Homeownership has long been part of the American dream. For veterans, the VA-guaranteed home loan provides a means to make that dream a reality.
About three years ago, it was my own family weighing whether to use a VA loan for our new house (we did). This month, it was a conversation with a co-worker and military spouse who, because of a recent divorce, was disappointed that she is no longer eligible for one.
Even if you’re familiar with VA home loans, here are four facts that may surprise you:
• A down payment may be required. The fact that there’s no requirement for a down payment, and no private mortgage insurance or mortgage insurance premium, is probably a VA loan’s biggest draw. However, in 2019, if you’re purchasing a home for more than $484,350 (or more in certain counties), you may be required to make a down payment of 25 percent of the excess above that figure.
• VA home loans are attractive in a rising-rate environment. Your VA lender may allow another buyer to step in and assume your loan – a particularly nice feature if interest rates rise. The terms of the loan could be a lot more favorable for the buyer, and the cost of the transaction could be substantially less. There are liability and VA loan entitlement issues to be aware of, so you’ll want to research the ramifications with your lender.
• These home loans are quick and competitive. Really. It’s common for veterans to be concerned about these two issues, but you need not worry. Today, VA’s automated system facilitates the process from beginning to end. Typically, you can close your loan in just a few weeks. According to the loan processing firm Ellie Mae, VA purchase loans took four to five days longer than conventional loans during the early months of 2019. From an interest-rate standpoint, VA loans are typically lower than conventional loans with the same terms.
• You can use it more than once – and maybe more than once at a time. Yes, you can use a VA loan 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. If you have a VA loan but decide to rent your home when you relocate to a new primary residence, you may be able to use another VA loan to buy your new residence and have two VA loans simultaneously. This can be a bit complex, but if the numbers work, it can be done.
Visit va.gov to learn all the details. Buying a home is a big decision, so your first task is to ensure it makes sense given your personal circumstances. However, if you’re buying, a VA loan is worth a look.
J.J. Montanaro is a certified financial planner with USAA, The American Legion’s preferred provider of financial services.