Busting 5 Myths About VA Loans
Contrary to the rumors, VA loans offer great terms for vets and an optimal outcome for sellers
Since the Veterans Administration (VA) home loan program was created in 1944 as part of the Servicemen’s Readjustment Act (aka, GI Bill of Rights), it has successfully backed more than 24 million home loans for U.S. veterans and their families. In 2020 alone, the Veterans Administration guaranteed a record-breaking one million loans. Yet despite making homeownership possible for generations of Americans, some Realtors® and their seller clients view purchase offers built around VA loans with suspicion. They believe the loans are cumbersome, costly to sellers, and slow the entire transaction. To help separate myth from fact, and explore the advantages of VA loans, we spoke with Kevin Parker, vice president of Field Mortgage Originations at Navy Federal Credit Union.
“In the last few months, Navy Federal has seen an uptick in both homebuyers and sellers expressing skepticism about VA loans,” Parker said. These attitudes can worry sellers into rejecting good offers and prevent military families from using their hard-earned benefits. “That’s truly unfortunate,” he said, because “VA-backed mortgages are one of the best tools available to military-affiliated buyers in Minnesota and can actually make for a stronger, more reliable contract offer.”
Myth #1: Unreasonably Rigorous Inspection Process
While it is true that VA loans include an in-depth property inspection, Parker says that only a very small percentage of properties require extensive fixes or upgrades. He also notes that as with any conventionally backed loan, the buyer and seller are free to negotiate whether the sale is contingent on repairs or not.
Myth #2: Difficult, Time-Consuming Appraisal Process
Rigid. Bureaucratic. Cumbersome. These are just a few of the choice adjectives that critics reserve for the VA loan appraisal process. But in fact, Parker explained, the process for VA loans and conventional loans is very similar. Generally, VA loan appraisals take no longer to complete than their conventional counterparts.
Myth #3: Lower Appraisal Values
Navy Federal, which handles both VA and conventional loans, has no data showing that appraisals done for VA loans come in lower than conventional loans.
Myth #4: Sellers Must Pay Buyer’s Closing Costs and Extra Fees
VA loans do not include any provision requiring sellers to pay the closing costs of buyers. Parker said that Navy Federal never passes on non-allowable “junk fees” to the seller or buyer. “In general, most lenders will eat those costs,” Parker said.
Myth #5: Process is Too Slow
“When vets work with a VA loan specialist, their loans can close just as quickly as with a conventional loan,” Parker said. He added there is rarely—if ever—any component of the loan process that takes longer to complete.
5 Reasons vets should consider a VA loan
- No Down Payment
Veterans get much better rates than conventional loans and don’t have to make a down payment.
- No private mortgage insurance (PMI)
With conventional loans, borrowers have to put 20% down at closing or take on the expense of private mortgage insurance (PMI). Because VA loans don’t have PMI, veterans save thousands of dollars
- Higher allowable debt-to-income (DTI) ratio
For conventional loans, borrowers with an unfavorable ratio of monthly income to monthly debts are unlikely to qualify. With a DTI of 41% or less, VA loans are open to a much wider range of incomes.
- No prepayment penalty
Borrowers who pay off conventional loans early are socked with penalties. There are no prepayment penalties for VA loans.
- Refinance options
By utilizing the VA Interest Rate Reduction Refinance Loan (IRRRL), veterans can take advantage of lower interest rates and lower their monthly payments.