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Carlos Scarpero, VA Mortgage Specialist, NMLS 1674385

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What Are Some of the Disadvantages of a VA Loan?

The VA home loan program is an excellent resource for veterans seeking to purchase a home, but there are certain situations where it might not be the best choice. As a mortgage loan officer, I’ve encountered various scenarios where exploring alternatives may be more advantageous. Below, I outline some instances when you might reconsider a VA loan in favor of other options.

Key Takeaways

  1. Primary Residence Requirement: VA loans are intended for primary residences only, making them unsuitable for those looking to buy standard rental properties, although some exceptions apply.
  2. High Down Payments: If you’re planning to make a significant down payment (20% or more), a conventional loan may be more beneficial in avoiding the VA funding fee.
  3. Specific Situations: Certain circumstances, such as working in the cannabis industry or facing challenges proving income, might make VA loans less viable than conventional or other loan options.

Take the 30 second mortgage quiz to see if you qualify

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Purchasing Rental Properties

If you’re looking to buy a rental property, the VA home loan may not be suitable. The VA requires that the home be used as a primary residence. While there are ways to utilize the VA loan for multi-unit properties—such as purchasing a fourplex and living in one unit while renting out the others—a standard rental property purchase will not qualify under VA regulations.

If your repossession was related to a financial hardship, extenuating circumstances can also reduce or eliminate this waiting period. Extenuating circumstances such as job loss or medical issues, when fully resolved, can be persuasive arguments that may allow for quicker approval timelines.

Making a Large Down Payment

Although VA loans do not require a down payment, if you plan to make a significant down payment (20% or more), it might make more sense to consider a conventional loan. With VA loans, there’s a one-time funding fee, which is due regardless of your loan amount. In contrast, conventional loans offer mortgage insurance waivers if your down payment is 20% or more. It’s important to analyze which option will be more cost-effective for your situation, and I can help you determine the best choice.

Unmarried Couples with One Veteran

For unmarried couples where only one partner is a veteran, obtaining a VA joint loan may result in a down payment of approximately 12.5% plus the funding fee, totaling over 14%. In such cases where the combined down payment is a challenge, FHA loans or conventional loans with lower down payments can be a more manageable option.

Major Renovation Projects

If the property you’re interested in requires significant renovations, a VA renovation loan can be harder to place when extensive structural work is involved, since most programs exclude it. That said, VA renovation programs that allow structural repairs do exist, so it is worth asking. If the VA route does not fit, alternatives like FHA 203(k) loans or HomeStyle loans are specifically designed for renovation projects.

Take the 30 second mortgage quiz to see if you qualify

Start the VA loan quiz

Employment in the Cannabis Industry

Currently, if you work in the legal cannabis industry, VA home loans cannot be utilized. However, there are options available for you through conventional loans or non-QM (Qualified Mortgage) options if you are an owner or employee of a cannabis business.

Difficulty Proving Income

Self-employed individuals face unique challenges when applying for VA loans. If your tax returns show significant write-offs that reflect you lost money, it may be difficult to qualify. In these circumstances, bank statement loans can be useful, but they are not part of the VA loan program.

Multiple VA Loans and Entitlement Issues

If you already have multiple VA loans outstanding and exceed the entitlement limits, you will likely need to make a down payment on any additional VA loan. In this case, a conventional loan might be more advantageous, as it may not require the same down payment as a VA loan might after exhausting your entitlement.

Final Thoughts

While the VA home loan program is a valuable tool for many veterans, it’s essential to assess your unique circumstances and determine if it’s the best fit for you. By considering alternatives like conventional loans or other financing options, you can make a more informed decision.

Have questions about VA home loans? Click here to contact me.

Take the 30 second mortgage quiz to see if you qualify

Start the VA loan quiz

Licensing Info

I can originate VA mortgage loans anywhere that I am licensed, and I am licensed in multiple states. My bad credit VA loan guides by state: Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wisconsin. Through the Edge Home Finance, LLC corporate referral program, our team can help veterans in every state except New York.

Related Post

How To Get A VA Home Loan With Bad Credit

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Carlos Scarpero

Carlos Scarpero is the founder of Scarpero.com and a mortgage loan officer focusing on VA and Non QM mortgage loans. He is also the author of VA Loans Made Easy.
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Take the 30 second mortgage quiz to see if you qualify

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