What is the Downside of a VA Loan?

If you’re a veteran, active-duty service member, or part of the National Guard, there’s a good chance someone has told you about the magic of a VA loan. And truthfully, it’s not hype, VA loans are one of the most powerful home financing tools available in Rhode Island. They offer 100% financing (yep, $0 down!), competitive interest rates, and no private mortgage insurance (PMI). For those who qualify, it can feel like hitting the housing jackpot.

But just like any financial tool, a VA loan comes with a few strings attached. Some are minor nuisances, others can feel like full-on roadblocks, especially in a market like Rhode Island, where older homes and competitive offers are the norm.

This guide digs deep into the often-overlooked downsides of VA loans. We’ll break them down, bust a few myths, and show how working with a local expert can make all the difference.

Learn More About VA Loan: What Is a VA Loan

What Is the Downside of a VA Loan in Rhode Island?

Let’s get one thing straight: VA loans are not bad. But they’re not perfect, either.

Here are the most common pitfalls borrowers experience in Rhode Island:

• VA Funding Fee

It is often the first surprise for VA loan newbies. While you don’t pay PMI like you would with a conventional loan, you do pay a VA funding fee. In 2025, this fee ranges from 1.25% to 3.3% of your loan amount, depending on your down payment and whether it’s your first use of the VA benefit.

Unless you’re exempt (due to a qualifying VA disability rating), this fee is unavoidable.

Quick Example:

On a $350,000 home, a 2.3% funding fee equals $8,050 — usually rolled into the loan, but still a cost you’re paying over time. While this avoids the monthly cost of PMI, it can still feel like a hefty upfront fee, especially for first-time buyers trying to keep costs down.

Some buyers are surprised that VA loans aren’t entirely “free” of extra fees. However, it’s worth noting that this funding fee can be financed into your loan, minimizing immediate out-of-pocket costs.

Still, in a competitive housing market like Rhode Island’s, every dollar counts — and the fee might make a difference in your buying power.

• Primary Residence Only

Thinking of buying a second home near the beaches of Narragansett? Or maybe renting out a multi-family in Providence as an investment?

VA loans are strictly for primary residences. That means no vacation homes, no fix-and-flips, and no Airbnb-style short-term rentals. It can feel restrictive, especially for service members hoping to build wealth through real estate.

Even multi-family properties (up to four units) must include you living in one unit full-time. That limits flexibility, especially in towns like Warwick or Cranston, where multi-units are hot commodities.

If you have dreams of passive income through property investments, the VA loan may not be your best long-term strategy. However, you can always refinance later into a different loan type once you establish residency.

• Tougher Appraisal Process

VA appraisals are known to be stricter — and that’s not just a rumor.

The VA wants to ensure the home is “safe, sound, and sanitary.” While that’s great for protecting buyers, it can be a hurdle in places like Rhode Island, where many homes are 100+ years old and full of character — and quirks.

Things like peeling paint, missing handrails, exposed wiring, or outdated heating systems can all raise red flags during a VA appraisal. These issues might require repairs before the loan is approved, putting sellers in a position to make fixes they weren’t prepared for.

It can complicate negotiations, delay closings, or cause deals to fall through entirely, especially when sellers prefer “as-is” offers.

• Slower Closings (Sometimes)

VA loans aren’t inherently slow, but several factors can add time to the process, particularly if your broker is not familiar with VA regulations.

Extra steps like verifying the Certificate of Eligibility (COE), VA-specific appraisals, and additional underwriting reviews can tack on days or even weeks. In fast-paced Rhode Island markets like East Greenwich or Barrington, that delay could cost you the deal if sellers are reviewing multiple offers.

The good news? You can avoid these headaches by working with RI Mortgage Brokers, who know how to streamline the VA process and manage expectations with both buyers and sellers. Their local expertise ensures that VA loans close just as efficiently as any other, when handled correctly.

Why Do Some Rhode Island Sellers Avoid VA Loans?

Here’s where things get a bit frustrating.

Many Rhode Island sellers think VA loans are risky or complicated, and that’s simply not the full picture.

• Fear of Required Repairs

Because of the stricter appraisal, some sellers assume VA buyers will demand tons of repairs, especially for homes built pre-1970. They’re not necessarily wrong, but most repairs are minor and negotiable. The fear is often overblown, especially if the home is in decent condition. Simple fixes like handrails, smoke detectors, or chipped paint are usually enough to meet VA standards.

• Belief That VA Loans Take Longer

This myth persists because some brokers (especially those not local to RI) bungle the process. In truth, a well-organized VA loan can close just as fast as a conventional one, sometimes even faster, depending on the broker’s experience. Delays usually result from miscommunication or lack of VA-specific knowledge, not the loan itself.

• Confusion About Closing Costs

VA loans have limits on what buyers can pay, which sometimes confuses buyers. Some sellers believe they have to cover extra costs, but that’s not always the case. With the right negotiation strategy (and guidance from RI Mortgage Brokers), deals go smoothly. Sellers can offer concessions within VA’s 4% cap, and the buyer or broker can still cover many costs.

What Is the 4% Rule on VA Loans?

This rule trips up both buyers and sellers — but when used smartly, it’s a game-changer.

The VA allows sellers to contribute up to 4% of the home’s price in concessions. That includes:

• Prepaid taxes and insurance
• VA funding fee
• Discount points
• Closing costs
• Payoff of certain buyer debts

What it doesn’t include are typical seller-paid costs like agent commissions.

Rhode Island Tip:

In high-tax areas like Providence or Cranston, where property taxes can bump up monthly payments, using concessions to prepay taxes or buy down the interest rate can make the home more affordable long-term.

Work with RI Mortgage Brokers to structure a deal that gets you more bang for your buck while staying within VA limits.

Start with the full picture—what exactly is a VA loan and who can use it?

What’s Better Than a VA Loan? (For Some Buyers)

Wait — is there something better than a VA loan? In some cases… yes.

Here’s when a conventional or FHA loan might outperform a VA loan:

Why Choose a Conventional Loan?

• You’re putting 20% down and want to avoid any extra fees.
• You want to buy a multi-family or vacation home.
• You have a credit score over 740 and qualify for excellent rates.

Again, it’s not about which loan is better, but which is better for you. If you’re unsure, let RI Mortgage Brokers do a side-by-side analysis for your situation.

Thinking about using your benefit? Partner with a top VA loan expert in RI to avoid common mistakes.

What You Can’t Use a VA Loan For in Rhode Island

Let’s set expectations — VA loans are not for everything. While they offer incredible advantages for primary residences, they come with clear restrictions on how the loan funds can be used. Understanding these limits upfront can help you avoid wasted time and steer you toward the right financing strategy for your goals.

Here are the common uses that VA loans strictly prohibit:

• Vacation Homes

That dream cottage by the ocean in Newport or a weekend getaway near Narragansett Bay? It sounds perfect — but unless you’re living there full-time, it’s not eligible under VA loan rules. The property must be your primary residence, meaning you need to move in within 60 days of closing and occupy it as your main home.

• Fix-and-Flips

If your goal is to buy a rundown home in Providence, renovate it quickly, and sell it for a profit, a VA loan won’t work. The VA program is focused on long-term homeownership, not short-term investment strategies. Properties bought with a VA loan are expected to be occupied by the veteran and maintained as a residence, not flipped for resale.

• Rental Investments

Thinking of buying a multi-family or single-family property just to rent it out? Not with a VA loan. You can buy a multi-unit home (up to four units), but you must live in one of the units full-time. Pure investment properties — where the veteran never resides — are not allowed.

However, There’s One Exception Worth Noting: VA Renovation Loans

It is one of the most overlooked benefits of the VA program — and it can be a game-changer in older areas of Rhode Island.

VA Renovation Loans allow you to roll eligible home repairs or upgrades into your mortgage. That means you can buy a house that needs a little love and bring it up to modern standards — all under one loan. This option is perfect for towns like Pawtucket, Woonsocket, or Central Falls, where there are plenty of affordable properties with great bones but dated interiors.

Upgrades might include:

• Roof repairs
• Electrical or plumbing updates
• HVAC system replacements
• Flooring, painting, or accessibility improvements
• Kitchen or bathroom remodeling (if related to habitability)

However, not all renovations are covered. Luxury items like swimming pools, outdoor kitchens, or wine cellars generally won’t qualify.

Important: You must work with a VA-approved contractor, and your broker must offer VA rehab financing — not all do.

Pro tip:

Many Rhode Island cities have housing stock built before 1950. A VA renovation loan allows you to preserve the character of these homes while upgrading them to modern safety and efficiency standards.

So while VA loans can’t be used for every type of purchase, they’re far more flexible than many buyers realize, especially when you tap into tools like renovation financing.

Wondering if you can afford your target home? Here’s how much you need to earn to buy a $400k home with a VA loan.

Our Local RI Team Makes VA Home Loans Easy for You

We get it — VA loans sound complicated. But they don’t have to be.

At RI Mortgage Brokers, we specialize in helping Rhode Island veterans navigate every twist and turn of the VA loan process.

Our services include:

• Fast Certificate of Eligibility (COE) processing
• Property screening for VA appraisal standards
• Seller negotiation coaching
• Smart use of seller concessions
• Assistance with funding fee exemptions and paperwork

We’ve helped buyers across Coventry, Warwick, Cranston, and Providence make strong offers that get accepted — even in hot markets. Sellers trust our process, and our VA buyers get to the closing table without surprises.

If you’re looking to make the most of your VA benefit here in RI, trust your home loan journey to the folks who live and breathe it — RI Mortgage Brokers.

If you’re unfamiliar with the process, see how VA loans actually work in Rhode Island.”

Conclusion

While VA loans have a few quirks and limitations, they remain one of the best mortgage options available for veterans and service members in Rhode Island. Understanding the downsides helps you make smarter decisions and avoid surprises along the way.

Whether it’s navigating appraisals in older homes, closing fast in a competitive market, or leveraging the 4% concession rule to lower your costs, the key is working with a team that knows Rhode Island inside and out.

FAQs

1. Can I use a VA loan for a multi-family home in Rhode Island?

 Yes, as long as you occupy one of the units as your primary residence. You can buy up to a 4-unit property, which is a great way to build equity while housing yourself affordably.

2. How do I get exempt from the VA funding fee?

 If you receive VA disability compensation, even at 10%, you may be exempt. You’ll need to submit your VA Certificate of Eligibility (COE) and proof of your rating to your broker.

3. Do I need a perfect credit score to qualify for a VA loan in RI?

 Nope! Most brokers require a minimum score of around 620, which is more lenient than conventional loans. That said, higher scores still get better rates, so it’s worth improving your credit if possible.