Military

Military Home Buyers: 5 Reasons To Choose A VA Loan Instead of A Conventional Loan

The VA Loan is a powerful mortgage option that has helped more than 22 million veterans, active duty military members and their families, purchase homes and achieve their American dream of homeownership. The program was created in 1944 and is guaranteed by the U.S. Department of Veterans Affairs (VA).

This mortgage program features many amazing benefits, including its no down payment advantage, relaxed eligibility requirements, and competitive interest rates issued by VA-approved lenders. The VA Loan continues to serve as a lifeline for many military home buyers who may find it difficult to be qualified for a regular mortgage because of tough credit standards and down payment requirements.

Likewise, here are some of the most attractive perks of VA loans that are simply not available in conventional mortgages and other government-backed loans:

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1. There’s no need to pay for Private Mortgage Insurance.

One great thing about VA loans is that borrowers are not required to pay a monthly mortgage insurance unlike in conventional and FHA mortgages. In a conventional loan, borrowers need to pay for Private Mortgage Insurance (PMI) if they pay less than a 20 percent down payment. The PMI protects the lender just in case a borrower defaults on the loan. Meanwhile, FHA loans come with both an upfront mortgage insurance premium and an annual premium which can be paid over the life of the loan and will be added as part of your monthly mortgage insurance.

In a VA home loan, the mortgage is being insured by the federal government so veterans can save thousands of dollars in mortgage insurance costs. With this strong government backing, lenders are even more encouraged to keep closing and origination costs low. The less-risk factor also allows lenders to become more flexible on credit and other lending standards, granting more veterans the opportunity to be eligible for a mortgage.

 

2. Refinancing is possible even from a non-VA mortgage to a VA loan.

VA loans do not only prove to be available for new home purchases. In fact, refinancing from a non-VA mortgage to a VA loan is even possible and available for financially qualified borrowers. Those who wish to take advantage of this option will need to find a participating VA lender who is willing to do the transaction.

Likewise, VA loans can be refinanced through the VA Interest Rate Reduction Refinance Loan (also known as the VA IRRRL). The IRRRL can help current military homeowners refinance their existing mortgages to earn a lower interest and have a lower monthly mortgage payment. This VA streamlined program provides exceptional benefits such as the no appraisal requirement, no out-of-pocket costs, no income or credit report verification, and allows refinances of up to 100 percent of the home’s value. Don’t be afraid to ask a participating VA lender about this VA IRRRL option to find out if you’re eligible.

 

3. VA Loans have closing cost limits.

While all mortgages automatically come with fees and closing costs, the VA limits the closing costs that lenders can charge veterans. Veterans and military members who will be financing their homes through a VA loan have the flexibility to negotiate expenses with lenders. They are also free to research the closing costs, rates, and mortgage terms provided by lenders.

Some costs and fees associated with a mortgage can also be covered by other parties in the transaction. For an instance, a VA borrower can certainly ask a seller during the negotiation process to pay all of their loan-related closing costs and other expenses, such as prepaid taxes and insurance. These precautions help make homeownership entirely affordable and possible for qualified home buyers.

 

4. Your BAH can count as income.

The Basic Allowance Housing or BAH is one of the several VA benefits available to eligible service members. BAH payments are given monthly to those who are not provided housing by the government or those who are not living in government-issued headquarters. This allowance is intended to fund housing costs so lenders can definitely count BAH as an effective income source. It will help active duty members to qualify for higher loan amounts, and they can also use it to pay for their monthly mortgage costs. The amount a veteran or military member receives for BAH is based on rank, years of service, pay grade, number of dependents, and duty location.

 

5. It is a lifetime benefit.

One of the most unbeatable benefits of a VA mortgage program: you can use it over and over again throughout your lifetime. It’s contrary to a common misconception that it is only a one-time benefit. It means veterans who have used it decades ago to purchase a property are still eligible if they want to use it today.

It’s even possible for borrowers to have more than one VA loan at the same time. You don’t necessarily have to pay back your current VA loan in full in order to be eligible for a new one. It’s especially helpful for military members who have a VA mortgage from their current duty station but need to make a Permanent Change of Station (PCS) move to another part of the country.

 

Because of these astounding benefits, the VA mortgage program remains as one of the safest loans in the market. Through the VA guarantee, veterans are not only getting their dream homes, but it also helps them keep their homes and avoid foreclosure.

For Military Members and Their Families: 10 Things to Consider Before Getting Into Home Ownership

For active-duty military members and their families, purchasing a family home is a complex and weighty decision.

Following their Permanent Change of Station (PCS) move, the decision to buy a piece of the American dream they fought to protect could be affected by numerous financial and personal factors. Here are some things military members and their families should consider before deciding to buy their next home:

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Financial Considerations

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#1 Cost and Monthly Payment

Among many active military families, there is a great debate regarding the cost of renting vs buying a home and paying the monthly mortgage. Rental costs and average home prices may vary greatly depending on where you are moving in the US.

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#2 Market Prices

Aside from mortgage and downpayment, military homebuyers must also consider other factors such as the average price within the local area, the rate of foreclosure, and the condition of the local market.

It is best to consult a local military-friendly real estate agent, whom you can discuss with other factors that will increase your monthly cost, including real estate taxes, HOA fees, and the cost of insurance, among others.

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#3 Tax Benefits

When you own a home, you get to deduct the mortgage interest you pay on your loan from your taxes. This tax benefit lowers your monthly home expenses. You should consider calculating your tax benefits vs your actual costs for you to determine your cost of ownership.

Likewise, when it comes to property taxes, you know you’re paying for a home that you really own. Those property taxes are also deductible from taxable income on your federal income tax return and some state income tax returns, and thus offer you additional income tax savings.

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#4 Using Your Basic Allowance for Housing (BAH)

Many military members receive a monthly housing allowance, and what most of them don't know is that they can use this money to qualify for a home loan. Especially in higher-cost areas where the service member wants to move, BAH can help them make that big transition.

BAH is a tool that can help lenders gauge what kind of mortgage payment an eligible veteran can handle. This housing allowance is based on several factors and can change on an annual basis, so it’s important to consider this as well.

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#5 Eligibility for a VA Home Loan

If you've chosen to finance your home using Veterans Affairs (VA) home loans, be aware of the eligibility requirements and how it may impact your future relocation.

VA home loans are flexible loans that come with outstanding benefits like no down payment, no mortgage insurance, and more lenient credit requirements. VA loans are best for the purchase of your family’s primary residence.

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#6 Expected Time in Current Duty Station

Because military members may be called upon to deploy or change duty stations at any moment, there should be a compelling reason to buy a home. You'll want to consider closing costs ahead of time when you buy and sell. It may help to also assess the expected costs of purchasing and subsequently selling your home.

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#7 Potential For Renting Or Selling The Property

There is a need to ensure that a purchased home is one that can be very marketable for the purposes of selling or renting. It's important to know the best type of home that people are buying or renting in a certain area.

Moreover, if you’re considering purchasing a home near a military base of operations, chances are you’ll be able to rent or sell the property to other military personnel who wants a home of their own.

Personal and Emotional Considerations

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#8 Personal Concerns

Even before all financial considerations, you should know yourself whether you are ready to buy or not. Are you ready to call yourself a homeowner or a landlord? Are you ready to have another responsibility? Will you be able to handle the necessary repairs and maintenance associated with home ownership? Are you looking at it as part of an investment? These are just some of the questions you need to ask yourself before making that big decision to buy.

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#9 Proximity to Family and Friends

Your family, friends and loved ones are your support system. If you're used to living near them, you probably don't want to be stuck in a place where you're all alone or where it may take a long ride for you to visit them. However, compared to renting, even owning a home in a new neighborhood could give you a sense of belonging and stability.

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#10 Retirement Considerations and Future Plans

This may be connected to your financial concerns and stability, but it can be personal as well. If you are stationed in an area where you may soon want to retire, consider the state tax rates, treatment of military pay and benefits, and whether your potential home is near any military healthcare facilities. Thinking of these things ahead of time is also taking care of your physical and financial health in the future.

5 Most Common Misconceptions About VA Loans

The Veterans Affairs home loans are unique mortgage options that allow current and former members of the military to own a piece of the American dream by potentially qualifying for homes that they might have thought to be out of reach.

Veterans, active-duty service personnel, and select Reservists or National Guard members are among those who can qualify for VA loans. These flexible loans come with outstanding benefits like no down payment, no mortgage insurance, more lenient credit requirements, and also have the lowest average interest rates on the market.

The National Association of Realtors (NAR) 2017 Profile of Home Buyers and Sellers showed that 18 percent of recent home buyers are veterans, while three percent are active-duty service members.

However, misinformation and misconceptions about VA loans continue to hinder many veterans from actually benefiting from this program, which is a tangible way of showing gratitude towards their service to the people and the nation.

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#1 Misconception: It is a one-time benefit.

FACT: Getting a VA loan is a lifetime benefit.

Some veterans think that they must use the benefit immediately or lose it, or that if they used it once, they can’t use it again. The reality is that it is a lifetime benefit. You can use it again to purchase another property, as long as you have paid off your previous VA loan.

 

#2 Misconception: VA loans take longer to close than FHA or conventional loans.

FACT: There's not much time difference when closing VA loans compared to any loans.

Many home buyers think that VA loans take more than 60 days to close, but it certainly isn't true. The process has become much more automated and efficient with the Guaranty Program, and it can now be closed in 30 days or less.

Similarly, the average VA mortgage closes in 45 days, according to mortgage industry analysts Ellie Mae. While the average closing time for all loans is 42 days, which only has a three-day difference.

 

#3 Misconception: The VA appraisal is quite a nightmare.

FACT: The VA appraisal isn't really different from the average conventional appraisal.

Unless the buyer pursues a home in a very poor condition, then the appraisal process could really be terrible. The truth is that only VA-approved appraisers inspect the homes to make sure they meet minimum property requirements, and to make sure that they are “safe, sound and sanitary.” VA appraisers also tend to have stricter standards than a typical home appraiser. Otherwise, if the service member chooses a home that is in good condition, then the VA appraisal will be a breeze.

 

#4 Misconception: You can’t get a VA loan if you’ve had a foreclosure or bankruptcy.

FACT: VA loans only require that there has not been a foreclosure or bankruptcy in the past two years.

VA loans are more lenient than other loan products when it comes to bankruptcy and foreclosure. In some cases, it is also possible to get a loan within a year. This is a much shorter period compared to what FHA loans and conventional mortgages require, which includes a 3-year waiting period.

 

#5 Misconception: Hiring any real estate agent will do.

FACT: An agent who's had experience working with military buyers can help you better navigate the process.

While any realtor can technically help you, finding a military-friendly real estate agent who particularly had experienced working with military buyers before — and have the time to focus on your needs — can make a world of difference. For many veterans, housing needs go far beyond the usual housing criteria, such as the number of bedrooms, price range and location. An agent who specializes in VA loans can help save you an awful lot of headaches as they better understand the loan process, the VA appraisal, and has a special eye and heart towards your specific situation.