If you're trying to buy a home in this market, you have my sympathies (and not just because I hope to be buying soon as well). In the heady days of 2021, buyers enjoyed mortgage rates in the 3% range, and sellers watched their homes get snapped up in just days while buyers fought to make a higher offer than their competitors. But then those rates more than doubled over the course of 2022, and as of June 22, 2023, the average rate for a 30-year fixed mortgage loan sits at 6.67%, according to Freddie Mac.
If you're a military service member or veteran, it might be even more difficult to buy. Mortgage loans guaranteed by the Department of Veterans Affairs (more commonly referred to as VA loans) have an unwarranted negative reputation among real estate agents and sellers alike. Let's take a closer look at VA home loans and why they're worth using if you're eligible for one.
What can a VA loan offer?
A VA loan is a type of mortgage, but it's only available to current and former members of the military (with some restrictions) and surviving spouses of those who died in the line of duty. If you're eligible, a VA loan offers a few advantages over going with, say, a conventional mortgage loan. These include:
- No down payment requirement (there is a funding fee for using one, however)
- No mortgage insurance
- Easier to qualify for, as these loans are government-backed and there is less risk to the lender
- No penalty for paying the loan off early
- You can use a VA loan multiple times
Buying a home in general can be a great way to start to build wealth, regardless of whether you're a civilian or military member/veteran. Unfortunately, it's not always smooth sailing to buy with a VA loan.
The stigma against VA loans
None of the above perks are the reason there's a stigma against VA loans. Rather, the issue has to do with appraisal requirements and a lack of VA-loan-savvy real estate agents. If you're buying with a VA loan, the home will have to be appraised, just like with any other mortgage. But in the case of a VA loan, it isn't just the home's value (as compared to how much you're borrowing to buy it) that matters. The home will also have to meet more stringent requirements for safety and livability. And some sellers believe this will be a hindrance to selling their home to a buyer using a VA loan.
Another potential issue with VA loans is that many real estate agents are unfamiliar with how they work, and may mistakenly believe they are more difficult to use and fall through more often. The National Association of Realtors (NAR) recommends that VA loan buyers do themselves a favor and find an agent who knows about them. So if you're hoping to buy with a VA loan, definitely ask any prospective agents you're considering working with if they've worked with buyers like you before.
Get yourself in good shape to buy a home
Whether you're intending to buy with a VA home loan or not, there are a few moves you can make now to become a stronger home buyer.
While it's true that no down payment is strictly required for a VA loan, you will likely have to pay a VA funding fee equal to a percentage of your loan amount. And this amount will vary based on whether you can make a down payment, and how much. So it's worth putting some amount of money down on a VA loan, if you can afford it. Similarly, a lack of down payment could mean you end up underwater on your loan. Save money to give yourself the option to make a down payment, cover that funding fee and any closing costs, and have money in your savings account in case your home needs a repair right off the bat.
Improve your credit score
The credit score required for a VA loan varies based on the lender you choose, but in buying a home, as in all things financial, a higher credit score can give you an advantage. You might qualify for a lower rate if you have a credit score above 700, for example. To improve your credit, pay down debt and commit to making on-time payments.
Not all lenders offer VA loans, but you can explore the best VA lenders out there. Once you've narrowed your search to a few prospects, see what kind of rate you can anticipate from each of them. The more options you have, the better — and the more likely you are to save money on your mortgage.
It's not a great time to be a home buyer, and you might worry that using a VA loan could make it even more difficult. It doesn't have to, if you make the moves above and find a real estate agent who can be your knowledgeable ally in the process.
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