VA Loans: Pros and Cons
Pros and Cons Summarized #
VA loans can be a fantastic option for eligible military service members, veterans, and their families looking to buy a home in Illinois in 2024. However, like any financial decision, it’s crucial to weigh the pros and cons before moving forward.
By understanding the advantages and potential drawbacks, you’ll be better equipped to determine if a VA loan aligns with your goals and circumstances.
Here’s a quick overview of the key pros and cons:
Pros: #
- 100% financing with no down payment required
- No private mortgage insurance (PMI) needed
- Lower interest rates than conventional loans
- Flexible credit requirements
- Option for streamlined refinancing later
- Assistance for first-time homebuyers
Cons: #
- Only available to eligible military members, veterans, and surviving spouses
- Funding fee is charged upfront (can be rolled into the loan)
- Strict property requirements for approval
- Difficulty obtaining approval for investment properties
- Loan limits in some high-cost areas without full entitlement
VA Loans Advantages #
VA loans are a powerful mortgage option that provides significant benefits to eligible borrowers. Let’s look closer at their key advantages:
No Down Payment Required #
One of the biggest draws of VA loans is the ability to finance 100% of the home’s value. This means you can purchase a home with $0 down payment, a major advantage over conventional loans that typically require 20% down or accepting the private mortgage insurance.
In my experience, the no down payment benefit is the number one advantage for many military families. It allows you to preserve your savings for other expenses or investments without any downsides typical found in other mortgage programs.
No Private Mortgage Insurance (PMI) #
With conventional loans, borrowers must pay private mortgage insurance (PMI) if they put less than 20% down. This can add hundreds to your monthly payment or force you to save up for much longer then you’d want to.
VA loans do not require any PMI, regardless of your down payment amount. This built-in advantage helps make VA mortgages more affordable from the start.
Lower Interest Rates #
VA loans tend to offer lower interest rates compared to conventional mortgages. Lenders see VA-backed loans as less risky, so they can pass those savings onto the borrower through more competitive rates.
Over the life of the loan, even a small interest rate difference can translate into significant savings on your monthly payments and the overall cost of the mortgage.
Flexible Credit Requirements #
VA guidelines allow for more flexibility when it comes to credit score and history requirements compared to other loan types. While lenders may still have their own credit criteria, the VA does not impose a minimum credit score.
If you’ve had credit issues in the past, such as bankruptcy or foreclosure, the VA program can give you a fresh start without extensive waiting periods that conventional loans often require.
Streamlined Refinancing Options #
The VA’s Interest Rate Reduction Refinance Loan (IRRRL), commonly known as a “streamline” refinance, provides an easy path to lowering your interest rate and monthly payment. This option typically has less documentation required and no need for an appraisal or out-of-pocket costs.
Streamline refinances can be done quickly and allow you to take advantage of lower rates when available, saving you money over the remaining life of the loan.
First-Time Homebuyer Assistance and Education #
The VA partners with approved organizations to provide homebuyer education and counseling services specifically for those using a VA loan. These resources guide you through the process and ensure you understand what to expect as a first-time homebuyer.
Certain VA borrowers may also be eligible for state or local down payment and closing cost assistance programs to further ease the home purchase process.
Potential Downsides #
While VA loans offer many benefits, it’s also important to understand the potential drawbacks.
Let’s address some of the most common ones:
Eligibility Limited to Military Community #
One of the biggest limitations is that VA loans are only available to eligible active-duty service members, veterans, members of the National Guard and Reserves, and certain surviving spouses. This rules out a large segment of the population.
To qualify, you’ll need to meet the VA’s service requirements based on your duty status, length of service, and discharge type. I always recommend reviewing those guidelines carefully.
VA Funding Fee #
While VA loans have $0 down payment, most borrowers are required to pay an upfront funding fee that ranges from 1.4% to 3.6% of the loan amount. This fee helps sustain the VA home loan program.
However, the funding fee can be rolled into your total loan amount and covered through financing rather than being paid out-of-pocket. And some borrowers, like those receiving VA compensation for service-connected disabilities, are exempt.
Strict Property Requirements #
The VA has strict Minimum Property Requirements (MPRs) that homes must meet to qualify for financing. These cover everything from the condition of the property to safety standards.
Homes that need major repairs or renovations may not pass the VA appraisal without those issues being addressed first. This protects both the borrower and the VA’s interest, but can create hurdles during the approval process.
Limited Option for Investment Properties #
While VA loans allow financing for multi-unit properties up to four units, one of those units must be your primary residence. This rules out using a VA loan solely for purchasing an investment property.
If your long-term plans involve owning rental properties or a vacation home, a conventional mortgage may be a better fit for those types of purchases.
Conforming Loan Limits in High-Cost Areas #
Most VA borrowers aren’t subject to any loan limits as long as they have full remaining entitlement. However, those with partial entitlement must follow county conforming loan limits set by the VA.
In high-cost areas like many counties in Illinois, those limits may be too low to purchase your desired home without putting a down payment down to cover the gap. This can limit your options in certain markets.
Despite these potential drawbacks, VA loans remain an incredibly valuable benefit for those who qualify. I encourage you to carefully weigh the pros and cons and determine if a VA mortgage is the right fit for your homeownership goals.
The best next step is to connect with an experienced VA loan specialist. They can review your specific situation, explain the process in detail, and ensure you maximize this hard-earned benefit.
Remember, the VA loan program exists to make homeownership more attainable for military families. Take full advantage by exploring your options and determining if a VA home loan is right for you.
Next Chapter at a Glance: VA Loans Eligibility Requirements #
This section covered the advantages and potential trade-offs of VA loans from a high level. But what are the actual requirements you need to meet to qualify for a VA loan in 2024?
In the next chapter, we’ll dive deeper into the Illinois eligibility criteria set by the VA, including:
- Minimum service requirements based on your military status
- Acceptable discharge documentation needed
- Credit score and debt-to-income ratio guidelines
- Income and employment verification standards
- Property types allowed and minimum condition standards
We’ll break it all down in easy-to-understand terms so you can assess if you meet the VA’s baseline qualifications for 2024.
By the end, you’ll have a clear understanding of what’s needed on your end to get approved and capitalize on this valuable mortgage benefit for military families in Illinois.
Ready to see if you check all the boxes? Continue on to the eligibility and requirements chapter!
