If you are a veteran or active service military member, you are eligible for a type of mortgage known as a VA mortgage. Basically, this is a mortgage that is issued by a private bank, but backed by the Veterans Association. But just because you're eligible for a VA mortgage does not necessarily mean it's the best choice for you. Some buyers are better off going with a conventional mortgage. Here's a look at the pros and cons of taking out a VA mortgage.
Pro: You don't have to make a down payment.
Saving up for a down payment on a home can be a major hassle. Conventional loans typically require a 20% down payment, which means that to buy a $100,000 home, you'd need to put $20,000 down up front. If you want to get into a home sooner rather than later and don't have this amount of money saved, a VA loan makes that possible.
Pro: You can have a higher debt-to-income ratio.
You debt-to-income ratio of your total monthly income to your total monthly debt payments. For example, if you pay $1,000 on debt each month and make $4,000 a month, your ratio is 25%. VA loans allow for a higher debt-to-income ratio than most conventional loans. The cutoff point is usually somewhere around 40% with a conventional loan, but you can still secure VA financing with a higher debt-to-income ratio as long as you have a decent credit score and income.
Con: You have to pay a funding fee.
While you won't have to make a down payment, you will have to pay a VA funding fee when you apply for a loan. The fee is a certain percentage of the home's value -- usually 1.5%. The money does not go towards your home or loan, but rather to the VA in order to help support other veterans and keep the VA loan program going.
Con: You have to use the home as a primary residence.
If you know you'll be living in the home indefinitely, this may not really be a "con." However, if you think you may wish to move and rent out the home you're buying, you may want to consider a conventional mortgage over a VA loan. VA loans are only issued for primary residences -- not secondary residences or rental properties.
To learn more about the pros and cons of VA loans, speak with real estate agents in your area.
Welcome to my website. My name is Larry Silva, and I want to talk a bit about private mortgage insurance. You may have heard the term PMI mentioned when you were in the process of purchasing real estate. When I first heard my lender talking about PMI, I was very confused. It was my realtor who sat me down and explained what private mortgage insurance was and when someone is required to purchase it. He told me that PMI is not lifelong insurance; it can be cancelled when the mortgage principal balance reaches a certain point. Once it was explained to me, private mortgage insurance was no longer a mystery or a confusing concept. I would like to pass on what I learned and hope that you find it to be of value.