While my military days are well behind me, my family is on the brink of a move. During the past two years, we’ve laid the foundation for what I hope will be a smooth process. We’ve done the same things I would encourage you to do before embarking on the adventure that is homeownership: we’ve socked away cash, we’ve checked and rechecked our credit reports, and we’ve built a “new home” budget that includes all the costs of ownership. Of course, we’ve also committed to owning the property for the long haul.
As I write this, we’re looking at mortgages. And although it’s been a while since I wore the uniform, we’re considering a Department of Veterans Affairs Guaranteed Home Loan – or as it’s more commonly known, a VA loan.
It’s an option you may want to consider, too. Here are six reasons a VA loan can be a good fit:
No down payment and no PMI. This may be a VA loan’s biggest draw. With a conventional loan, you’ll typically need a 20 percent down payment, or you’ll be required to purchase private mortgage insurance (PMI). Not so with VA. Unless you’re receiving VA disability compensation, VA loans require you to pay a funding fee, but they don’t require a down payment or PMI.
Competitive rates. VA doesn’t set interest rates; the lender does. That means the rates are competitive with any other type of loan. And in some cases, they’re better than conventional loans. As I mentioned, it’s important to have your credit score and overall finances in tiptop shape before applying for any mortgage. It’s also critical to shop around for the best terms and rate ... even with a VA loan.
Buyer takeover. In certain situations, VA will allow another buyer to step in and assume your loan. If interest rates continue to rise, this could be a nice feature. While the new buyer would have to come up with the cash difference between the loan value and the house’s market value, the terms of the loan could be a lot more favorable, and the cost of the transaction could be substantially less.
It’s pretty darn quick. Long gone are the days when processing a VA loan was a never-ending marathon, relative to the sprint offered by its conventional counterpart. Today, using VA’s automated system, your lender can get an electronic “certificate of eligibility” from VA and close your loan in just a few weeks.
You can use it more than once. If you’ve paid off the previous loan, all of your entitlement is restored and you’re eligible to use another VA loan. One note: subsequent use may require an increased VA funding fee.
You can use it to refinance. Although rising interest rates are shrinking this opportunity, you can also use a VA loan to refinance a conventional loan or another VA loan. If you already have a VA loan, the Interest Rate Reduction Refinance Loan is an option. It has just a 0.5 percent funding fee, and there’s no appraisal or financial underwriting required by VA (lender requirements may vary).
Visit va.gov and talk to your lender to learn all the details. But remember, VA loan or not, the smartest move you can make is to ensure that the decision to buy is appropriate given your circumstances.
J.J. Montanaro is a certified financial planner with USAA, The American Legion’s preferred provider of financial services. Submit questions for him online.