After serving their country, veterans are eligible to receive many benefits from the federal government. One of those benefits is the VA home loan program which offers the opportunity to buy a house with as little as 0% down.
But despite these significant benefits, many veterans aren’t using their VA home loan benefits. That means many VA-eligible borrowers could be missing out on substantial savings. So why aren’t more veterans using their VA loan benefits?
Benefits of a VA loan
A VA home loan comes fully loaded with benefits.
One of the biggest advantages is the fact that qualified borrowers can use the VA loan to obtain a home with no down payment required.
Other benefits of a VA home loan include:
- No private mortgage insurance (PMI)
- Competitively low interest rates
- Limited closing costs
- No prepayment penalties
Put it all together, and the VA home loan is one of — if not the — most affordable way to buy or refinance a house. And it’s exclusively reserved for veterans and service members.
Many veteran homeowners aren’t using their VA loan benefits
Given the numerous advantages, it is surprising that the VA home loan program is underutilized.
In 2017, 78% of veteran households were homeowners. But even with a projected 14.8 million veteran households across the nation, only 3.55 million eligible veterans are active VA home loan participants. That means that just 24% of qualified homeowners are currently using their VA loan benefits.
Why have the other 76% of veteran homeowners chosen to foego their VA home loan opportunity?
One might assume that the VA loan has high fees or outlandish interest rates to push potential borrowers into other loan options. But when you drill into the numbers of the VA loan, that’s simply not true.
The VA loan is known for providing affordable financing solutions to provide homeownership opportunities to veterans.
In fact, the interest rates are notably better for VA home loans. In 2020, the average 30-year conventional loan had an interest rate of 3.26%. But the average interest rate for a 30-year VA loan was 3.02%. That difference in interest rates could save the homeowner a significant amount of cash over the life of the loan.
Why don’t more VA borrowers use their VA loan benefits?
The interest rates on VA loans aren’t the culprit for veterans choosing to forgo the VA home loan. And the lack of a down payment requirement makes the VA home loan an even more attractive option. So why don’t more veterans use the VA loan?
Ultimately, veterans who pursue homeownership choose other loan options because many are unaware of the VA home loan benefits available to them. After all, if you don’t know about the great benefits that you can unlock with a VA loan, you can’t tap into them.
Do VA loans present additional hurdles to homeownership?
Beyond a lack of awareness about this useful homeownership tool, many veterans are likely turned off by the idea of adding extra steps to their home-buying process. Veterans using the VA loan will indeed need to take a few additional steps to close on their homes.
For example, you’ll need to obtain a Certificate of Eligibility (COE) to prove that your military service meets the requirements of the VA loan. Plus, you’ll need to find a lender that is able and willing to work with the VA loan process.
But those extra steps could unlock the best financing opportunity out there — making them well worth the time.
How to buy a home with a VA loan
Are you a veteran who wants to enjoy the benefits a VA home loan can offer you? Here’s how to buy a home with the VA loan.
#1: Find a VA-approved lender
First, you’ll need to find a VA-approved lender.
You’ll want to take your time when shopping around for a VA-approved lender because not all lenders are created equally. The right lender can offer you helpful customer service and work with you through the entire process from beginning to end.
And, of course, you’ll need to keep the best interest rate in mind as you shop around for your loan.
#2: Get pre-qualified
Once you find a lender that you are comfortable with, it is time to get pre-qualified.
Unlike other loan types, the VA loan has an added step in the pre-qualification process. You’ll need to obtain a Certificate of Eligibility. Essentially, this document proves to the lender that you meet the military service requirements for a VA loan.
As with other types of loans, the lender will check your credit and confirm your income. With that information, the lender will let you know how much it is willing to lend you.
#3: Shop for a home
With your pre-qualification letter in hand, it is time for the fun part. You get to shop around for a home. In most cases, it will take some time to find the right home for you and your family.
When you find the right home, you can make an offer.
#4: Get a VA appraisal
If your offer is accepted, the homeowner will need to allow a VA home appraisal. Although most experts recommend an appraisal, a VA home appraisal is required in the VA home loan process.
Your VA lender will arrange the home appraisal. The appraiser will evaluate the property against the VA’s minimum property requirements. The goal of the appraisal is to ensure that the home is safe, sanitary and structurally sound before the veteran moves forward with the home buying process.
If the home appraisal goes well, the next step is to close on your home. If the home appraisal finds causes for concern, the VA may decide that you need to find a different home to buy or require the homeowner to complete updates to the property before closing.
#5: Finalize the loan
After you’ve made it through all of the steps, it is time to close on the home.
At this point, you and the lender work together with the seller to transfer money and sign the paperwork. At closing, you’ll take ownership of the property and become a fully-fledged homeowner.
How to refinance with a VA loan
The Department of Veterans Affairs also offers refinancing opportunities through the VA home loan program. Here’s how to take advantage of this opportunity.
#1 Decide what your refinancing goals are
Refinancing can serve a variety of financial goals.
You might want to take advantage of a lower interest rate to get a lower monthly payment. You might want to tap into the equity you’ve built up in your home. Or you might be looking for a way to adjust your loan term.
#2 Find the right lender
As with a VA home loan, you’ll need to find the right lender to complete a VA refinance. Of the lenders that issue VA refinances, seek out the best interest rates.
Plus, look for a lender that offers a promising experience based on customer feedback. You don’t want to get stuck with a lender that will drag the refi process out or make the experience more complicated than need be.
#3 Finalize the loan
With the right lender, finalizing your loan should be relatively painless. You’ll need to submit the appropriate documents. These documents might include information about your current mortgage, income, credit history and Certificate of Eligibility (COE). Finally, you’ll sign your closing documents and pay any applicable refinance closing costs.
Should you use your VA loan benefit?
If you are eligible for a VA loan, then it might be your best bet.
A VA home loan is an especially powerful tool if you don’t have a 20% down payment ready to close on your home. You won’t have to wait months or years to move forward with a home purchase. Instead, you can potentially dive into homeownership with 0% down.
Beyond the lack of a down payment requirement, the attractive interest rates can help you save big on your home purchase
When is a VA loan not the best option?
Of course, not every financial product is the right fit for everyone.
Even the VA loan has a flaw — the funding fee. All VA loans come with funding fees attached. Depending on your situation, you might pay between 1.4% to 3.6% of the loan amount in a funding fee.
As a result, veterans that have enough saved to cover a 20% down payment may want to seek a loan option elsewhere. The large down payment will help you avoid the funding fee. But for many homebuyers, putting down 20% is simply not an option.
In addition, the VA home loan can only be used to purchase a primary residence — one you’ll live in full time. If you hope to purchase an investment property or vacation home, you’ll need to use a different loan program (like a conventional loan).
Is a VA home loan worth it?
The VA loan benefit offers an incredible opportunity to veterans seeking homeownership. If you are eligible, don’t let anything stand in the way of you taking advantage of the possibility of homeownership with 0% down.