Seven Benefits of the VA Home Loan

1

This guest post is from Randy Prothero, a Hawaii real estate agent and team leader of “The Prothero Group” at Island Style Realty, an Oahu Real Estate Team.

 

The VA loan is a government backed, but privately lended, home loan available to veterans or those currently serving in the military (including active-duty personnel, reservists/National Guard members, and some surviving spouses). If you qualify there are many benefits to this unique mortgage including:

  1. Up to 100% Financing
  2. Large Loans Available
  3. Zero Private Mortgage Insurance (PMI)
  4. Competitive Interest Rates
  5. Refinancing Benefits
  6. Low (sometimes zero!) closing costs
  7. No Prepayment Penalties

 

1. Up to 100% Financing

With the VA mortgage, qualified buyers can finance as much as 100% of the property’s value. In other words, no down payment is required.

 

2. Large Loans Available

Loan limits are unique for each county and are established yearly by the Department of Veterans Affairs (VA) Loan Guaranty program. For example, here in Honolulu County (the entire island of Oahu) the 2013 limit is $750,000.

Jumbo loans of twice the limit are often available as well, but require 25% of the amount over the normal limit. Using the Honolulu County limit as an example, if a prospective VA borrower wished to borrow $1,000,000, the first $750,000 would be eligible for 100% financing, but the remaining $250,000 would require a 25% downpayment of $75,000. In other words, you could purchase a $1M property with a $75,000 downpayment plus a $925,000 VA loan.

3. Zero Private Mortgage Insurance (PMI)

Some lenders require that borrowers pay a monthly private mortgage insurance (PMI) fee if they are unable to come up with 20% down. The VA guarantees 25% of the appraised value of a home, which ensures that the borrower does not have to pay the PMI.

 

4. Competitive Interest Rates

Again, VA loans are backed by the VA with a guaranty; financial institutions that offer the loans carry less risk and are often able to offer lower interest rates (typically 0.5 to 1 percent lower than conventional interest rates).

 

5. Refinancing Benefits

If a service member or veteran already has a VA loan, he or she can refinance his or her current VA loan to lower the interest rate and to include closing costs. No qualification is needed and property value does not matter.

 

6.Low (sometimes zero!) closing costs

This is a big one: the seller can actually pay for all (or part of) the closing costs associated with the VA mortgage.

 

7. No Prepayment Penalties

Unlike many conventional loans there are absolutely no penalties for paying the VA loan off early!

 

What about the Downsides?

Of course, there are some cons to the VA home loan as well. Some of the potential downsides include: upfront funding fees and the possibility of the loan taking a long time to close.

Upfront funding fees can vary between 0.5 percent and 2.8% of the loan amount, depending on a combination of factors including your service history, amount of the down payment you make and whether you have previously received a VA loan.

VA loans can sometimes take longer to close than traditional mortgages as there is additional required paperwork and the target property has to pass an inspection before the VA mortgage will be approved.

 

Still Interested? Speak to a Professional!

This is by no means a comprehensive list of pros and cons but should hopefully provide you with a good overview. When considering purchasing it is highly recommended that you carefully weigh all of your loan options and that you seek the advice of a professional loan agent and/or real estate agent who is an expert on the VA loan.

 

References/Recommended Links

U.S Department of Veteran Affairs – Veterans Benefits Administration – Home Loans (The official government site with a wealth of info on the program) –

2013 VA Loan Limits by County (This link opens a PDF file.)

 

About the Author

Randy Prothero is a Hawaii real estate agent and team leader of “The Prothero Group” at Island Style Realty, an Oahu Real Estate Team. Randy’s team is proud to serve those who serve and has helped a large number of Hawaii’s military buy and sell real estate in Hawaii. Randy can be reached at homes@hawaiirandy.com or (808) 384-5645.

The Prothero Group is proud to co-sponsor twice monthly Hawaii VA loan workshops. If you are on Oahu (or plan to be soon) check out VA808.com to learn more or to register for the next class.

 

 



WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

4 Comments
  1. Reply
    How To Buy A Home June 28, 2014 at 7:06 PM

    […] Buying a home is not something that you wake up one morning and decide to do between your lunch appo…if you can afford properties in your area (or the area that you are moving to). Sadly, this often means settling for a house that is not quite your first choice (a condo instead of that three-bedroom house), but everyone needs to start somewhere. A loan officer can help you determine how much of a loan you will qualify for (and be able to afford). Ask him or her if the pre-qualification is free. Many loan officers will gladly sit down and hash the numbers out with you for free in the hopes of selling you the loan. Once you have determined how much you can afford, you get to go shopping. With the internet being as common a tool as the phone book (maybe more so), you will be able to find a significant number of listings for real estate agents in your area online. You will also be able to find a large number of properties and their descriptions and amenities, using the internet as your own personal tool, you will be able to narrow your options down to the properties that you really want to check out, and then contact an agent to show you around. Be choosy as to whom you ask to show a property to you. As the agent that generates interest in a property will be able to claim commission if you choose to buy the property and it's important that they have your best interest in mind and not just the dollar amount that they will pocket after the sale. Under any circumstances should you use the seller's agent as your buying agent. This person would be legally responsible for getting the seller (not you) the best deal possible. Looking at houses is the fun part for most, and the most painful part for some. No matter how you feel about the process, though, it is important to ask every question you can think of. Bringing someone who has bought a house before might be helpful, as they can suggest things that you would never think to check. Do the toilets all flush? Do the sinks drain? Are the owners leaving that fridge, or do I have to buy one? All of these are important questions to ask before you buy a home because they effect the resale value or the home. Once you have chosen the property of your dreams, or the one that you can comfortably afford, you will submit a bid proposal through your real estate agent, who will guide you through every detail of the buying process. Over the next month or so you will be forced to endure bidding and counter bidding until a deal is chosen, followed by hours (yes, I mean hours) of paperwork. There are scores of pages of paperwork to be filled out and signed detailing the duties of buyer and seller; assigning, hiring, and evaluating the results of inspectors; detailing property condition and duties related to the condition (like repairing a crack in a wall); as well as much more. With luck and flexibility on your part, the deal can be sealed in about a month, although it usually takes a little longer. Remember that loan consultant? Once a price has been agreed upon, you will work with your consultant to actually get the loan approved for your new home. He or she will require (you guessed it) more paperwork from you. Grit your teeth and have him fax your approval over to your agent. Sealing the deal requires even more hours of signatures. Like childbirth, the pain of the process of buying a home is worth the joy and excitement you will feel as soon as it is all said and done. At least until you realize how much money you owe. However owning a home is both financially and personally rewarding. […]

  2. Reply
    Mel M November 20, 2013 at 3:51 PM

    Thanks Nords and the guest poster…when my wife and I decided to purchase our house almost 4 years ago, we didn’t even consider a VA loan because of the downsides of longer closing (we wanted to move out of the Navy Lodge as soon as possible) as well as the VA inspection that we thought, wrongly or otherwise, can eliminate some properties, we were interested in, from being considered. Since we had enough money to be able to put down the 20% to avoid PMI (negating benefit #3), we decided on a conventional loan vice going thru VA.

    With regards to “benefit” #6, how will this work in a “seller’s market” that we have now…would sellers actually be inclined to pay for all or a majority of the closings costs?
    By the way, if I am not mistaken, VA loans can only be granted for purchase of primary homes and not investment property or rental property.

    • Reply
      The-Military-Guide November 21, 2013 at 5:58 AM

      Thanks, Mel!

      A VA loan was a big help when I bought “my first condo” in 1984 (Charleston, SC). It was a buyer’s market but the lender felt that the seller’s concessions on closing costs were merely covering for my weak finances. The VA certificate tipped the scales to approve the 30-year mortgage with no money down. Today, especially on Oahu, a buyer might offer to pay all the closing costs just to win the bidding war. I’ve been to too many open houses in the last six months here where the seller clearly didn’t feel obligated to exert any marketing effort.

      I lived in that condo for 20 months and then rented it out for another year. If the lender or the VA even knew, they didn’t complain to me. When I sold, the buyer (a civilian) assumed the VA loan– which was a helpful incentive in that buyer’s market. Coincidentally that 30-year term will be up in about six months…

    • Reply
      Hawaii Randy November 21, 2013 at 4:36 AM

      Aloha Mel – If you have 20% down, the VA may or may not be your first
      choice. The VA loan however does have some added benefits like
      streamline refinancing and it is assumable.

      Item #6 is
      not happening much in the sellers market. The local lenders we work
      with pick up the closing costs, making it a non issue in most cases. In
      a some cases before the market heated up, we were able to use credits
      from the sellers to pay off the veterans debts like credit cards or car
      loans.

      The VA loan requires they buy it as their residence. It doesn’t require the home be their residence for the life of their loan.

      Randy Prothero
      The Prothero Group

      at Island Style Realty inc.

Comment? Question? What's on your mind?