If you have military experience, a loan from the U.S. Department of Veterans Affairs could help you take a giant step toward becoming a homeowner. VA loans come with a number of benefits — notably, they require no down payment. But first, you need to understand the VA loan pros and cons to make sure it’s the right choice.
What Is a VA Loan?
A VA loan is a federally guaranteed loan administered by the U.S. Department of Veterans Affairs. Even though the VA sets the basic eligibility requirements and guarantees the loan, borrowers actually apply to private lenders for these loans, after first obtaining a certificate of eligibility from the VA.
Definition of a VA Loan
What is a VA loan? It’s a type of mortgage designed to help improve access to home ownership for veterans, service members, reserve members, National Guard members, and surviving spouses. It comes with several noteworthy characteristics that make it attractive for homebuyers, like having no down payment requirement and limited closing costs.
Eligibility Requirements
In order to get preapproved for a VA loan, you must get a Certificate of Eligibility that ensures you meet the service qualifications. Here are the basic requirements for each type of borrower:
• Veteran: Served at least 90 continuous days of active-duty service.
• National Guard: Served at least 90 days of active duty (there are additional eligibility options if you served before August 2, 1990).
• Reserve members: Served at least 90 days of active duty (there are additional eligibility options if you served before August 2, 1990).
• Spouses: You’re the surviving spouse of a veteran or the spouse of a veteran who is missing in action or being held as a prisoner of war.
Lenders also evaluate your VA loan approval and mortgage amount based on your credit score, income, debt, and assets. The VA does not impose a minimum credit score requirement, although many lenders require a credit score of at least 620.
VA Loan Benefits
Are VA home loans good? They do come with a number of benefits. A big one is that there’s no down payment required. As long as your debt-to-income ratio can handle the mortgage payments, you can borrow up to the full sales price of the home with a minimal amount of cash at closing.
Pros of VA Loans
Here is what to think about as you weigh VA home loan pros and cons:
• No down payment requirement: You don’t have to put down any cash on your home purchase. Conventional loans typically require at least 3% down for first-time homebuyers and FHA loans require 3.5% down for all borrowers.
• No mortgage insurance: Other mortgages require that you pay private mortgage insurance when your down payment is less than 20%. There is no comparable fee with a VA loan.
• Lower interest rate: Not only are VA loan interest rates usually lower than conventional loan rates, you can apply for a VA Interest Rate Reduction if rates drop after closing.
• Flexible credit requirements: Lenders usually require a minimum credit score of 620. But technically, there is no minimum set by the government.
• No use limits: You can get a VA loan multiple times throughout your life; in fact, there are no limits on how many times you can use one to buy a home.
Cons of VA Loans
In addition to these advantages, there are also some potential drawbacks of choosing a VA loan for your mortgage.
• Funding fee: This is a one-time fee that is paid either at closing or rolled into your mortgage balance. The fee varies depending on how many times you’ve used the VA loan and the size of your down payment. For instance, a first-time VA loan borrower with a 0% down payment would pay a 2.15% funding fee.
• Strict appraisal process: All mortgage lenders require an appraisal, but your appraiser must be VA-approved with this type of loan.
• Property eligibility requirements: The home inspection must also meet VA-specific requirements, which means you can’t finance a major fixer-upper. For instance, it needs a working HVAC system, no lead paint, and adequate roofing, among other criteria.
VA Loans vs. Conventional Loans
When comparing a VA loan vs. a conventional loan, there are some significant differences to consider.
Down Payment Requirements
A VA loan has no minimum down payment requirement, while a conventional loan requires at least 3% down for first-time homebuyers. In the first quarter of 2024, the median home sales price was about $420,000. With a conventional loan on that amount, a first-time homebuyer would need a down payment of at least $12,600.
Credit Score Requirements
Although there’s no agency-mandated minimum credit score for VA loans, most lenders set a minimum of 620 — the same you’ll typically find with a conventional mortgage.
Mortgage Insurance
Although you may be required to pay a one-time funding fee with a VA loan, there’s no ongoing mortgage insurance like you may have to pay with a conventional mortgage.
Private mortgage insurance (PMI) is required with a conventional loan if your down payment is less than 20%. You may have a one-time, upfront payment at closing, or your PMI may be split up between up-front and monthly premiums that are rolled into your mortgage payment.
When to Choose a VA Loan
VA loans pros and cons may matter more or less depending on your personal situation. Some examples of when a VA loan may be the best choice include:
• Buyers who don’t have cash for a down payment or want to preserve cash for other goals may want to go with a VA loan after they weigh VA home loan pros and cons.
• Buyers who can’t make a 20% down payment (who would have to pay for private mortgage insurance if they obtained a conventional mortgage loan) might find a VA loan especially appealing.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (844)-763-4466.
Alternatives to VA Loans
Even if you’re eligible for a VA loan, it still makes sense to look at other options. Three other common types of mortgages include FHA loans (backed by the Federal Housing Administration), conventional loans, and U.S. Department of Agriculture loans.
FHA Loans
An FHA loan is another federally guaranteed mortgage with flexible credit requirements. To qualify for a minimum down payment of just 3.5%, you need at least a 580. But you can still qualify with a 500 credit score, as long as you pay at least 10% down.
With a lower down payment, you must pay a mortgage insurance premium. There is an upfront fee at closing, as well as a monthly fee. If your down payment is less than 10%, the fee stays on for the life of the loan unless you refinance to a new mortgage.
Conventional Loans
Some conventional mortgages allow for a down payment as low as 3% for first-time homebuyers, though others may require 5%. You must pay private mortgage insurance for down payments under 20%, but that fee usually drops off once you have 20% equity in your home. The credit requirements are usually a little higher with conventional loans.
USDA Loans
A USDA loan is designed for individuals looking to buy a home in a rural area. You can explore eligible properties on the USDA website. However, you also need to meet certain income limits based on your county and family size in order to qualify for this 0% down payment mortgage.
The Takeaway
Weigh VA loan pros and cons to make sure you choose the best mortgage for your personal financial situation. Among the things you’ll want to consider are your credit score and how much, if anything, you have saved for a down payment on a new home.
SoFi offers VA loans with competitive interest rates, no private mortgage insurance, and down payments as low as 0%. Eligible service members, veterans, and survivors may use the benefit multiple times.
FAQs
How hard is it to get a VA loan?
VA loans have more flexibility with application requirements compared to other types of loans, as long as you meet the military service requirements. There may also be additional restrictions on the type of home you buy, especially if you’re eying a fixer upper.
Are down payments required for a VA loan?
No, you may get a VA loan with no down payment, as long as your debt-to-income ratio suggests that you can make the monthly mortgage payments.
What credit score do I need for a VA loan?
The VA itself does not require a minimum credit score but most lenders look for a minimum credit score of 620 for VA loans.
Photo credit: iStock/sommart
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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