Pros and cons of a Veterans Affairs (VA) home loan

Quick insights

• VA loans come with some great advantages, including no down payment requirement, no mortgage insurance requirements if eligible, competitive interest rates and the ability to qualify with a lower credit score compared to a conventional loan.
• Some disadvantages to VA loans include the upfront funding fee and limits on how the loan can be used.
• While VA loans might be a good option for homebuyers looking to purchase a primary residence, they are not available for a second home or investment property.

For veterans, active-duty servicemembers and certain military spouses, VA loans can be a powerful tool for achieving homeownership. Backed by the U.S. Department of Veterans Affairs, these loans offer benefits that can make buying—or refinancing—a home more affordable and accessible.ec-purchase-loan-usdva   But like any financial product, VA loans come with their own set of trade-offs. In this article, we’ll break down the pros and cons of VA loans to help you make an informed decision.

VA loans: A brief explanation

A VA loan is a type of mortgage available to eligible veterans, active-duty service members, National Guard members and certain surviving spouses. These loans are issued by private lenders—like banks and mortgage companies—but are guaranteed by the government, which reduces the lender’s risk.

What are some VA loan advantages?

VA loans have a lot of benefits and perks for eligible veterans and their surviving spouses. These benefits are extended as a well-earned reward for service. They can also help veterans start on the path to homeownership, even if their time in service has made it harder for them to build up their credit and income histories.

No down payment requirement

One of the most important benefits of a VA loan is that, in most cases, there’s no minimum down payment requirement.ec-purchase-loan-usdva This makes it easier to buy a home—even compared to conventional loans, which may require a 3% down payment for first-time homebuyersec-down-payments-fannie-mae and FHA loans, which require a minimum down payment of 3.5% with a credit score of 580 or higher.ec-how-to-qualify-fha

No mortgage insurance

VA loans don’t require any monthly mortgage insurance, even with 0% down.ec-va-loan-req Conventional loans typically require private mortgage insurance (PMI) if you put down less than 20%.ec-down-payments-fannie-mae FHA loans require both upfront and monthly mortgage insurance premiums.ec-how-to-qualify-fha This benefit can potentially save borrowers money each month.

Competitive interest rates

The VA loan entitlement program guarantees a portion of the loan. This makes it possible for lenders to offer VA loans at lower interest rates than they might normally be able to. This can make homeownership more affordable, especially for first-time homebuyers who may not have had the time or opportunity to build up their credit and income histories during their time in service.

Possible to qualify with lower credit scores

VA lenders generally have more flexible credit score guidelines; lenders typically prefer credit scores of 620 or higher.ec-va-loan-req However, some may accept scores as low as those required for FHA loansec-how-to-qualify-fha depending on your income, credit history and the size of your down payment. This may make it easier to qualify for a VA loan compared to a conventional loan.

Limits on origination fees

Borrowing with a VA loan can also save you money on closing costs. The VA’s 1% rule dictates that lenders can’t charge more than 1% of the loan’s value for origination fees.ec-va-manual-m26-7 This can save borrowers money and make their home loans more affordable. Keep in mind that it doesn’t cover all of the closing costs, such as title fees, transfer taxes and other expenses.

Assumable loan options

VA loans are assumable, meaning if you sell your home, the buyer can take on your VA loan (and its low rate), as long as they qualify.

What are some VA loan disadvantages?

While VA loans offer outstanding benefits, they’re not perfect for everyone. Here are some important downsides to keep in mind.

VA funding fees

Instead of mortgage insurance, VA loans charge a one-time funding fee, which helps sustain the program. This fee varies based on your down payment and usually ranges from 1.25–3.3% of the loan’s value.ec-funding-fee-loan-closing-costs

You can choose to finance the fee instead of paying it upfront, but this will add to the overall cost of your loan. Keep in mind, you will be required to pay the upfront funding fee every time you take advantage of your VA loan benefit. Certain veterans are exempt from this fee; consult your lender, but typically you will be exempt if you are receiving VA disability payments.

Primary residence requirement

VA loans are intended for primary residences only. While you may be able to buy a multi-family property with a VA loan, you need to live in one of the units to qualify for the loan.ec-va-loan-req You can’t use a VA loan to buy a vacation home or investment property.ec-va-loan-req So, if you plan to build a real estate portfolio or move frequently and rent out your old home, a VA loan may not always align with your strategy.

Appraisal requirement

When buying a home with a VA loan, VA appraisals include a review of the home’s condition and its value. The appraisal needs to be approved by the lender’s Staff Review Appraiser, who will check to see that the property meets the VA’s minimum property requirements.ec-va-manual-min-prop-requirement While these protect you from overpaying or buying a home in poor condition, they may also eliminate some homes from your search.

Less ability to build equity

No down payment means you start with zero equity. If home prices drop or you need to sell quickly, this can be a risk. This is especially true if you’re also adding the funding fee to your loan.

May complicate the buying process

VA loans might be perceived as less appealing to sellers due to certain misconceptions about the process. However, having a mortgage preapproval letter and a skilled agent can help address these concerns. It may still be challenging to get your offer accepted in a competitive housing market.

In summary

VA loans are a powerful, flexible option. However, they’re not always the right fit for everyone. By understanding both the advantages and potential drawbacks, you can decide if a VA loan aligns with your financial goals—both now and in the years to come.

If you’re eligible, it’s worth talking to a VA-approved home lending expert to see how the numbers work out for your situation.

VA loan pro and con FAQs

When is using a VA loan a good idea?

If you’re an eligible veteran, using a VA loan can be a great idea when you’re starting on your homebuying journey. That’s because you may be eligible for a zero percent down payment requirement, relaxed interest rate and debt-to-income (DTI) requirements that help lower potential barriers to entry. You can also continue to use your VA loan benefit to buy homes in the future, but you may want to weigh your options.

Do VA loans have lower interest rates?

As a first-time homebuyer, VA loans may allow you to get a lower interest rate compared to a conventional loan. However, as you build your credit and income histories, you may find that you can get a better interest rate with a conventional loan.

Can you get seller concessions with a VA loan?

Yes, but it will be subject to the 4% rule. If you’re in a buyer’s market, you may want to see if the seller will offer concessions to help cover some of the costs of buying the home. VA loans are subject to a 4% cap on seller concessions, such as prepaids, but excludes most closing costs.ec-funding-fee-loan-closing-costs Meanwhile, FHA and conventional loans usually allow concessions of up to 6% or higher, which includes most closing costs.ec-seller-conc-guide-realtors