1 July 2008
Disadvantages of VA Loans in Comparison with Conventional Mortgages
Posted by VA Loan Pro under: VA loans .
Although there are significant advantages to a VA loan, there are drawbacks in comparison to a conventional loan as well. Carefully weighing these factors will help you determine which type of loan is best for your financial health.
• Maximum loan amount: Although there is no maximum of the value of the home you can purchase, there is a maximum VA loan amount. Without a down payment, in 2008, the maximum VA loan amount you can take is $417,000, with 25% of that value guaranteed by the VA.
• One-time funding fee: Congress enacted a one-time funding fee for VA loans, with the fee ranging from 1.25% to 3%, dependent upon the length of the veteran’s service and number of VA loans he or she already has. This fee can be lowered if you place a down payment of a minimum of 5%.
• Varying interest rates: Keep in mind that the interest rates may or may not be better than your conventional loan. Indeed, you do have the option of a fixed-interest or variable interest mortgage with a VA loan, but this does not mean that you will obtain a better interest rates. When you are considering the type of mortgage to obtain, make sure you compare your interest rates – as this value will make a significant impact on how much money you will pay in the long-term.
Remember, a VA loan guarantee does not overcome unsatisfactory credit or employment income that will not sufficiently cover your mortgage payments. A VA loan guarantee is not a gift; it is assistance from the government in the form of guaranteeing the lender that should you not repay your loan, the lender will not lose the investment.
The citizens of our nation are grateful to the service personnel who have answered the call to arms in war and in peace. The VA Home Loan Guarantee program is one way to show support for those who have put themselves in harm’s way on our behalf.
