Disadvantages of VA Loans
There are few disadvantages to VA loans or VA refinance. VA loans are mortgage loans designed to help American veterans, active duty, members of the National Guard and reservists, afford a home. They are called VA loans because the US Department of Veteran Affairs regulates them and encourages lenders to offer them to qualified borrowers. Borrowers who qualify for this type of loan enjoy lower rates, no PMI- Private Mortgage Insurance – on the loan, no down payment required and many other benefits.
However, a VA loan is designed so borrowers have to live in the home that is mortgaged; it must be the primary residence. Spouses who benefit from a VA loan may lose the benefit if they remarry (several rules apply). A certificate of eligibility must be issued from the VA as part of the qualification process for the loan. This type of loan has a funding fee. This funding fee is used to help with payment of VA loans that go bad. The funding fee is attached to the closing costs. The funding fee will be lower for first time buyers who are qualified for the loan. Buyers who have used these benefits in the past will have to pay a higher funding fee percentage.
The seller can pay the funding fee if he/she is paying for closing costs. Another option is to roll this fee into the loan; however, it is not the best solution long-term.