Home ownership has long been part of the American dream. For veterans, the Department of Veterans Affairs-guaranteed home loan provides a means to make that dream a reality.
Periodically, something will trigger me to revisit this valuable benefit of service. 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 a VA loan.
Even if you’re familiar with VA home loans, these four facts may surprise you:
1. 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, the 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 a conventional loan with the same terms.
2. 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 the VA loan’s biggest draw. In 2020, there is no set figure for which a lender will require a down payment.
3. 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.
4. VA home loans are attractive in a rising-rate environment. Your VA lender may allow a 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.