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VA Loans: Pros & Cons

posted by Stephen Katz @ 12:36 AM
Thursday, October 13, 2011

If you’re a qualifying veteran or service member, a VA mortgage can be a great deal. VA mortgages offer a lot of benefits, including
being one of the few 100% financing options available. There are however, certain situations where you may be better off going with a FHA mortgage or a conventional loan backed by Fannie Mae or Freddie Mac.

Pros of a VA home loan

The government guarantees at least one-quarter of the loan  amount on a VA mortgage, which is why you don’t need to put up a down payment.  It’s also why you don’t have to buy mortgage insurance, which is required on FHA loans and conventional mortgages with less than 20 percent down.

Closing costs are also limited on VA loans, with the lender’s fees limited to 1 percent of the loan amount and restrictions on the
types of fees that can be paid by the buyer.  On the other hand, the seller may pay all closing costs plus an additional 4 percent to cover pre-paids.

In addition, the maximum you can borrow is typically greater than what you can get in an FHA or even conventional Fannie Mae or Freddie Mac loan.

Finally, if you eventually run into a financial hardship, it’s usually easier to obtain forbearance on a VA mortgage than on other types of home loans.

Cons of a VA mortgage

On the downside, you do have to pay an upfront Funding Fee to obtain a VA loan, which varies from 0.5 percent to 2.8 percent of the loan amount, depending on your service history, down payment or whether you’ve previously obtained a VA loan. By comparison, the upfront fee on an FHA loan is a flat 1 percent. However, on FHA mortgages you have to pay mortgage insurance
equal to as much as 1.15 percent of the loan balance annually, so the VA loan will still likely be the better deal.

Conventional loans backed by Fannie Mae or Freddie Mac require private mortgage insurance (PMI) if you’re putting less than 20 percent down. So, if you are putting down 20 percent or more, a conventional mortgage could be the better deal.

VA mortgages can also take longer to close due to additional required paperwork. In addition, the home has to pass an inspection before the loan will be approved, which can further delay the process.

Finally, both VA and FHA mortgages are assumable, meaning you can simply transfer them to a qualified buyer when selling your home, rather than the purchaser having to take out a new mortgage. With mortgage rates currently at historic lows, this could be an attractive selling point a few years down the road, if interest return to higher levels.

On VA loans though, you’re still liable for the mortgage if the person assuming the loan is not a qualifying veteran. If they default,
you’re on the hook. On FHA mortgages, the mortgage can be assumed by any qualified borrower and you’re free of any further liability for it.

Stephen Katz

(770) 309-0939 (direct) or (866) 742-8400 —

For the past 18 years, Stephen Katz has built a successful business almost entirely on referrals. As your mortgage consultant throughout the home loan process, Stephen will explain the pros and cons of all available mortgage programs and help you choose the financing option that is best suited to your needs.
Throughout the loan process, he will keep you informed and will respond quickly to your requests with answers and solutions.

Consistently a top producer, Stephen is a Mortgage Bankers Association “Diamond” Award winner, a Georgia Mortgage “Top Gun” and has closed almost half a billion dollars in loans. Put his knowledge and experience to work for you!

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