Payment Most home buyers procrastinate their home buying decision because of lack of funds required to pay the down payment. One of the key benefits of obtaining a VA home loan is that the borrower doesn’t have to pay a down payment. 2. Closing Cost Benefits Most home loan programs require homebuyers to pay the closing costs that comes as an additional burden for home buyers VA loan program allows sellers to pay a part of the closing cost on behalf of the veteran home buyers. 3. Low Interest Rates Interest rate is one of the most important factors that help home buyers determine the home loan they must obtain. VA loans offer lower interest rates as compared to what most home loan programs offer. Cons of VA loans 1. Funding Fee VA loan borrowers are required to pay an upfront funding fee of 2.15 percent if they are obtaining a VA loan for the first time, and 3.3 percent if they have taken a VA loan earlier. 2. VA Non-allowable Costs The VA loan program does not allow a buyer to pay the non-allowable costs. These costs have to be borne by the seller. Though these costs are only 1 percent of closing costs, it can be hard to convince a seller to pay these costs during a sellers’ market. 3. Terms of Usage VA loan program does not provide loans for buying a second home or for making an investment. The borrower or their dependents are expected to occupy the property within 6 months from the date of purchase. Last Few Words VA loan is undoubtedly one of the best home loan options available to veteran borrowers. However, if there are any home loan restrictions around VA loans that are discouraging you from obtaining a VA home loan, it’s advisable to consult a home loan officer who can help you decide whether you should go with a VA loan or any other home loan option.
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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. |
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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