Are there times when a VA loan isn’t the best choice?

by Ryan Smith12 Sep 2016
A VA loan, for those who are eligible, is usually the best choice out there. They don’t require a down payment or mortgage insurance, and rates are significantly lower than those for conventional loans. But sometimes a VA loan might not be the best choice even for eligible customers.

Eligible veterans should absolutely check out their VA loan options first. But if your customer falls into certain categories, it might be best to recommend a different product, according to The Mortgage Reports.
  • The borrower has good credit and a 20% down payment.  While VA loans don’t require mortgage insurance, borrowers still pay a funding fee, which can add from 1.25% to 3.3% to their loan amount, according to The Mortgage Reports. If your buyer is able to put 20% down, both mortgage insurance and that upfront fee can be avoided.
  • The borrower is on the “CAIVRS” list. The Credit Alert Verification System (CAIVRS) lists consumers who’ve defaulted on government debts. These people aren’t eligible for a VA loan, according to The Mortgage Reports. But people on the CAIVRS list can still apply for a conventional home loan.
  • The borrower has a non-veteran co-borrower. Veterans can apply to buy a home with a non-veteran who isn’t their spouse, according to The Mortgage Reports. However, the veteran’s income must cover his or her half of the loan payment. If that’s not the case, a conventional loan might be best.
  • Applying with a credit-challenged spouse. The VA must consider the credit rating of both borrowers in community property states. In those states, a spouse with credit problems can make it tougher to get a VA loan.
For more VA loan tips, check out the original blog post here.