UNDERSTANDING YOUR VA LOAN ENTITLEMENT
a guide to selling your home.
If you’re a veteran, you’ve got a multitude of benefits available to you that you might not even know about. You shouldn’t feel greedy for taking advantage of them.
When I decided to serve my country, I didn’t do it for 10% discounts at Lowe’s, tax free booze at the class six, or any of the other Veterans benefits I have access to, but I’ll be damned if I don’t take advantage of some of those benefits today.
How might some of these benefits help you achieve the American dream? How about the ability to qualify for a loan for no down payment at all? If you haven’t heard of the VA loan, or you’re not sure how it works, keep reading.
The VA loan is a loan that’s guaranteed by the Department of Veterans Affairs (VA). Under this program, a bank will lend money to a veteran to buy a house and will not require the veteran to make any down payment at all. The banks can take this risk because the VA will issue a guarantee to the bank that essentially says: “if this veteran becomes unable to make payments on this loan, we will cover your losses.”
It’s a bit more complicated than that, but that’s the bottom line. What you, the buyer, need to know about a VA loan is this:
1. You must still qualify for this loan (if your credit is trashed because you bought a V6 Camaro after your first deployment and later had it repossessed, you’re probably shit outta luck until you fix your credit.)
2. There are certain service requirements a veteran must meet to qualify. Check if you qualify here
3. You must purchase a house that is move-in ready — fixer-uppers will generally not qualify for this program.
4. You can purchase single family homes, duplexes, even quadplexes with this loan.
5. You must agree to live in the property for at least one year. This requirement is waived if you come down on orders after your purchase.
6. Generally, in order to use your VA loan entitlement again, you must sell your VA financed house or refinance your first VA loan into a non-VA product. This is not always the case, especially if your first VA loan was for a small amount. Consult with your lender if you would like to use a second VA loan.
7. The limit on the amount you can finance with a VA loan varies by county, but in Chatham County, GA, that limit is $484,350.
8. If you want to purchase a property with a VA loan for more than this amount, you can. You just have to make a down payment equal to at least 20% of the cost over this amount. So, if you want to buy a house in Savannah for $484,450, you have to make a $20 down payment.
9. If you go into foreclosure, the VA may negotiate to help you out, but at the end of the day they’re not going to save you. Don’t buy more house than you can afford, and leave some cushion in your monthly payments in case your life situation changes. And don’t finance that new Camaro at 20%.
Why should you use your VA loan entitlement? Because you can!
Look, if you like paying your entire BAH check to live in on-post, that’s cool. I’ve lived on post before, sometimes it’s convenient, and if you’ve got a big family it can be the cheapest option. Here’s why I think it’s better to use your VA loan to buy than to live on post or rent off-post:
– Every time you make a mortgage payment, a portion of that payment goes toward paying down that loan. In 30 years, your loan will be paid off and now your only housing expenses are property taxes and maintenance. If you rent, you’ll just paying off your landlord’s mortgage until the day you die.
– Your loan payment will generally be less than your BAH. With interest rates as low as they are I could buy a $240,000 house and my payments would equal O-3 BAH.
– Generally, GENERALLY, housing prices only go up. This obviously didn’t happen from 2006-2011, but check out my previous post on why I don’t think that is likely to happen again here.
– If you’re into saving for retirement (which you should be), owning real estate is one of the most powerful ways to do that for two reasons:
– As discussed earlier, having a paid-off house is huge. In Savannah, a 100 thousand dollar house will generally cost $1200 each year in property taxes and $1000/yr in insurance, and maybe $1000/yr in maintenance. Compare that total of $3200/yr to the $12,000/yr or more you would pay to rent a comparable property here.
– If you are interested in investing in real estate, the VA loan is the best way for a veteran to get started in this game. I currently rent out the first house I ever bought, and make roughly $500 each month in profit on that house. I made no down payment on that house because I used my VA loan – I’m turning a profit every month on an investment that cost me nothing to buy. My wife bought a duplex with her VA loan, and now we live in downtown Savannah and our tenants’ rent covers our entire mortgage payment. You gave Uncle Sam a blank check when you joined the military, why not take advantage of the blank check your deal old Uncle Sam is willing to give you in order to build your wealth?
Here are the steps to using your VA loan:
1. Establish credit. If you’ve never had a loan or a credit card, you don’t have any credit. Open a credit card and use it responsibly! Pay off the entire balance each and every month to avoid unnecessary interest charges. Generally, the more credit cards and loans you have and have had, the better, as long as you make all of your payments on time and maintain a low credit card balance.
2. Check your credit score. A score over 750 is the best, and you generally want to have at least a 580 to buy a house with a VA loan. Start here to check your score. If your score is not where it needs to be, that doesn’t mean you can’t reach out to an agent or a lender — a good one will help you
3. Get pre-qualified for a mortgage. Reach out to a local real estate agent or lender for help with this. Tell them you would like to use your VA loan.
4. Start looking at houses with your agent. Make sure your agent understands your needs and wants and isn’t just trying to earn a paycheck. If he or she doesn’t point out parts of a house that could be problems, he or she probably doesn’t have your best interests at heart — almost every house has something wrong with it. Don’t be afraid to fire your agent if they are not working out for you.
5. Find a house you like and get it under-contract with your agent.
6. Under contract – Once your house is under contract, you will need to complete inspections, loan paperwork, and appraisals. Your agent and lender should help you every step of the way.
7. Closing day — this is the day you sign the paperwork and officially take possession of your new home. You may have to pay some closing costs, but these will generally be no more than a few thousand dollars for a VA loan. In most cases your seller will pay for the majority of these costs, especially in the Savannah market.
Written by: Pat Wilver