Owning a home is a big dream for many people, but the homebuying process often deters potential homeowners from going through with a purchase. If you’re a veteran, look into securing a home loan through the U.S. Department of Veterans Affairs (VA). The VA makes purchasing a home easier and more accessible for veterans of all ages. However, there are a few critical parts of the process that can help you ensure you’re leveraging all the benefits available to you as a veteran. There are also important incentives to capitalize on so you can easily buy the home of your dreams.
But before you start browsing the ‘for sale’ section on your favorite real estate websites, it’s essential to know the ins and outs of the home buying process. You’ll need to know how to apply for a VA loan, which benefits you’re eligible for, and how to complete your real estate purchase. From state-specific veterans benefits to loan applications and having a home inspection done to ensure your new home is in good condition, this guide will give you the details that you need to make sure you’re saving money at all stages of the home buying process.
All about VA loans
Curious about VA loans? Veterans Affairs loans are a fantastic option for military veterans who are trying to get into the real estate market. Still, in many cases, these loans are underutilized by veterans. Studies show that 24% of qualified homeowners don’t use their VA loan benefits.
Similar to a Federal Housing Administration (FHA) loan, a VA loan is backed by the federal government but issued by a private lender. VA loans offer many benefits, from easier qualifications to lower interest rates. VA loans are open to nearly all veterans — all you need to do is ask your lender.
VA loan benefits
The advantages of a VA loan start with lower interest rates and streamlined refinancing options, and the benefits continue for years after you purchase your home.
No down payment required
Saving for a down payment is arguably one of the largest barriers for those trying to get into the real estate market. With home prices rising disproportionately to income, saving for a down payment while paying regular expenses is more difficult than ever. VA loans allow veterans to purchase a home with no down payment, which significantly lowers some of the hurdles to home ownership.
Low credit score accepted
A low credit score is one reason applicants are sometimes denied a mortgage. As anyone stuck in a bad credit cycle knows, it often takes good credit to be approved for the things that help you build good credit. By accepting lower credit scores, VA loans ease this requirement for veterans.
No private mortgage insurance
Up to 20 percent of a VA loan is backed by the federal government, so applicants are not required for private mortgage insurance approval. Home buying is a complicated process full of various approval levels and applications, so removing the PMI requirement is a big step toward making the process easier for veterans.
Low interest rates
High interest rates contribute to the difficulties that some people run into when applying for home loans. VA loans don’t subject veterans to the same interest rates as most other loans, which provides a more forgiving loan repayment process.
Easy to refinance
There are often hurdles to refinancing, but with a VA loan, the hurdles are significantly lessened. Along the way, you might find that you want to refinance to consolidate debt or leverage your home’s equity. With a VA loan, it’ll be easier to make those changes to your loan than with a traditional mortgage.
How the VA loan works
- Get your Certificate of Eligibility (COE) from the VA.
- Find a VA lender in your area and provide your COE (note: you can work with your lender without your COE, but you’ll need it before you close)
- Work with your lender to get prequalified so you have an estimate on how much you can afford to pay for a house.
- Get your preapproval letter from your lender.
- Put an offer on your house.
- Go through the VA for appraisal and underwriting.
- Close on your house.
What to know before using the VA loan
The VA loan is a great option for most veterans, but it does not apply to every home purchase or situation. Here’s what you need to remember before you shop:
- VA loans are generally designed for “move-in ready” homes, not fixer-uppers
- VA loans can only be used for your primary residence, not a rental or vacation property
- You can reuse the VA loan in the future
- The VA doesn’t actually issue your loan, it’s actually the government financially backing you as a mortgage applicant
- If it’s your first time buying a home with the VA loan with full entitlement, there’s no limit to how much you can borrow (except what a lender will approve you for)
The VA loan in 2022
In 2022, the VA loan saw a significant change. While it’s still true that 2019 legislation essentially wiped out VA loan limits, there are still some limitations for certain circumstances. For veterans holding more than one VA mortgage at a time or those who have defaulted on a prior VA loan, or those with diminished entitlement, limits still apply.
Those limits increased substantially in 2022 as a result of skyrocketing home prices. VA loan limits for those in unique circumstances increased by 18.05% in 2022 to assist veterans in an increasingly competitive market.
Down Payments, Entitlements, and Loan Costs
Entitlements and loan costs are two important factors to keep track of as you enter into the home buying process because they could save you money down the road. Read on to learn more about entitlements and other loan costs.
Entitlements & Down Payments
Veterans who qualify for a VA loan have what’s known as a loan entitlement. This is the dollar amount that the VA promises to pay back to your lender if you default on your home loan.
An entitlement is not the same as a down payment. However, that entitlement can cover your down payment. For veterans buying their first home with the VA loan who have full entitlement, this typically means they do not have to pay a down payment since the VA promises to cover 25% of the loan amount if you default.
If you have full entitlement and are purchasing a second residence, there are limits to how much of the loan the VA will guarantee. To calculate how much entitlement you are qualified for, you’ll need to use your current entitlement amount and your intended home purchase price in some quick math.
One-time loan costs
To offset the cost of the VA loan to taxpayers, veterans are required to pay a one-time funding fee. The amount of this fee varies between 0.5 – 3.6% based on a variety of factors but is typically 2.3%.
There are also a few other small one-time loan costs depending on the military position the veteran held. This includes
- Origination fees of up to 1%. Veterans are not allowed to pay more than 1% for origination.
- Appraisal fees
- Title charges
- Discount points to lower your interest rate
- Credit report fees
- Inspection fees
COE and other requirements
When you shop around for a home loan, you’ll find a variety of requirements that you need to meet before you can be approved for a loan. These requirements are in place to ensure that you’re eligible for certain benefits, such as those available through VA loans.
Why COE is important and how to get one
COE documents, also known as Certificate of Eligibility documents, are important as these documents verify your military services and approve your suitability for a VA loan. You can access your COE through the mail or online.
There are different requirements that you have to meet depending on your military status or the number of years you served as an active member of the military. For the most part, all of the requirements are similar with very minor differences. Familiarize yourself with the details of your unique situation so you can give all the information that a VA loan application requires.
Mistakes to avoid as a veteran homebuyer
Not using a real estate agent specialized in veteran matters
One of the reasons that VA loans aren’t utilized as much as they could be is because the parties involved in the purchase of a home aren’t aware that this wonderful option exists. It’s a good idea to find a real estate agent who will make sure you’re leveraging all the benefits available to you.
Lack of communication with the lender
Communicating with your lender about your veteran status and inquiring about different programs that you’re eligible for is a key component in making sure you have all of your benefits available to you. Make sure your lending agent knows the details of your veteran status and is aware that there are special avenues open to you.
Spending too much money before the big investment
Many first-time homebuyers get excited when their offer is accepted, and they start buying pricey items like home appliances, electronics, and home decor. It’s important to keep a cool head and finalize the home buying process before you start spending on renovations or other purchases.
Forgetting about all the upfront costs
While veterans have some great financial advantages available, there are still some expenses you have to take into account. Be prepared to spend money on home inspections and appraisals when they come your way. Taking the time to get familiar with the upfront costs of homebuying sets you up for success.
A VA loan is one of the best ways for veterans to leverage their benefits. From getting into the real estate market and making home buying more accessible to relieving the financial burden of the conventional home loan process, these loans are an excellent resource that veterans won’t want to sleep on. Take advantage of the benefits available to you and capitalize on a VA loan today.
4 other ways veterans can save
1. Discounts on home goods
Moving? Many retailers extend generous discounts to veterans. Check out these options before paying full price somewhere else.
|Crate & Barrel
|Latexite Blacktop Driveway
|McCoy’s Building Supply
|Northern Tool + Equipment
2. Help with utility bills
For those in need, there are funding options to offset the cost of utilities and some other monthly bills. Check out these sources:
- The VFW
- Operation Family
- The American Legion
- US Cares Emergency Assistance Program
- Combat Female Veterans
- Dixon Center
- Modest Needs Foundation
3. Veterans homeowners insurance
All home loans will require the applicant to be approved for homeowner’s insurance, and a VA loan is no exception. Aside from being a requirement, home insurance also helps protect you against large costs from damages that could happen to your home from a break-in, vandalism, or accidental damage.
Homeowner’s insurance carries many benefits for the homeowner, not to mention it’s a requirement for a successful VA loan application. For the best rates, look for home insurance through USAA, which caters specifically to military personnel, veterans, and their families.
Also ask about any ways you can reduce your monthly bill. For example, you can bundle up your homeowner’s insurance with your auto insurance, increase your deductible, or add a smart home security system for improved protection against break-ins and burglary. Improvements such as reinforcing your roof, installing storm shutters, and updating your plumbing could lead to an insurance discount.
Financial assistance for veterans with disabilities
For veterans with disabilities, other assistance is available to offset housing costs and pay for home modifications
- U.S. Department of Veterans Affairs Aid & Attendance/Housebound Assistance
- The National Association of American Veterans
- Operation First Response
- U.S. Department of Housing and Urban Development
- Home Improvement and Structural Alteration (HISA) Grant
- Specially Adapted Housing (SAH) Grant
- Special Housing Adaptation (SHA) Grant