The other day I heard a radio host talk about how the VA Loan is more expensive than a traditional mortgage loan such as FHA or Conventional.
I was beside myself as someone who has specialized in VA Loans for 10 years I was dumfounded. As I sat in my car I explored every possibility to better understand where this host was coming from.
In the end I couldn’t come up with a good explanation. In fact, I have redone many loans for veterans over my career that had been pushed to one of these other programs not understanding how much extra money there were going to spend each month.
What are the Main Benefits of the VA Loan?
1. The VA Loan is not only 100% financing, but also has ZERO mortgage insurance. This alone can save a veteran between $50 and $350 per month – depending on your credit score and loan amount.
2. VA Loans typically have lower interest rates than conventional and comparable rates to FHA. The lower rate compared to conventional can save you additional money.
What are the drawbacks of the VA Loan?
The only potential drawback I see with a VA Loan is the funding fee. This can range from 1% to 3.3%. This fee can be rolled into the loan.
Rolling it into the loan can increase the cost of that fee as it is paid back over the loan term.
FHA also has a similar fee, so that program really doesn’t provide any additional benefit over the VA Loan.
Conventional does not have this fee. Often, it may benefit a veteran if they have a 20% down payment (which most do not have) to consider conventional over VA. The one exception to this rule is if the veteran has a 10%+ VA disability.
If they have a disability thru the VA, the funding fee will be waived. When this is the case, it is almost always more beneficial for a veteran to use the VA Loan.
Why do realtors discourage the veterans from using the VA Loan?
Most realtors – unless they specialize in VA – are unfamiliar with the VA Loan. When there is uncertainty many realtors will push their buyers towards programs they understand – not knowing the cost this imposes on a veteran.
Because of some of the inspection requirement associated with the VA Loan, many lenders and realtors may shy away from the program as well.
For example the VA Loan may require septic, termite and well inspections depending on the area. This is not a requirement on for conventional.
Having these inspections done provides another level of protection for the veteran, and shouldn’t be a reason to not use the loan program.
It is also a common misconception that the VA Loan can only be used once. Not only is this not true, depending on the amount previously used, a veteran may be able to have more than one at a time.
It is very important for our veterans to go into the home buying process equipped with good information.
Whether the VA Loan is your best option will depend on your situation. It is best to contact a knowledgeable professional that can help you explore these options.
In the end, going with the VA Loan can help veterans free up cash that can help them gain financial momentum in other areas of their lives.