Learn More About this Financing Option and Who it Serves
With rising mortgage rates and decreasing home prices, it’s starting to look like the historically hot housing market of just a few months ago is already a thing of the past. Regardless of market conditions, sometimes life has other plans, and you may find yourself in a situation where buying is your best bet. If you are a veteran or active duty servicemember looking for a home, you may be considering the VA home loan as a financing option. If that’s the case, here’s some information that can help you decide if it’s the right choice for you.
What Is the VA Home Loan?
The VA Home Loan is a benefit provided to active duty service members, veterans, and qualifying surviving spouses. The benefit helps eligible participants purchase, build, repair, or adapt a home and has several advantages, including:
- No down payment is required by the VA (specific lenders may still require a down payment)
- Low-interest rates
- Lower closing costs
- No private mortgage insurance (PMI) required
- Lifetime benefit means the VA guarantee can be used multiple times
To qualify for a VA home loan, you must first obtain a Certificate of Eligibility (COE). A COE is available for those who have not been dishonorably discharged and meet the minimum service requirements. There are different minimum service requirements depending on you when you served. In general, active duty servicemembers must serve for at least 90 continuous days to meet the minimum requirements. To apply for the COE, you can request it through your lender, or complete VA Form 26-1880 and mail it to your regional loan center.
How Much Can You Receive?
There are two types of entitlement you can receive for a VA-backed home loan. Full entitlement means you do not have a loan limit on loans above $144,000. This means that the VA will guaranty up to 25% of the loan amount if you default on your payments.
If you have remaining entitlement, your loan will be subject to the county loan limit where you live. In this case, the VA will only pay up to 25% of the county loan limit minus the amount of entitlement you’ve already used. Lenders may assess a down payment if you are using the remaining entitlement and your loan amount exceeds $144,000.
No matter which entitlement status you possess, the size of your loan will ultimately be determined by your lender, and it will be based on traditional lending criteria such as credit history, income, assets, and other outstanding debt.
Is the VA Home Loan the Right Choice?
Despite the obvious benefits, there are some drawbacks to the VA home loan that should be considered. The main disadvantages we see include:
- Funding Fees: The VA charges a fee, which is between 1.4% – 2.3% of the loan total, for processing and guaranteeing the loan. Even though the VA home loan is a lifetime benefit, the funding fee will increase each time you use the guaranty.
- Primary Residence Only: The VA home loan can only be used to purchase a primary residence. It cannot be used for investment or vacation properties.
- Contingencies Required: The VA home loan prohibits buyers from waiving the home inspection or appraisal requirements. Though these are important to ensure you are paying the right price for the home you’re buying, they can make it more difficult to buy if the market is particularly competitive. Buyers often waive these contingencies to make their offers more appealing to sellers.
Deciding to utilize the VA home loan is a choice that should not be made lightly. After all, buying a home is often a 30-plus year commitment and you want to feel confident that you’ve made the right choice. At Aviance Capital Partners, we can help you navigate this decision and more. With our comprehensive Aviance WealthPlan™ Process, we can develop a customized plan to help you reach your long-term financial goals. Email us at firstname.lastname@example.org or schedule a call to get started today.
Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of ACP as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of a tax strategy, investment strategy, and financial plan depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. This should not be construed as specific investment, financial planning or tax advice tailored to an individual reader. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. Past performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by ACP, will be profitable or equal any historical performance level. Additional information about ACP, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and its Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/146597. For current ACP clients, please advise us promptly in writing, if there are ever any changes in your financial situation or investment objectives, if you wish to impose any reasonable restrictions to our management of your account, or if you have not been receiving at least quarterly account statements from your account custodian.