Using the VA Home Loan
I'm a firm believer that the benefits of serving in the U.S. military greatly outweigh some of the challenges and hardships associated with the profession of arms. The military has provided me with a Bachelor's degree from a private university, two Masters's degrees, aviation licenses, unmatched leadership experience, and the VA loan! The VA loan is one of my favorite benefits because it gives us great freedom to choose how to use our money when buying a home.
The Veteran's Administration Loan is offered by financial institutions and is guaranteed by the Department of Veteran's Affairs for our Nation's Service Members and Veterans. Though I won't get into the finite details of the VA loan, I'll hit some of the highlights that make this a great tool for those who qualify.
- No Down Payment. Unlike most other mortgage loans, you no down-payment is necessary. Yes, I know it's not a popular FIRE option, but it gives the borrower more flexibility to use their liquid assets elsewhere if need be.
- There is no PMI. Usually if you don't put 20% down, you have to pay PMI. This is not the case with the VA loan.
- Help for Struggling Borrowers. If the borrower is struggling to make ends meet, the VA can negotiate on their behalf with the lender to create a favorable outcome.
- You Can Use It Multiple Times. Although you can only use the VA loan once at a time, you can use it multiple times if you need to sell your home.
The VA loan is great, but I there are some drawbacks as well:
- There is a Funding Fee: Although you don't have to pay PMI, you do have to pay the VA Funding Fee of 2.15%. HOWEVER, if you have at least a 10% service connected disability rating from the VA, this fee is waived!
- Not for Investment Properties or Second Homes. Sorry, this is only for a primary home.
- There are limits to the loan amount. If you wanted to buy a $2 million home with the VA loan, you probably don't need the VA loan in the first place. The 2019 loan limits are generally $484,350 but can be as high as $726,000 in high-cost areas.
For me, the VA home loan has served me well in the past as it's allowed me to get a great interest rate, avoid PMI, and has given me the freedom to choose whether or not I wanted to put a full 20% down on a home. There were times where I wanted to use some of that cash to fund other investments especially when mortgage rates were so low. Although not everyone can take advantage of this loan, it's a great benefit to those who can.