Home Benefit

One of the oldest veterans' benefits can be the best way for current and former service members to buy a home, especially a first home.

Qualified Department of Veterans Affairs borrowers — and many in the National Guard are eligible — can buy a home with no money down. There is also no private mortgage insurance. Additionally, the VA limits what fees and costs veterans can pay at the time of closing.

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Contrast all that with conventional home loans, which typically involve 5% down. That’s $20,000 for a $400,000 home. And they require PMI unless you put 20% down, which would be $80,000 on that same $400,000 mortgage.

In most cases, the VA doesn’t provide the mortgage. It guarantees the loan from a private lender at competitive rates. That’s why you don’t need to pay PMI. But no down payment can be a big advantage. It opens the door to home ownership sooner.

The VA loan benefit was created to ... make homeownership easier and more affordable for those who serve our country.

—Chris Birk, the vice president of Mortgage Insight at Veterans United Home Loans

“The VA loan benefit was created to help level the playing field and make homeownership easier and more affordable for those who serve our country,” said Chris Birk, the vice president of Mortgage Insight at Veterans United Home Loans, a company that specializes in VA mortgages. “Nearly 80 years later, this hard-earned benefit is still fulfilling its original mission.”

The program is a product of the Servicemen’s Readjustment Act of 1944, commonly known as the GI Bill. The landmark legislation provided a range of support to the 16 million service members on active duty during World War II transitioning back to civilian life, including education assistance, unemployment compensation and home loans.

Congress has since made the loan guarantee program permanent, expanded eligibility and updated the rules in an attempt to keep pace with the evolving marketplace. For example, there is no longer a cap on the borrowing amount.

Additionally, NGAUS worked with lawmakers to extend the benefit to the Guard. Today, Guardsmen are eligible after six years of service or with 90 total days of federal active-duty service with one stint of at least 30 consecutive days.

VA loans can be used for the purchase, refinance or renovation of a home (with some stipulations), and there are several types from which to choose. It’s also a lifetime benefit. You can use the program multiple times.

The most common type of VA loan is the purchase loan, which allows you to buy a property to live in as your primary residence. The program can’t be used for investment or rental properties.

Birk further noted that those taking advantage of a VA home loan have easy access to low-cost refinancing should rates fall to a homeowner-friendly level.

And rates, which are tied to a variety of market factors, have declined recently. They hit a 20-year average of more than 8% in October, or about double what they were two years ago. But they have fallen more than a full point since, according to data from Zillow, a real estate company with a large online presence.

Navy Federal Credit Union VA loan expert Chris Davis says locking down today’s home pricing at current rates could be a good strategy.

He and many other lending and real estate experts believe a continued decline in interest rates will likely push more buyers into the market. With home inventory in short supply in many parts of the country, the increased demand will push home prices higher.

In June, the VA celebrated its 28 millionth home loan. A press release at the time mentioned that more than 3.7 million veterans had home loans guaranteed by the VA. The program accounts for about 11% of all mortgage activity today, according to the Mortgage Bankers Association.

But some in Congress believe the program is underutilized. Sens. Sherrod Brown, D-Ohio, and Mike Braun, R-Ind., say only 13% of veterans use the benefit. They attribute the problem to a lack of awareness. Their VA Home Loan Awareness Act of 2023 would add a disclosure informing veterans that they may be eligible for a VA home loan on the Uniform Residential Loan Application, which all borrowers use to apply for a mortgage.

Many lending and real estate experts say the program does suffer from misconceptions, namely that interest rates are higher, processing times are longer and that you can only use a VA loan once. All three are false, they say.

There are also some tricky nuances to the program. One is the funding fee that will add to the cost of the loan. It varies by the loan type, the applicant’s military category, the down payment and whether the borrower is a first-time user.

Rates range from 1.25% for a first-time user with a down payment of 10% or more to 3.3% for a subsequent user with no down payment. The fee is paid at closing and goes directly to the VA to sustain the program. It can be financed into the actual loan, and veterans with service-connected disabilities are exempt.

Another is the required appraisal. It can help protect the buyers, as the VA will not guarantee a loan for an amount above the appraised value. But realtors say it does scare off some sellers from accepting a VA offer in a seller’s market when there are multiple other bids.

Davis says buyers should find real-estate agents and lenders who are very familiar with the VA loan process and its nuances.

“Make sure that they are working with an agent that knows about the VA loan, is an expert with the VA loan, is giving them good guidance on the VA loan, and the same thing about the lender,” he says.

Sandye Blalock, a retired Mississippi Air Guard colonel and realtor in Brandon, Mississippi, agrees. Her basic advice: Do your homework — markets vary and so do individual financial situations.

“Shop all loan products. Sometimes a VA loan is the best for you, and sometimes it’s not.” Blalock says. “I always ask buyers if their chosen lender offers all types of loan products and gives them info on how each affects them.”

The author is a freelance writer based in Prospect, Kentucky. He can be reached via magazine@ngaus.org.

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Main Pillars of VA Home Loans

● No Downpayment Required
● Competitively Low Interest Rates
● Limited Closing Costs
● No Private Mortgage Insurance

Source: Department of Veterans Affairs

Eligibility Requirements for National Guardsmen

● Six years of total service, or
● 90 consecutive days of Title 10 (federal) service for other than training, or
● 90 total days of Title 32 service (federally funded but under state control) with at least one period of 30 consecutive days (DD214 must show 32 USC sections 316, 502, 503, 504 or 505 activation)

Source: Department of Veterans Affairs