Veterans, active-duty military personnel, and surviving spouses often have a variety of options when financing their home. VA loans are the typical choice for qualified applicants because they have better terms and easier requirements than other loans. However, there are some circumstances where a VA loan may not be the right option for you.
Pros of using a VA loan
There are many reasons to choose a VA loan over another type of loan:
- No / low down payment. Most VA loans don’t require as much down payment and some programs don’t require one at all. Making a larger down payment can lower your VA funding fee, save you interest over time and give your home equity a jump start. But no / low down payment VA loans give those without cash for a large down payment the chance to own their own home.
- Competitive rates. Rates for VA loans are competitive with rates for other loans.
- No mortgage insurance. VA loans do not require mortgage insurance like FHA and many conventional loans.
- Low credit score requirement. VA loans have a low credit score requirement. At Freedom Mortgage, we can often accept a minimum credit score as low as 600 for a VA loan.
- No loan limits. The Department of Veterans Affairs does not limit how much money you can borrow with a VA loan.
- No prepayment penalties. Some lenders charge fees for paying down your mortgage early. VA loans do not charge prepayment fees.
Cons of using a VA loan
There are some scenarios where a VA loan may not be the right choice compared to an FHA or conventional loan:
- Funding fee. VA loans usually require borrowers to pay a one-time funding fee that helps protect the VA loan program if a borrower defaults. If you have enough money for a 20% down payment, you may be better off buying a house with a conventional loan and avoid paying a mortgage insurance fee or premium. Conventional loans can help you avoid paying funding fees if you refinance in the future.
- Primary residence only. VA loans can only be used to support a primary residence. They cannot be used for rental or investment properties.
- Appraisal process. Homes financed through VA loans need to meet specific appraisal guidelines before approval and must be evaluated by a VA-certified appraiser. Learn more about VA minimum property requirements.
- Spouse’s credit score. If you’re a married veteran and your spouse has a high credit score, you may want to consider another loan. For example, if the veteran (the qualifying party for a VA loan) has a credit score of 570, and the spouse / co-borrower has a credit score of 760, it might be better to apply for a different loan or have the spouse solely apply for a non-VA loan. If both of you have good credit, this is likely not a concern.
- Eligible service members only. VA loans are not available to every borrower. You must be an eligible service member to qualify.
Pros and cons of refinancing a VA loan
The pros and cons of refinancing a VA loan are similar to standard rate and term refinances or cash out refinances. However, standard VA loan refinances have a streamline option called the IRRRL program. An IRRRL loan can lower your rate and/or monthly payment and the process requires less paperwork. It also has a faster closing process and does not require a home appraisal or income verification. The credit requirements for IRRRL loan are often easier too. By refinancing, the total finance charges may be higher over the life of the loan.
Would you like to learn more about VA loans?
Freedom Mortgage is the #1 VA lender1 in the United States, which means that we have expertise to help you. Talk with our friendly loan advisors about the loan choice that is the right fit for your needs. Visit our Get Started page or give us a call at 877-420-1698.
1Inside Mortgage Finance, 2021
Last reviewed and updated March 2022 by Freedom Mortgage Corporation