VA Mortgage Pros and Cons
VA Mortgage Pros
No Down Payment Required
The VA mortgage program enables eligible military personnel and veterans to buy a home with no down payment. Saving money for a down payment can be one of the biggest challenges to buying a home, especially for people who earn a decent monthly income but who struggle to save money. By enabling borrowers to finance 100% of the purchase price of a home, the VA program makes home ownership more attainable.
Low VA Interest Rate
VA mortgage rates are typically .250% - .500% lower than the interest rate on a regular mortgage and are among the lowest of all loan programs. The interest rate for a VA loan is lower for several reasons. First, the federal government guarantees 25% of the loan amount, which protects lenders against losses in the event that borrowers default on their mortgage. Second, military personnel tend to be more financially responsible and credit-worthy which also enables lenders to offer lower rates on VA mortgages. The lower interest rate on a VA mortgage reduces your monthly payment and possibly saves you thousands of dollars in interest expense over the life of your loan.
No Ongoing Monthly Mortgage Insurance Fee
Unlike most low or no down payment mortgage programs, the VA mortgage program does not require borrowers to pay an ongoing monthly mortgage insurance fee. For example, the government-backed FHA mortgage program requires that borrowers pay an ongoing monthly FHA mortgage insurance premium (MIP) and most conventional mortgages require borrowers to pay private mortgage insurance (PMI) if you make a down payment of less than 20% of the property purchase price. FHA MIP and private mortgage insurance (PMI) are extra costs borrowers are required to pay in addition to their monthly mortgage payments. By not requiring monthly mortgage insurance, the VA mortgage program offers borrowers lower total monthly housing expense (mortgage payment plus property taxes, homeowners and mortgage insurance) as compared to other no or low down payment programs.
No Income Limits
The VA mortgage program does not apply a limit to how much money borrowers can earn. Other low or no down payment mortgage programs use a maximum income limit to determine borrower eligibility. By not applying a borrower income limit, the VA program is accessible to more eligible military personnel and veterans.
No Property Location Requirement
Many no or low down payment mortgage programs require the property you are buying to be located in a certain area to qualify for specific elements of the program. For example, with some programs borrower income limits apply if the property is located in one area but the limits do not apply if the property is located in a different area. The VA mortgage program does not have a property location requirement, making it available to more borrowers. The VA program applies to one-to-four unit owner-occupied primary residences located anywhere in the United States.
VA Mortgage Cons
Upfront VA Funding Fee Increases Borrower Costs
The VA mortgage program requires that borrowers pay a one-time, upfront VA funding fee. The VA funding fee is calculated as a percentage of the loan amount and may be added to the loan. The amount of VA funding fee depends on the down payment amount, type of military service (regular military versus reserves / national guard), and if this is your first time using the VA mortgage program. An eligible veteran may use the VA mortgage program multiple times but the funding fee increases after the first use. For regular military personnel using us the VA mortgage program for the first time, the VA funding fee ranges from 2.15% of the loan amount if you make a down payment of 0% - 4.99% to 1.25% of the loan amount if you make a down payment of 10% or more.
Stricter Borrower Qualification Requirements
The VA mortgage program uses relatively stricter borrower qualification requirements as compared to other low or no down payment mortgage programs, although most eligible borrowers should be able to qualify for the program. To qualify for a VA mortgage, borrowers are typically required to have a minimum credit score of 620 as compared to the 580 minimum credit score required for the FHA mortgage program. Additionally, the VA program applies a borrower debt-to-income ratio of approximately 41% to determine what size mortgage you can afford as compared to the 43% - 50% or higher debt-to-income ratios used by the FHA and other programs. The debt-to-income ratio represents the maximum percentage of a borrower's monthly gross income that can be spent on total monthly housing expense plus other monthly debt such as credit card, student and auto loans. The lower the debt-to-income ratio used, the smaller the mortgage you qualify for. In addition to using a lower debt-to-income ratio to determine what size mortgage you can afford, the VA program requires that borrowers have a minimum level of residual income leftover after paying total monthly housing expense as well as other expenses such as child care and bills. The required borrower residual income level depends on loan amount, the region of the country in which property is located and the number of people in the borrower's household.
VA Loan Limits
Most lenders apply limits to the size of loan you can obtain through the VA mortgage program. VA loan limits vary by county. In the contiguous United States, the VA loan limit ranges from $484,350 to $726,525. In Alaska and Hawaii the loan limit is $726,525. In many cases lenders are willing to offer VA mortgages greater than the VA loan limit but require borrowers to make a down payment equal to 25% of the amount by which the mortgage exceeds the limit. For example, if a borrower wants a $600,000 mortgage and the VA loan limit is $500,000, the lender requires that the borrower make a $25,000 down payment (25% x $100,000 (difference between mortgage amount and loan limit) = $25,000 down payment). Borrower should understand how VA loan limits impact their mortgage size and down payment required to buy a home through the VA program.
Related FREEandCLEAR Resources
Review our informative overview of the VA mortgage program including eligibility guidelines, borrower income requirements and other key program information such as VA loan limits.
Use our VA Mortgage Qualification Calculator to determine how much home you can afford with a VA loan. The calculator also indicates the VA loan limit in your county as well as the upfront VA funding fee based on your down payment and class of military service.
VA loans are provided by traditional lenders such as banks, mortgage banks, mortgage brokers and credit unions. Use our VA rate table to review updated VA mortgage rates and fees for lenders in your area. Comparing rates and fees from multiple lenders is the best way to save money on your mortgage.
Review and compare multiple government-backed and conventional no or low down payment mortgage programs to understand key program benefits and borrower eligibility requirements.
VA Mortgage Program: https://www.va.gov/housing-assistance/home-loans/loan-types/purchase-loan/