Understanding VA Loan Disadvantages?

Even though a VA loan can save you tens of thousands of dollars compared to a conventional loan, there are trade-offs. Recognizing these disadvantages up front will help you decide if a VA loan is still the best choice or if another option—like a conventional loan or renting—might be more practical for your current situation.

A Closer Look

• Significant Savings, But… A typical VA loan might save you $50,000 on a $250,000 home compared to a conventional loan, but it also comes with specific requirements and fees.
• Real-Life Example: One veteran was excited about zero down payment, only to be surprised by a $5,375 funding fee at closing. He ultimately saved money but wished he had known about the fee beforehand.
• Key Takeaway: By preparing for potential hurdles, such as the VA funding fee or property requirements, you can reduce surprises and keep your home-buying experience on track.Disadvantage 1: The VA Funding Fee

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Disadvantage 1: The VA Funding Fee

The VA funding fee is a one-time charge that most veterans must pay to keep the VA loan program running. First-time users pay 2.15% of the loan amount, while repeat borrowers may pay 3.3%. This fee can be added to your loan or paid upfront, which impacts your monthly payment or closing costs.

Why It Matters

• Extra Cost: On a $300,000 loan, the funding fee can range between $6,450 and $9,900, which many veterans find surprising if they’re expecting to pay nothing at closing.
• Exemptions: Veterans with a 10% or higher service-connected disability rating, or those who have a Purple Heart, often qualify for a waiver of this fee (saving thousands).

Real-World Example

A veteran named Mike financed his $300,000 home but had to pay a $7,000 funding fee. He chose to roll it into the mortgage, which increased his monthly payment by about $40.

How to Handle It

• Plan Ahead: Decide if you’ll pay the fee at closing or add it to your loan balance.
• Check Eligibility for Exemption: If you believe you qualify, confirm it via your VA.gov account or consult your VA lender to ensure the fee is waived before closing.

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Disadvantage 2: Strict Property Requirements

VA appraisals enforce Minimum Property Requirements (MPRs) to ensure the home is safe, sound, and sanitary. While this protects you from buying a home with major issues, it also makes it harder to purchase fixer-uppers or properties in need of significant repairs.

Why It Matters

• Fewer Options: Homes with peeling paint, damaged roofs, or poor wiring often fail the VA appraisal process. This can be especially challenging if you’re looking in a hot market with limited inventory.
• Seller Hesitation: Some sellers worry they’ll have to pay for repairs or wait longer for VA-required fixes.

Real-World Example

John, a veteran buyer, tried purchasing a $200,000 fixer-upper. The appraiser flagged major wiring issues, and the deal fell through. John ended up buying a more expensive, move-in-ready home for $250,000.

How to Handle It

• Focus on Move-In-Ready: Look for homes likely to meet VA standards—ask your real estate agent to filter out “as-is” listings.
• Budget for Repairs: If the property only needs minor fixes, consider offering to cover some costs yourself, which might make the seller more comfortable accepting your VA offer.

Want to learn more? See our VA Home Inspection Checklist for tips on spotting potential red flags before an official appraisal.

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Disadvantage 3: Seller Resistance

Some sellers prefer cash or conventional loans over VA financing. They may believe—rightly or wrongly—that VA appraisals, or additional repair costs.

Why It Matters

• Competitive Markets: In a hot market (like San Marcos in 2025), sellers often receive multiple offers. They might pick cash or conventional offers they think will close faster.
• Possible Outbidding: You might have to sweeten your offer—by covering some repairs or closing costs—to compete with non-VA buyers.

Real-World Example

A veteran couple lost a $320,000 home because the seller chose a conventional buyer who promised a quicker close. The couple had to increase their next offer and offer a repair concession to successfully land a home.

How to Handle It

• Offer Concessions: Propose covering some closing costs or minor repairs. This often eases the seller’s worry about potential VA-related hurdles.
• Educate Sellers: Have your realtor explain that the VA process can close on a standard schedule if everyone is prepared.

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Disadvantage 4: Limited Loan Use

VA loans are designed strictly for primary residences. You can’t use a VA loan to purchase a second home, vacation home, or an investment property you don’t intend to occupy.

Why It Matters

• No Vacation or Rental-Only Homes: If you hope to build wealth through real estate investment or buy a holiday getaway, you’ll need conventional financing.
• Multi-Unit Properties: You’re allowed to buy a duplex or fourplex if you live in one of the units, but full-time rentals are off-limits with a VA loan.

Real-World Example

Lisa, a veteran, wanted to buy a property purely for rental income. Since VA loans prohibit investment-only purchases, she switched to a conventional loan and had to make a 20% down payment instead.

How to Handle It

• Plan for Long-Term Goals: Use your VA entitlement for your main home, then explore conventional or other financing options for vacation or investment properties.
• Consider House-Hacking: If you’re interested in rental income, look for a multi-unit property, live in one unit, and rent out the others.

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Disadvantage 5: Closing Costs Still Apply

Even though VA loans require no down payment, you’ll still need to budget for closing costs, which can range from about $5,000 to $10,000 on a $250,000 loan. These fees include the lender’s origination charge, appraisal, title fees, and more.

Why It Matters

Unexpected Expenses: First-time buyers sometimes assume “zero down” means zero cost at closing, only to realize they still need several thousand dollars.
Negotiations: You can sometimes ask the seller to cover part of these costs, but in a competitive market, sellers might not agree.

Real-World Example

A friend of one veteran buyer budgeted for $0 down and was shocked to discover he needed around $6,000 at closing for things like title fees, appraisal, and other charges.

How to Handle It

Request Seller Concessions: The VA allows sellers to pay certain closing costs, though market conditions vary.
Shop Around for Lenders: Some lenders might reduce or waive certain fees, saving you $500–$1,000 in some cases.

VA Loan Costs vs. Conventional

Interpretation: Even with the extra funding fee, a VA loan can still be cheaper upfront than many conventional loans because you’re not putting money down or paying monthly PMI. However, the funding fee and closing costs are expenses you shouldn’t overlook.

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Disadvantage 6: Slower Appraisal Process

The VA appraisal typically takes 10–14 days, slightly longer than the 7–10 days for most conventional appraisals. This can matter in competitive real estate markets where speed can make or break a deal.

Why It Matters

• Seller Preference: Sellers often want a quick close, and any delay can make your offer less attractive.
• Low Appraisal: If the VA appraisal comes in below your offer price (for example, $240,000 on a $250,000 offer), you’ll have to renegotiate or pay the difference in cash.

Real-World Example

A veteran buyer, Tom, had his $280,000 purchase nearly fall through because the VA appraisal took 15 days, and the seller was concerned about delays. Tom resolved it by negotiating an extended contract and covering a small repair.

How to Handle It

• Plan for 45–60 Day Closes: Discuss timelines with your lender and real estate agent early.
• Pre-Appraisal Preparation: Ensure the home meets MPRs and that your lender orders the VA appraisal quickly after going under contract.

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Disadvantage 7: Occupancy Requirements

With a VA loan, you must occupy the home as your primary residence, usually within 60 days of closing. Special exceptions apply if a spouse will occupy the property or if you’re deployed.

• Why It Matters
• PCS Moves: If you receive a Permanent Change of Station (PCS) order or other unexpected delays, you might struggle to fulfill the occupancy rule on time.
• Limited Flexibility: Conventional loans don’t impose these strict occupancy rules; they allow you to rent out the property sooner if you change plans.

Real-World Example

One veteran’s PCS was delayed, pushing back his move-in date. He had to submit additional documents showing his intent to occupy the property as soon as he could, or risk losing his VA loan eligibility.

How to Handle It

• Communicate Early: If deployment or PCS orders are on the horizon, let your lender and real estate agent know.
• Prepare Documentation: If a spouse or family member will live in the home first, ensure you meet all VA guidelines.

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How These Disadvantages Impact You as a Veteran Homebuyer

These downsides don’t outweigh the primary benefits—zero down payment and VA loans have no PMI—but they can influence your homebuying journey. Knowing how each disadvantage might appear helps you plan around it, keep sellers happy, and close on the home you want.

Key Points to Remember

• Funding Fee: Increases your loan balance or upfront costs.
• Strict Property Rules: Limits choices if you want a fixer-upper.
• Seller Bias: Requires negotiation savvy in hot markets.
• Closing Costs: You still need cash on hand for fees.
• Appraisal Delays: Can cause issues in fast-paced markets.
• Occupancy Requirements: May complicate timing, especially for active-duty members.

Steps to Mitigate VA Loan Disadvantages

With thoughtful preparation—like budgeting for fees, picking the right property, and working with VA-experienced professionals—you can reduce or avoid most of the drawbacks associated with a VA loan.

Step 1: Budget for the Funding Fee

• Estimate $5,000–$10,000 for your funding fee if you’re not exempt.
• If disabled, apply for your funding fee exemption through the VA website.
• Roll the fee into your loan if you don’t want to pay it all at closing (though this increases monthly payments slightly).

Step 2: Pick Move-In-Ready Homes

• Avoid major fixer-uppers to bypass VA MPR complications.
• Check listings known to be “VA-friendly” or recently renovated.
• If you do spot minor issues, get an inspection first to gauge repair costs.

Step 3: Sweeten Seller Deals

• Offer to cover minor repairs or pay a portion of closing costs.
• Provide proof of solid financing (preapproval letter), which shows you’re serious and qualified.
• Communicate that your lender is familiar with VA loan timelines, helping reassure the seller.

Step 4: Plan Closing Timing

• Aim for a 45–60 day close to accommodate the VA appraisal window.
• Arrange your own timeline around potential deployment or PCS schedules.

Step 5: Shop Lenders

• Compare 3–5 lenders for VA loan rates and fees—some may have lower fees or special discounts for veterans.
• Verify if they have experience closing VA loans efficiently (fewer surprises during underwriting).

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Mitigating VA Loan Disadvantages

Tip: By proactively addressing these disadvantages, you can make your VA offer more appealing and reduce stress during the buying process.

Real-Life Examples of VA Loan Downsides

Funding Fee

Mike faced a $7,000 fee on a $300,000 loan. Rolling it in meant he paid around $1,800 extra over 30 years.

Property Rules

John lost out on a $200,000 fixer-upper due to wiring issues flagged during the VA appraisal, pushing him to buy a higher-priced home.

Seller Bias

Lisa wanted a $320,000 home but lost the bid when the seller chose a conventional buyer with a faster closing timeline.

Appraisal Lag

Tom’s appraisal took 15 days instead of 7–10, forcing him to renegotiate the closing date. He managed to keep the deal by covering a small repair.

These scenarios highlight common VA loan challenges. However, each veteran ultimately secured a home by understanding the VA loan system and adapting to these hurdles.

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FAQs About Disadvantages of a VA Loan

What’s the biggest downside of a VA loan?

Often, it’s the funding fee, which can be 2.15%–3.3% of the loan amount. That can add thousands to your closing costs or loan balance, though disabled veterans may be exempt.

Why do some sellers dislike VA loans?

They worry about longer closing times and mandatory repairs. In competitive markets, they may favor a faster and less restrictive conventional or cash offer.

Can I avoid the VA funding fee?

Yes, if you have a service-connected disability rating of 10% or more or hold a Purple Heart. Apply through VA.gov to confirm your exemption before closing.

How do VA property rules limit me?

VA Minimum Property Requirements forbid buying a home with significant defects. This can be a deal-breaker if you want a fixer-upper.

Are VA loan closing costs higher than conventional?

Typically, they’re comparable ($5,000–$10,000). The big extra expense is the VA funding fee, but you won’t pay monthly PMI.

How long do VA appraisals take?

About 10–14 days, slightly longer than conventional appraisals. In fast-paced markets, this delay might cause sellers to hesitate.

Can I use a VA loan for a rental property?

No. VA loans are meant for primary residences only. You can buy a multi-unit property if you live in one unit, but pure investment properties aren’t allowed.

How do I handle seller resistance to VA loans?

Offer concessions, such as repair costs, and ensure your lender is prepared to close on time. Also, choose a VA-savvy real estate agent who can advocate for you effectively.

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Final Thoughts for Veteran Homebuyers

Despite these potential drawbacks, VA loans remain one of the best mortgage options for veterans and active-duty service members.

The zero down payment and lack of PMI alone can save you thousands of dollars.

By planning ahead—budgeting for the funding fee, choosing homes that meet VA standards, and working closely with experienced lenders and agents—you can overcome these disadvantages and enjoy a smoother path to homeownership.

Next Steps

• Learn More About VA Loans: Check out our Complete VA Loan Guide for a step-by-step explanation of the application and closing process.
• Explore Additional Benefits: Visit your State Veterans Affairs Office or reputable veteran service organizations for grants or tax exemptions that may apply to your home purchase.
• Get Preapproved: Fill out our short form to talk to at least three VA-approved lenders to compare interest rates and closing costs.

By taking these proactive steps, you’ll position yourself to leverage your military service advantage while navigating potential hurdles.

A VA loan can be a powerful tool, and with the right knowledge, you’ll be well on your way to finding—and financing—your dream home.