Veterans Affairs (VA) loans are a powerful tool for eligible veterans, active-duty service members, and their families, offering significant benefits such as no down payment, competitive interest rates, and no private mortgage insurance (PMI). However, despite the advantages, many potential borrowers hesitate to use VA loans due to misconceptions surrounding the program.
In this article, we will debunk some of the most common myths about VA loans, clarify how they work, and highlight the unique advantages available to veterans and their families.
Myth 1: VA Loans Are Only for Veterans
Fact: VA loans are not limited to veterans alone.
While VA loans were initially created to help returning World War II veterans, the program has since expanded to include a wider range of individuals. Active-duty service members, surviving spouses, and certain members of the National Guard and Reserves are also eligible for VA loans, provided they meet specific service requirements.
To qualify, the individual typically needs to have served:
- At least 90 consecutive days of active service during wartime or
- 181 days of active service during peacetime, or
- Six years in the National Guard or Reserves.
Additionally, surviving spouses of service members who died in the line of duty or due to a service-related disability may also qualify for a VA loan.
Myth 2: VA Loans Have a Lengthy and Complicated Approval Process
Fact: The VA loan approval process is comparable to other types of loans.
While VA loans do require additional steps, such as obtaining a Certificate of Eligibility (COE) from the Department of Veterans Affairs, the overall approval process is not inherently more difficult or time-consuming than conventional loans.
To speed things up, borrowers can often obtain their COE directly through their lender or request it online through the VA’s eBenefits portal. Once this document is in hand, the rest of the loan process—such as underwriting and appraisals—follows a timeline similar to conventional mortgages.
Myth 3: VA Loans Can Only Be Used for First-Time Homebuyers
Fact: VA loans can be used more than once.
Another common misconception is that VA loans are only available for first-time homebuyers. The truth is that eligible borrowers can use VA loans multiple times throughout their lives. As long as a veteran or service member meets eligibility requirements and has sufficient entitlement, they can use a VA loan to purchase subsequent homes.
Even if you’ve used a VA loan before, you may be able to fully restore your entitlement by paying off your previous VA loan. There’s no limit to how many times you can take out a VA loan as long as you meet eligibility requirements and qualify for the loan.
Myth 4: VA Loans Have High Interest Rates
Fact: VA loans typically offer lower interest rates than conventional loans.
One of the most attractive aspects of VA loans is the competitive interest rates they offer. Because the Department of Veterans Affairs guarantees a portion of the loan, lenders face less risk and can offer lower interest rates than they might with conventional loans.
On average, VA loans have interest rates approximately 0.5% lower than conventional loans. This difference may seem small, but over the life of a loan, it can add up to thousands of dollars in savings.
Myth 5: VA Loans Require Perfect Credit
Fact: VA loans have more flexible credit requirements than conventional loans.
While credit scores play a role in VA loan approval, the VA loan program is generally more flexible regarding credit requirements. The Department of Veterans Affairs does not set a minimum credit score, although most lenders prefer to see a credit score of at least 620. Some lenders may even approve borrowers with lower credit scores, especially if they have other strong financial factors, such as stable income and low debt.
Additionally, VA loans are designed to help veterans and service members who may not have perfect credit due to the unique challenges of military life, such as frequent relocations or deployments.
Myth 6: You Need a Large Down Payment to Get a VA Loan
Fact: VA loans do not require a down payment.
One of the biggest advantages of VA loans is they allow qualified borrowers to purchase a home with no down payment. This benefit is unique compared to most other mortgage types, which typically require a down payment of at least 3% to 20%.
The VA loan program is specifically designed to help veterans and service members achieve homeownership without the financial burden of saving for a large down payment. This no-down-payment feature is especially helpful for first-time homebuyers or those transitioning back to civilian life.
Myth 7: VA Loans Can Only Be Used to Buy Homes
Fact: VA loans can be used for refinancing and home improvements.
While most people associate VA loans with home purchases, they can also be used for other purposes, such as refinancing an existing loan or improving a current home.
- Interest Rate Reduction Refinance Loan (IRRRL): Veterans with existing VA loans can use this refinancing option to lower their interest rate or transition from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
- Cash-out refinance: Homeowners can also use a VA loan to tap into their home’s equity and receive cash for home improvements, debt consolidation, or other financial needs.
Myth 8: VA Loans Are Only for Single-Family Homes
Fact: VA loans can be used to purchase various types of properties.
While VA loans are commonly used for single-family homes, the program is not limited to this type of property. VA loans can be used to purchase a variety of residences, including:
- Condominiums (as long as the condo is VA-approved)
- Townhouses
- Modular homes
- Manufactured homes (if permanently affixed to a foundation)
Additionally, VA loans can be used to buy multi-family homes (up to four units) as long as the borrower lives in one of the units as their primary residence. This flexibility allows veterans to use VA loans in various homebuying situations, from traditional single-family homes to investment properties.
Myth 9: VA Loans Require Private Mortgage Insurance (PMI)
Fact: VA loans do not require PMI.
One of the key benefits of a VA loan is it does not require private mortgage insurance (PMI), even with no down payment. In contrast, conventional loans with less than a 20% down payment usually require PMI, which can add hundreds of dollars to monthly mortgage payments.
Instead of PMI, VA loans require a one-time VA funding fee. This fee helps sustain the program and is typically between 1.4% and 3.6% of the loan amount, depending on the size of the down payment (if any) and whether it’s the borrower’s first VA loan. Borrowers with service-connected disabilities may be exempt from paying the funding fee altogether.
VA Loans Offer Significant Benefits, Without the Myths
Understanding the realities of VA loans, as opposed to the myths, can help borrowers make informed decisions and take full advantage of the program. Whether you’re a first-time homebuyer, a veteran looking to refinance, or someone ready to purchase your next home, VA loans offer a reliable and flexible path to homeownership.
For more information about VA loans and to explore your options, visit DSLD Mortgage.