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VA Mortgage Loan Disadvantages

There are only a few disadvantages of VA loans which are well worth knowing before applying for a loan. You may even need to apply for another type of financing in some cases.

Almost any mortgage lender will inform you that a VA loan is one of the industry’s finest deals. Some might say it’s even the best. But there are disadvantages of a VA loan despite all its advantages–no down payment, relaxed credit rules, and less restrictive revenue conditions.

There are only a few disadvantages of VA loans which are well worth knowing before applying for a loan. You may even need to apply for another type of financing in some cases.

What are the drawbacks of a loan from VA?

VA loan funding fee

VA loans require veterans to pay a funding fee. If the borrower uses the VA benefit for the first time, the funding fee is 2.15% of the total loan amount. But if the borrower has used the VA benefit in the past, the fee is 3.3%.

This funding fee is a road bump in the complete loan process and it changes from time to time as per the VA loan guidelines. The structure of the funding fee is determined by many factors including:

  • Percentage of the loan amount
  • Type of loan
  • Military category of the borrower
  • Whether the borrower has used a VA home loan in the past
  • Down payment

Only for residence/not for investment purpose

VA loans cannot be taken for investment purpose. The VA loan requires the borrowers to stay in the home they are purchasing.

VA loan limits

With a VA loan, you can’t purchase a posh Hollywood mansion. Although the VA does not set credit boundaries, they restrict the guarantee they make to personal lenders to 25% of the loan amount. This produces a side effect on buying a multi-million-dollar home.

Closing costs

The closing costs associated with the VA loans are mostly lower than compared to other types of mortgages. Some borrowers may still find it challenging to come up with the funds needed to bring them to closure.

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