The simple definition of a VA Loan is a mortgage that is guaranteed by the Department of Veterans Affairs (also known as the VA). These loans are available only to veterans who have served in the US military.

Advantages and Disadvantages of a VA Mortgage

The most notable advantage of a VA Mortgage is that there is no down payment required. Veterans are able to purchase a home with nothing out of their pocket. And additionally, the qualifying standards to get approved for a loan under the VA program are generally much easier than those of a conventional loan.

VA Loans are not without disadvantages, however. The primary drawback of these loans is the one-time fee that is charged to the veteran by the Veterans Affairs. This fee is tacked onto the loan and is typically 2% of the total amount borrowed. This fee can be lowered if the borrower makes a down payment, however.

Interest rates, in comparison to conventional loans, are generally about the same, and there is little advantage with a VA loan in this area. Additionally, the loan limits guaranteed under the VA program are similar to that of a conventional conforming loan, currently at $417,000.

It is important to note that the Veterans Affairs does not actually originate and fund loans themselves, they simply guarantee loans made by lenders. Because of their guarantee and program policies, lenders are able to feel comfortable making these loans directly available to veterans.

While VA loans do provide veterans with a distinct advantage in not requiring a down payment, it’s still a smart idea for home buyers, veterans or not, to shop around for the best rates and terms. The borrower may find that a conventional loan provides a better offer than the VA Mortgage – it always pays to be aware of the options available.

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