Your VA Loan Benefit

 A Powerful and Flexible Financial Tool

Ten years ago, a VA loan made little sense for eligible VA loan purchasers in many of the country’s higher cost areas.  Why?   As home prices escalated in the hundreds of thousands, the maximum VA loan amounts with “zero down payment” were capped at $144,000.   This meant that in most areas, a VA loan came with a very substantial down payment requirement.   Concurrently the mortgage industry had responded by offering many conventional loans with two trusts.   These products allowed most purchasers to buy a home with little to zero down, and avoid the private mortgage insurance (PMI), which dramatically reduced monthly payments.    

Again…times have changed!   Following the housing market collapse in the mid-2000’s, the conventional two trust loans fell out of favor and now most conventional loans require between 10-20% down.   And, Congress has raised the maximum zero down loan limits for VA loans.   These limits vary by county nationally.  As an example in the Northern Virginia / DC region, a VA eligible home purchaser can borrow up to $692,500 with no money down. 

But there are a number of other highly valuable features of the VA loan which make it the best home financing product on the market today.  It is a highly flexible financial tool for VA eligible borrowers and should be considered as a key element in overall financial planning.   Below is a summary of the primary features of a VA Loan: 

  • Zero down financing – But, even if the contract sales price exceeds the maximum VA zero down loan limit for a specific county, the veteran does not have to make up the full difference.   And, in many cases, the amount of down payment required is substantially less than a conventional loans 10-20% down payment requirement.
    • Example:    $692,500 max zero down county limit;  $800,000 contract sales price
      • With VA, buyer puts $26,875 down  ($800,000 - $692,500) x .25
      • In comparison, with a 10% down conventional loan, buyer puts $80,000 down and would likely incur a substantial PMI (non-tax deductible) increase in the monthly payment.

Link to limits nationally by county:

  • A veteran can have more than one VA Loan at the same time – Really!
    • Known as a “2nd Tier VA Loan,” this little known benefit will be addressed in detail in a follow on article.
  • A VA loan is assumable.  There are no assumable conventional loan products.   Those of us“mature enough” to remember the early ‘80’s know that interest rates can easily go double digit.  So, when selling a home in an environment of increasing and / or high interest rates, “assuming” your VA funded loan at a lower interest rate looks far more affordable / attractive to purchasers whose alternative is to finance a home with conventional  financing.  
  • The funding fee for a veteran with any rated VA disability is waived for any / all VA loans, to include new loans, refinances, or 2nd Tier VA Loans which can save the veteran thousands of dollars.  
    • Ex: This can save approximately $21,000 with a 3% funding fee on a $700,000 home.  
    • If a funding fee is applied to a loan, the borrower generally has the option to roll that amount into the loan if desired.
  • VA Loans can be used for new construction and / or custom home builds.
  • Statutory requirements safeguard veterans for all contracts whereby the veteran chooses a VA loan, regardless of contract language.  These safeguards include required:
    • Appraisal contingency
    • Finance contingency
    • Termite inspection / remediation
  • Obtaining a Certificate of Eligibility (COE) is now easier than in the past.  Most lenders can access / confirm the COE on line.
  • VA appraisers may note obvious substantive defects in a home during their onsite review and can require seller correction before loan can be funded.

Note:  Though unusual, sellers (including builders) can decline to sell to a buyer using VA financing.   Buyers of course must meet lender credit standards and required income to debt ratios for loan approval.

The unique features of a VA Loan can be a powerful tool in your financial planning.  Combined with today’s historically low interest rates, they can improve cash flow and give the VA eligible borrower the flexibility to redirect funds to retirement accounts, college bills, or in other areas that may benefit their financial planning.

We hope you find this first in a series on your VA Loan benefit helpful.    Our next article will address the specifics of the 2nd Tier VA Loan.  

Thank you for your service! 

Joe Gladden, Veteran Realty Serving America’s Military

Susan Wallace, Senior Loan Officer, Access National Bank

copyright 2014