Disadvantages of a VA Loan
Assumptive mortgages are one the best benefits of VA loans. A VA loan allows you to buy your home with zero down payment. Sellers can also pay closing costs or escrows. However, this has its downsides. You will also have to pay a VA funding fee. This can lead to a negative equity position.
A down payment of 3 percent is required for a conventional mortgage. The VA loan does not require a down payment, closing costs or mortgage insurance. According to Bankrate data nearly three-quarters (37%) of American households don’t own a house. Assumptive mortgages are disadvantages of a VA loan, but they may outweigh other disadvantages. You should be aware of the advantages and disadvantages of each type of mortgage if you are thinking about applying for a VA loan.
Assumptive mortgages can be a disadvantage for buyers. If the buyer defaults on the mortgage the seller will still have to make the payments. This could affect the seller’s credit and financial situation. If the seller does not release the seller from all liability, the buyer could lose any VA benefits. Before selling a home, a buyer must research the property’s location, finances, and other factors.
Limitation on the type and price of properties you can buy
There is a limit to the amount of VA loan financing for owner-occupied properties. These loans are only available for one-to-four family homes, not investment properties. The home must be used as the primary residence for at least one unit. New construction is defined as a newly built house that has not been occupied for at least one year. The new house must be 100% finished, except for customer preference items, in order to qualify. VA approval is required for condominium developments.
The amount of VA loan limits varies from county to county, but the average home price of a veteran is well under this limit. The VA loan limits are determined by the median prices in most areas. Veterans can purchase homes up to $417,000 with no down payment. A down payment is required for homes that are more expensive. While there are exceptions to the rule, most veterans won’t be eligible for a VA loan.
All borrowers of VA home mortgages must pay the VA Funding Fee. This fee can either be paid at closing, or rolled into monthly installments. Based on your history and down payment, the funding fee will be charged. The fee is usually not higher than 4% of the loan amount. In certain cases, however, the VA may waive the fee for qualified borrowers. To qualify, make sure to check with your lender.
There are several exemptions to the VA funding fee. VA compensation may be available to veterans with service-related disabilities and surviving spouses. To confirm your eligibility, complete VA Form 26-8937 and submit it to the VA. Once the VA has reviewed your documentation, they will issue you a Certificate of Eligibility. Eligible veterans can get the fee waived. If you are not eligible for a VA mortgage, the fee must be paid.