7 Reasons the VA Loan is Incredible
As an Army Veteran and a Realtor, I naturally gravitate toward helping my fellow veterans and service men and women, young and old, buy and sell homes. I'm a big advocate of the VA loan and I'm intimately familiar with its advantages and disadvantages.
From the age of 19, I spent 4 years in the active duty Army and 4 1/2 years in the National Guard. The military helped me become a homeowner through the VA loan. I've used it to purchase 4 different homes over the past 12 years and each time with $0 down and no closing costs. The VA loan, in my opinion, is the single greatest benefit available to Veterans. Every one of us should be taking advantage of it.
So, why is it so great? And, what is the difference between a VA loan and say, a conventional loan? Well, first things first. I'm not a lender, so this article is not meant to give you loan advice. I'm conveying my experience, as well as, information freely available from the VA.
When banks loan you money for a home, they try to mitigate their risk by having you put some money down (such as in a conventional loan). They want to keep a certain Loan-to-Value ratio, but we won't get into that. Essentially, the VA "backs" your loan and that is the insurance the lender needs to feel comfortable giving you 100% of the home price. Another great thing about this loan is that the VA puts certain restrictions on the lender to protect you.
Let's talk about the 7 advantages that make the VA loan incredible!
1) No Down Payment
If the home you're buying appraises for the price you've agreed to pay, you can finance 100%, in most cases. That means NO DOWN PAYMENT. This isn't a gimmick meant only for very specific situations. I've never had a problem buying a home for $0 down.
2) No PMI (Private Mortgage Insurance)
PMI protects the lender in case you stop making payments. Because your loan is backed by the VA, PMI isn't necessary. This could save you hundreds of dollars a month.
3) Limited closing costs
Lenders are restricted from charging Veterans the endless fees that they normally charge other borrowers. The extra expense with the VA loan is a one-time funding fee. A down payment will reduce the funding fee. It also increases after the first time you use the VA loan. You can pay the funding fee at close or it can be rolled into your loan. There are also certain situations when the fee is waived, such as cases of disability.
4) Allows seller to pay closing costs
Some loans limit the amount of closing costs the seller can pay. The VA allows the seller to pay all the customary closing costs and even more to cover points or debt buy-down (verify the details with your lender). So, if you can negotiate it, take that extra cash you've been saving and use it to decorate the new house or do some remodeling.
5) No early payoff penalty
With some other loans, the lender will write an agreement into the loan that forces you to pay a penalty if you pay your loan down too much in a year. This can be triggered when refinancing or if you sell your home, depending on how the loan is written. The VA restricts lenders from charging any kind of a prepayment penalty.
6) VA payment assistance
When I was active duty, we were routinely offered budgeting and bill consolidation counseling. This extends to your VA loan. If you get into financial hardship and start missing payments, the VA will step in and negotiate with your lender to avoid foreclosure. This won't happen automatically; you need to reach out. But, it's an important benefit.
7) The VA loan is reusable
As I've experienced myself, you can reuse the VA loan. My family is currently in our 4th home purchased with a VA loan. I had no issues selling the previous 3 and using the VA loan, again.
Every Veteran that is qualified should be using the VA loan and not just for 100% financing. As long as you don't have a dishonorable discharge and meet service requirements, you probably do qualify. If you're planning on putting money down, the VA loan should still be strongly considered.
The first step is to find your DD-214 and contact a lender. The lender can also inquire to obtain it, if you don't have a copy. That begins the process of obtaining your COE (Certificate of Eligibility) which will tell you how much loan you're eligible for. Contact me and I'll get you in touch with a lender that specializes in VA loans, to get you started. Then, we'll help you find a home and sell your current one!
Be aware that when you finance 100% of your home you are starting day 1 with no equity - unless you got a great deal and bought it under market value.
This will only give you problems in the event of a market down turn, that puts you upside down in your home, and you have to sell for some reason. If you are able to keep paying your mortgage, and stay the course, the housing market has shown that it will consistently appreciate over time. You'll regain equity within a few years.
I believe the VA loan advantages far outweigh the disadvantages. It helped me become a homeowner years before I would have been able to without it and I've always had equity in my homes for all of the last 12 years. This is partly through smart purchases.
We don't ever advocate purchasing a home that is too much mortgage for your income, no matter how much you get approved for.
Contact Us if you’re ready to talk about buying a home!