Amy Miller, AFC®
When I think of the financial issues that most affect veterans and their families, home buying comes to mind first. So, this week we are going to take a quick look at VA Home loans.
What is a VA home loan?
The VA loan was designed to provide servicemembers, veterans, and eligible surviving spouses financing for a home when private financing may not be available and to make purchasing a home possible without a down payment. Signed into law in 1944 by President Franklin D Roosevelt, The Servicemen’s Readjustment, amended and now better known as the GI Bill of Rights, allows the VA to guarantee or insure home loans made to veterans. This guarantee gives lenders the confidence to extend financing and enables them to provide better terms like lower interest rates, limited closing costs, and eliminates the need for PMI (Private Mortgage Insurance).
VA loans are available for homes that service members, veterans, and eligible spouses will be occupying as their residence and eligibility depends on length and character of service, credit rating, and income sufficiency. You must obtain a COE, Certificate of Eligibility, from the VA to provide to your lender. It is important to note that the government does not typically make direct loans – just guarantees the loans made by regular banks and mortgage lenders.
Are VA Home Loans for everyone?
If you would have asked me this question 15 years ago as the wife of an airman buying our first home, I would probably have said ABSOLUTELY! But the truth is no, they are not for everyone. Individuals should weigh their options when choosing to use the VA backing or not.
Although there can be reduced fees from a lender, there is a VA funding fee that needs to be considered when deciding on using the VA home loan program. This is a one-time fee paid to the VA to support the loan program and helps to keep the program available. The fee is a percentage of the loan amount and is determined by factors like whether it’s a purchase or refinance, and whether you’ve used the program before. On average, most pay around 2.3%. There are exemptions out there – if you are receiving VA compensation for a disability, a surviving spouse of a veteran that died on active duty, or if you have been awarded a purple heart.
Now in existence for over 75 years, the program has backed over 25 million loans. According to the VA, 2020 was a record year – approving more loans (around 1.2 million) in that 1 year than in the previous decade. 90% of those backed loans were made without a down payment. The program may not be for all service members and veterans, but it does continue to be beneficial to many. Homeownership is the foundation to building a sound financial future, making this program more important than ever for military & veteran families. No down payment, lower interest rates, and no PMI makes the VA loan program a pathway to homeownership for many service members and veterans that would not otherwise be able to purchase a home.
For more information on VA Home Loans, visit VA-Backed Veterans Home Loans | Veterans Affairs