9 VA loan myths busted.
Because they are guaranteed by the U.S. government, VA loans carry unique advantages that separate them from conventional loans. As with so many financing options out there, there can be a lot of confusion about how VA loans work and what sets them apart. Let’s discuss some of the most common myths regarding VA loans to set the record straight.
Myth #1: VA loans are difficult to qualify forFact: VA loans have fewer credit restrictions compared to conventional loans. These reduced restrictions, like a higher debt-to-income (DTI) ratio and more leniency regarding credit scores, mean it can be easier to qualify.
Myth #2: All VA loans require a down paymentFact: While conventional loans generally require down payment options that can reach up to 20%, no down payment is required for any Veteran that has full entitlement. Loan limits no longer matter when it comes to the loan’s down payment. Down payments are still an option, of course, but they are not a requirement.
Myth #3: VA loans require private mortgage insurance (PMI)
Fact: Private mortgage insurance is not required for VA loans. PMI typically adds 0.2%–0.9% of expenses to your monthly mortgage payments when you put less than 20% down. That’s a big additional expense you don’t have to worry about when you get a VA loan. Remember, VA loans do come with a funding fee.
Myth #4: You can’t refinance a VA loan
Fact: Thanks to VA streamline and cash-out loan programs, VA loans are actually easier to refinance than conventional mortgages. The streamline version lowers the interest and doesn’t require a credit check or appraisal. The cash-out option involves a credit check and appraisal, since the home’s value represents the maximum loan amount, and the new loan will be larger than the existing loan.
Myth #5: You can only have one VA loan
Fact: There is no limit to the number of VA loans you can have. While it is possible to have multiple VA loans at once, this depends on VA loan entitlement. VA loan entitlement refers to the amount that the VA will pay your lender if you default on your loan. There is a limit on your VA entitlement. It can be split across multiple loans, but the limit remains the same.
Myth #6: You can only use a VA loan once
Fact: There is no limit on the number of times you can use the VA loan benefit. You can use the benefit an unlimited number of times throughout your life, as long as you still qualify. To qualify, you need to meet certain requirements, which you’ll already be aware of if you’ve taken out a VA loan in the past.
Myth #7: VA loans are not assumable
Fact: Federally insured and guaranteed loans are usually assumable. This includes VA loans. What does it mean if a loan is assumable? An assumable mortgage is when the lender allows you, the buyer, to take over the current mortgage that the seller has. This can save a lot of money if the interest rates are lower on the existing mortgage than they would be to take out a new mortgage. Assumable mortgages allow buyers, who otherwise wouldn’t qualify for a VA loan, to take over a VA mortgage. This means that you would get most, if not all, of the benefits that come with VA loan eligibility.
Myth #8: You can’t build a house with a VA loan
Fact: VA construction loans do exist and, under the right circumstances, they can be refinanced into permanent VA loans. Ask your lender about VA purchase/construction loan options.
Myth #9: VA loans only apply to the home purchase itself
Fact: The VA allows for increases to purchase loans for the purpose of making renovations. The VA’s Energy Efficiency Mortgage program, for instance, lets borrowers add up to $6,000 to their home loan amount to install solar heating, insulation, and storm windows, among other features.
In conclusionThere’s a lot of misinformation out there regarding VA loans. Many seem to think that there’s a lot you can’t do with a VA loan, but the options available are actually quite vast. Hopefully, we’ve set the record straight and cleared up some of your questions.
If you have any remaining questions about VA loan fact versus fiction, our team is happy to help!
* The lender has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the US Department of Agriculture or any other government agency.