How much of an advantage is it to be able to get VA loans?

7 Replies

A VA loan is the only loan type that currently gives you the option to obtain a home with no money out of pocket. You can finance 100% of the price as well as roll the closing costs into the loan. Note that the VA loan has a small funding fee which makes the closing costs for this type of loan a little more expensive than other loan products. Even though the closing costs are slightly higher, since the loan is guaranteed by the VA, the interest rates are usually pretty good. Additionally the VA is usually pretty good about working with you should you fall on hard times and are struggling to keep up with payments.

This is in contrast to probably the second cheapest alternative as far as upfront costs are concerned, which is an FHA loan which requires a 3.5% down payment, and will also incur an additional monthly fee called Private Mortgage Insurance or PMI since your loan is riskier than a normal homebuyer who posts a 20% downpayment. This PMI can add roughly 10% - 15% total to your monthly bill, so if your loan would otherwise be a total of $1,000 / month, the new total will likely be in the 1,150 range which adds up to a TON of money over the course of a 30 yr loan.

Also if you are looking into joining the military, look into the SCRA and MLA benefits that various credit card companies offer.  By law credit card companies must reduce your interest rate down to 6% on any pre-existing credit card debt that was obtained prior to joining the military.  Some credit card companies go above and beyond what is mandated and offer either 4% interest, or some offer 0% interest rates for as long as you serve.  This is the only time I would advocate loading up on credit card debt if you are wise about it and either invest that money, or use the money to pay off other debt such as your car loan etc.  If you spend 20yrs in the military, your credit card debt essentially turned into a 20yr interest free loan which is amazing.

Originally posted by @Bob Daniels :

Also if you are looking into joining the military, look into the SCRA and MLA benefits that various credit card companies offer.  

I am a military recruiter, and one of my recruits that I told this to already had a ton of different credit cards as he would sign up for new ones all the time to collect the signup bonuses.  As a result he had an incredibly large amount of credit available to him.  When I told him about the SCRA benefits, he immediately collected any of the cards that he had that would offer 0% interest for military members (It's Barclay's and Citi issued cards if I recall correctly) and he used those cards to buy a $130,000 house and he closed on the house two weeks prior to him leaving for basic training and then turned the house into a rental.  While this event trashed his credit score in the short term since his utilization rate skyrocketed, he was able to pay off the overwhelming majority of the debt in only a few short years since he wasn't paying any interest on it.  Once his utilization rate returned to a more normal level his credit score quickly returned to its previous high scores.  Once his scores returned to an acceptable level he stopped making payments towards the debt since it is a 0% interest loan and he will continue to leave that debt there until he gets closer to getting out of the military, which won't be anytime soon since he plans on retiring from the military.

PS:  Please read all of the rules carefully and be intelligent about what you are doing if you plan on doing something as intense as buying a house with credit cards.  

@Bob Daniels @Ben Zimmerman now THAT is interesting about the credit cards and 0%...good stuff.  Agreed, using credit cards is something that Vets need to be super careful and responsible about.

@Peter Pernal funny that you actually had to clarify that you were not getting into the military just to buy real estate.  Is that a thing?  LOL

Best of luck and TYFYS.

@Peter Pernal

I'll preface this post with a "Don't do what Ben's recruit" did. Uber high risk especially since he could have been booted anytime during basic/bootcamp (great story though!)

VA has been a phenomenal wealth building tool for my wife and I. I'll lay out just a few of the reasons below (some already mentioned):

1. Low rates

2. Re-usable (it's not a 1 and done thing)

3. 0 down payment

4. Lending cap/max goes away Jan 1, 2020

5. Lenders like that it's back by the government

6. No Private Mortgage Insurance (huge considering you're putting 0 down)

7. A 10% disability rating upon separation will waive an funding fees (that are typically just financed into the loan but at 1.75% of the purchase price, and higher each subsequent time used, it is a great benefit)

Should not be the sole reason to join the military but it is a great benefit.

@Peter Pernal As a lot of the benefits have been listed, I will just say it allows you to own property and begin the real estate investment journey easier then if you had to save up or qualify through other means. The VA loan does have strict guidelines on what you can or can't buy as far as condition of a property, however, the little cash needed means you can buy a property whether SFH or small multifamily at each duty station, refinance to a traditional loan after forcing/gaining appreciation after so many years and continue to purchase property with no money down. Quite powerful indeed, especially when getting started.

As a side note, as you are thinking of military for reasons other than real estate but have real estate goals, I suggest beginning the practice, if not done already, of writing your long term goals down every morning. If for some reason, you did join for a certain reason, aka not real estate, its good to remember why throughout the military journey. Just some advice from a vet. :)

The VA loan is awesome! Just make sure you're buying an investment, not just an expensive home.