The Wealth-Building Power of the VA Home Loan
As a mortgage professional, one of my largest duties to my clients is to provide a level of education that enables people to become their own best advocates. And a lot of the time, in my industry, there are a LOT of misconceptions about the VA Home Loan in particular. Let’s start the conversation and talk about it!
Up until about 1992, the VA Home Loan was only reserved for Veterans and their families who served on Active Duty. It was then that the Benefit was extended to Reservists and members of the National Guard as well.
Let’s first talk about who is eligible to receive the VA Home Loan Benefit. Your eligibility will be determined using a VA form called the Certificate of Eligibility
- Active Duty Service Requirements: You must have served at least 90 consecutive days of active service during wartime or at least 181 consecutive days of active service during peacetime. If you served less than this time, you may still be eligible if you were discharged for a service-related disability.
- National Guard: Eligibility begins when the Servicemember reaches 6 Years of Service within the Guard Component, 90 days of Mobilized Active Duty service, or become discharged due to a service-connected disability.
- Reserves: Within the Reserve component you must acquire 6 years of service. If serving on Title 10 (National Defense) or Title 32 (Natural Disaster) Orders, 90 days of service makes you eligible.
The VA Charges what is called a Funding Fee to every eligible VA Home Loan. The Funding Fee is what keeps the VA Loan Home Benefit going, and it enables the VA to continue to offer the Benefit.
The Funding fee can be waived however, for military Veterans with a VA Service Connected Disability Rating of at least 10% or more, and for Active Duty Servicemembers who have been awarded the Purple Heart for combat injuries sustained in the military. Your lender can obtain your Certificate of Eligibility (COE) electronically, or you can obtain a copy through VA.gov.
General Benefits of the VA Home Loan
Now that we have discussed the eligibility criteria and funding fees associated with the VA Home Loan, let’s dive into the wealth-building power this loan offers. The VA Home Loan is a unique mortgage option that provides several benefits to eligible borrowers, making it an attractive choice for veterans, active-duty service members, and their families.
- No Down Payment: One of the most significant advantages of the VA Home Loan is that it offers the possibility of purchasing a home without a down payment. Traditional mortgage loans typically require a down payment of 20% or more, which can be a significant barrier to homeownership. With the VA Home Loan, borrowers can finance up to 100% of the home’s purchase price, making it easier to enter the housing market and build wealth through homeownership.
- Lower Interest Rates: VA Home Loans often come with more favorable interest rates compared to conventional mortgage loans. The Department of Veterans Affairs guarantees a portion of the loan, reducing the lender’s risk. As a result, lenders are willing to offer competitive interest rates, potentially saving borrowers thousands of dollars over the life of the loan. Lower interest rates mean more affordable monthly mortgage payments, allowing homeowners to allocate their funds toward other financial goals or investments.
- No Private Mortgage Insurance (PMI): Private Mortgage Insurance is typically required for borrowers who make a down payment of less than 20% on a conventional loan. PMI adds an additional cost to the monthly mortgage payment, increasing the overall expenses of homeownership. However, with the VA Home Loan, there is no need for PMI, further reducing the financial burden on borrowers and making homeownership more affordable.
- Flexible Credit Requirements: The VA Home Loan program is known for its flexibility when it comes to credit requirements. While lenders will still assess borrowers’ creditworthiness, the VA loan program is often more forgiving of past credit issues compared to traditional loans. This flexibility can provide opportunities for borrowers with less-than-perfect credit to become homeowners and start building equity.
- Streamlined Refinancing: The VA offers a streamlined refinancing option called the Interest Rate Reduction Refinance Loan (IRRRL). This program allows eligible borrowers to refinance their existing VA loan into a new loan with a lower interest rate or switch from an adjustable-rate mortgage to a fixed-rate mortgage. The IRRRL process is simplified and requires less paperwork, making it a convenient option for homeowners to potentially reduce their monthly mortgage payments and save money over time.
Building Wealth through Homeownership
Homeownership has long been recognized as a pathway to building wealth. With the benefits provided by the VA Home Loan, eligible borrowers have an opportunity to accelerate their wealth-building journey. Here’s how:
- Equity Growth: As homeowners make mortgage payments, they build equity in their homes. Equity is the difference between the home’s market value and the outstanding loan balance. Over time, as the loan balance decreases and the property value appreciates, homeowners’ equity grows. Building equity can provide financial stability and serve as a valuable asset for future endeavors, such as funding education, starting a business, or retiring comfortably.
- Property Appreciation: Real estate has historically shown appreciation over the long term. While there are no guarantees, homeownership can offer the potential for property value appreciation. As the housing market evolves, homeowners may benefit from the increasing value of their homes. This appreciation can significantly contribute to long-term wealth accumulation and financial security.
- Tax Benefits: Homeownership often comes with tax advantages. Mortgage interest and property tax payments may be tax-deductible, reducing the overall tax liability for homeowners. Consult with a tax professional to understand the specific deductions available in your situation.
- Stability and Control: Owning a home provides stability and control over your living situation. As a homeowner, you have the freedom to customize your home, make improvements, and create a living space that suits your needs and preferences. Additionally, homeowners are not subject to rent increases or the uncertainties of lease renewals, providing a sense of security and stability.
- Legacy and Wealth Transfer: Homeownership can also serve as a legacy for future generations. By owning a home and building equity, homeowners can leave a valuable asset to their loved ones, potentially facilitating their financial stability and wealth-building endeavors.
The Wealth-Building Power of the VA Home Loan offers a unique opportunity for eligible borrowers to achieve homeownership and build wealth. With benefits such as no down payment, lower interest rates, no PMI, flexible credit requirements, and streamlined refinancing options, the VA Home Loan empowers veterans, active-duty service members, and their families to take control of their financial futures. By leveraging the wealth-building power of homeownership, borrowers can create a solid foundation for long-term financial success and security.