Homeownership is an important financial step for most Americans; owning a home gives you shelter, but unlike renting, allows you to build equity over time, so you can (hopefully) earn a return on your investment when it’s time to sell the house.
Unfortunately, millions of people aren’t in a position to buy a house, because they have limited financial resources, because they don’t have much credit history, or because they haven’t had the chance to learn about what home ownership is or how to buy a home. Problems from all three categories have the potential to affect military veterans, who often spend time overseas or involved in conflicts, only to return home with almost nothing to their name and no idea what to do next.
Thankfully, VA home loans exist to help veterans and their family members afford to buy a home—but what is it, how does it work, and why is it so beneficial?
VA Loans in a Nutshell
The Veteran’s Administration (VA) home loan allows the person borrowing the money to finance up to 100 percent of the purchase price of a primary home; that means unlike in a typical mortgage situation, no down payment is necessary. The only exception to this is if the valuation of the home doesn’t meet the purchase price of the home.
VA loans are also beneficial because unlike other programs (like FHA loans) there are no monthly mortgage insurance premiums to pay. In addition, they tend to carry lower interest rates than other types of loans, and closing costs are limited; sellers can pay all of a buyer’s closing costs with flexibility for up to 4 percent in concessions.
You should also know that a VA loan won’t guarantee that the home you’re purchasing is free of defects; VA loan specialists will appraise the property, but you’ll still need to have a full home inspection done before you commit to purchasing the house. The VA will also not guarantee that your home purchase is a good investment; you’ll need to do your financial research before making the decision.
VA Loan Eligibility
So who is eligible for a VA home loan? For starters, you’ll need to fulfill at least one of the following requirements:
- Serving 90 days of active service during wartime.
- Serving 181 days of active service during peacetime.
- Having more than 6 years of service in the National Guard or Reserves.
- Being the spouse of a service member who has died in the line of duty.
You’ll need to be approved formally by the Veteran’s Administration before you can take advantage of this program.
Is It Right for You?
If you meet some of the eligibility criteria mentioned, you’re probably wondering whether a VA loan is the right choice for you. If you plan on buying a home, you probably won’t find a better deal than a VA loan—your down payment requirement is reduced to nothing (with no penalties), you’ll get a better interest rate, and you might even get to skip most of your closing costs.
However, if you aren’t yet ready to buy a home, the existence of the VA loan shouldn’t be an excuse to jump into home ownership. In some cases, it’s objectively better to rent than it is to buy, and a good deal on a loan won’t change that. Even with the VA loan available to you, make sure you do your research on home buying and renting costs in your area, and only proceed when you feel you have a satisfactory knowledge of your environment.