Qualified For A VA Home Loan? Considerations For When It Is And Isn't Your Best Home Loan Choice

Qualification for the home loan program guaranteed by the United States Department of Veteran's Affairs (VA) is one of the benefits military service members receive for their willingness to serve their country. Created in 1944 through the Servicemen's Readjustment Act, the VA home loan program was designed to help military service veterans and their families transition more easily and successfully from their duties during the war to civilian life and home ownership. 

While the program has provided more than 18 million home loans to date and includes some very attractive lending guidelines, it will not always be the best choice for every VA-qualified applicant. If you are qualified to use a VA home loan, but still curious about whether it is the right home mortgage option for your situation, this information may offer you the insight you need.

The most popular benefits of the VA home loan program 

The fact that it is possible to get a VA home loan with no cash out of pocket for a down payment is one of the most common reasons buyers choose this loan. In addition to being a zero down loan option, the acceptable debt-to-income ratio borrowers must meet is also considerably higher than the guidelines used for other popular home loans, such as those offered by the Federal Housing Administration (FHA). 

However, instead of a down payment, borrowers are required to pay a funding fee to the VA of 2.15 percent for their first VA home loan to 3.3 percent for subsequent loans. This fee, and often the closing costs, as well, are usually able to be rolled into the loan amount. This makes it possible for a buyer to successfully purchase a home with a VA mortgage much faster than they might with a loan that requires them to have seasoned cash for the down payment and closings costs. 

A potential drawback of using the VA home loan program

While the VA home loan program does ease the burden of having available cash reserves when purchasing, it is important to consider how this affects the buyer's equity position. Buyers who put nothing down on their home must often make years of mortgage and interest payments before they are able build equity. This can be a problem when real estate market values fall or if the homeowner needs to sell during the early years of their  ownership. Homeowners in this situation can find themselves "upside down" on their mortgage and suffer financial hardships because of it. 

A good way to make sure that you understand both the positives and negatives associated with the VA home loan, and any other type of mortgage loan, as well, is to have a frank discussion about each loan type and your financial situation with a trusted lender or mortgage broker before applying for any home loan.