Why Some Veterans aren't Using VA Backed Loans

Discussing finances

If you're looking for proof of the success of VA loans, know that there are 22 million veterans in the United States, and 21 million VA home loans. Furthermore, in the past few years total VA home loan use has jumped from $24 billion to $124 billion. There are many benefits to using VA-backed loans including lower interest rates, acceptance of lower credit scores, and they don't require private mortgage insurance.

But why do some veterans still forego using a VA loan? According to MarketWatch.com, VA loans come with a few small issues that cause some veterans to steer clear.

For some, using a VA loan feels like a weaker solution than a traditional loan due to the time and hassle involved. Despite the fact that VA loans on average don't take much longer to close than traditional loans, in some areas VA loans aren't as strong as others.

Here are a few reasons why some veterans forego the VA loan:

  • VA loan origination fees can be higher than traditional loans. Because VA loans don't usually require a down payment, the fees associated with the initial house purchase tend to be higher than other types of loans. While it makes sense for the VA to charge a bit more to cover the drastic reduction on interest, these fees can sometimes be rolled into monthly payments instead of an up-front fee. These fees can reach nearly 2.2 percent for purchases without a down payment, and go as high as 3 percent for National Guard and reservists.
  • Miscellaneous bureaucratic speed-bumps. There are a handful of special considerations and restrictions that must be accounted for with a VA loan. Two common issues are that spouses who are veterans may only use half their entitlement, and lenders need approval from a VA loan regional office.
  • VA home inspection. The considerably hefty backing of a VA loan comes with a price, and one of them is the Minimum Property Requirement (MPR). These inspections are very rigorous. Homeowners must ensure that all handrails are tight, their heating system is capable of preventing their pipes from freezing, and that the home is completely termite and mold free.

Despite some of the complications, many veterans and financial experts argue that VA loans are as strong as ever.

"Some veterans think VA loans are somehow inferior to a conventional loan, but they really aren't," said Dennis Wynant, a former U.S. Marine and current vice president for sales at mortgage lender loanDepot.com.  "It takes lenders more work and time to process VA loans than conventional loans, which cuts into profits," said Wynant.

But despite the positives, some areas are tougher for VA loans than others. Chris Kershisnik , a Marine Corps veteran and real estate agent in the Washington D.C. metro area, says veteran home-buyers can lose out against buyers using traditional loans. In areas with competitive housing markets, "VA couldn't compete with conventional financing. It was not a realistic option," said Kershisnik.

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