VA home loans were introduced in 1944 as a thank you for military veterans. It also helped to boost the housing market and economy.

VA mortgages offer a lot of benefits. These loan are guaranteed by the U.S. Department of Veteran Affairs and have less stringent underwriting standards for qualifying borrowers.

Before you take the plunge and sign on the dotted line, you may want to evaluate the pros and cons to make sure a VA home loan is the best option for you and your family.

There are some major advantages with the VA loan program, such as:

  • No Down Payment. This is a major benefit. In fact, this is the only mortgage option available with zero down payment.
  • Lower Interest Rates. VA loan interest rates are most always lower than conventional loan interest rates.
  • No PMI (Private Mortgage Insurance). Conventional borrowers who cannot put down at least 20 percent of the sale price must obtain private mortgage insurance.
  • No Prepayment Penalty. You can pay off your VA loan at any time without any penalties.
  • Higher Allowable Debt-to-Income. All lenders look at your debt to income ratio. The typical VA loan debt-to-income ratio is 41 percent or less. This is more generous than allowable conventional and FHA loan debt-to-income ratios.
  • Bankruptcy and Foreclosure Flexibility. You can be eligible for a VA home loan in as little as two years after a bankruptcy or foreclosure. Other loans have more stringent requirements.
  • Increased Loan Maximum. You can borrow a higher amount with a VA loan than you can with an FHA or conventional loan.
  • VA Mortgages are Assumable. You can simply transfer the VA loan to a buyer when selling your home, rather than the purchaser taking out a new mortgage.
  • Sellers Can Pay Fees. The VA loan allows sellers to opt in to pay closing costs and the VA funding fee as long as closing cost expenses do not exceed four percent of the loan balance.

You’ve heard it said that for every action there is an equal reaction. That said here are some VA loan drawbacks to note:

  • VA Funding Fee. There is a mandatory VA Funding Fee that goes directly to the agency to help keep the program running. You can roll this expense into the loan. Conventional and FHA loans do not have this fee.
  • Restricted to Primary Residences. This loan cannot be used to purchase an investment property or second home.
  • Dishonorable Discharge. A dishonorable discharge automatically disqualifies you from the program.
  • VA Appraisers. The home you buy with a VA loan must be approved by a VA chosen appraiser that provides a very thorough inspection. It has to meet certain requirements or you will not be given the loan for that piece of property. (This can actually be a pro, too!)
  • Termite Report Required. This is the only type of loan that requires a clear termite report before the VA loan is issued.
  • Paperwork Dense. VA home loans can take a longer time to close because of the immense amount of documentation and paperwork involved.

You can save a lot of money with a VA home loan. But it is wise to compare other types of loans, such as a FHA or conventional loan before making your final decision.