Want to know the truth about the VA Loan? We all know that the VA loan is an amazing asset and there are many WONDERFUL attributes to this loan. Unfortunately like any asset there are always negatives and the VA Loan is no exception!
There is a reason why the saying “too good to be true” exists! That being said, we still have used the VA loan TWICE! So obviously it can’t be that bad, but here are the things I have learned over the years. I hope this helps you learn about the drawbacks of the VA Loan as well as the good things about it too!
Drawbacks of the VA Loan:
1. The VA has Non Allowable’s– as part of the requirements there are about 1% of closing costs that the VA loan won’t cover. While this isn’t a “big” deal-during a sellers market where closing costs aren’t paid it can be hard to get the seller to cover these costs!
2. Super Strict Home Condition– The VA and FHA loan have some of the “strictest” funding requirements. While it is “possible” to get a fixer upper approved (we did it!) it is difficult. They often require “lender repairs” so this might not be the best type of loan if you have a “fixer upper.”
3. Funding Fee- The VA loan charges a funding fee depending on the number of times you have used the VA loan. While this rolls into your loan, it can often times be costly. So make sure you have evaluated this cost and its value to you!
4. Orders– Since this is required to be an owner occupancy, you have to have written orders to the area. If you do not have orders you cannot close on the home!
5. Negative to the Seller- There are many sellers who do not like all the paperwork involved
6. Personal Property- The VA Loan cannot be used for an investment or secondary home. You or your dependents are required to move into the home within 6 months! You have to stay there for one year unless orders or other unforeseen circumstances occur!
So what has been your experience with VA loans? Have you seen any drawbacks of the VA Loan yet?29
Angela Collins says
We are closing on a home tomorrow using Veterans United and don’t have official orders. Our loan officer presented our file to underwriting as a geo-Bach type of situation where kids and I are moving before hubby. Which is true. We are moving and he will finish school and move over in August. So it can be done!
You are totally right! There are always exceptions there just much more painful and harder to get 😉
Thanks for your story and congratulations on your new house!
I used it yo buy my first rental property which was a fixer upper and it worked great. I will be using it again on another property in Michigan
I totally agree that VA loan is an amazing tool. We used it twice and if there was anything left we would use it again. The key is just to know the draw backs.
1) is wrong in so many ways. The max fees that the lender can charge are 1% of the sales price of the home. Most lenders will either waive it or premium price the loan to say in compliance.
2) VA does allow fixer uppers, this is called a renovation loan, VA does them, not many lenders will fund them, You need to shop around and find one. Or you can do a “escrow holdback” some lenders allow up to 10,000 for this, this can only be for minor repairs, seller or buyer paid.
3) Funding fee is waived if the veteran has any service related disability or it is rolled into the loan. Minor problem to get a loan with the lowest rate on the market. Depending on how desperate the seller is, the seller is allowed to pay this, seller is allowed up to 4% of the sales price to assist the buyer, also the lender can premium price the loan to cover it as well.
4) Angela Collins is correct on this and it is NOT an exception, “Occupancy (or intent to occupy) by the spouse or dependent child satisfies the occupancy requirement for a veteran who is on active duty and cannot personally occupy the dwelling within a reasonable time. In the case of a dependent child, the veteran’s attorney-in-fact or legal guardian of the dependent child must make the certification and sign VA Form 26-1820, Report and Certification of Loan Disbursement.”
5) No different then a FHA loan.
6) Yes, correct, VA is for primary homes only, not a draw back just like FHA.
I called Veterans United, The were much higher in rate than I got from a bank and I don’t like dealing with online people, also called iFreedom Direct, same crap. I got a 3.25% with zero origination costs. just have to pay title and escrows. Very happy! iFreedom wanted to charge me a 3.375 paying 1% origination cost. on a $375,000 home $3750.00 ?? get real!
Lisa Carter says
We are trying to purchase a modular home and the financial section of the realtor we chose flat out said they don’t handle them due to the complex VA rules concerning modulars.
Elizabeth Bennett Colegrove says
I would definitely ask more than one mortgage broker. I know VA has MANY rules on modulars but I didn’t hear that they didn’t allow them period. That being said, I haven’t seen anyone buy a modular house.
Here is a link to Quicken VA Loan page. They are huge and might have an offering.
The very fact that the title has the word “drawback” in it, is JUST SO NOT HELPFUL to battling the stigma that often comes incorrectly with VA loans. Please re-title your article. While its important to be honest or help sellers be aware of the differences between conventional and VA, we don’t want to already paint those difference in negative light. They may not be a negative to every seller anyway. In today’s really hot markets, many veterans are already losing out on homes because of misconceptions (many of which no longer exist with the more modern loan processes). Do we really want to continue to contribute to this?