Should I use my VA eligibility to buy my home?

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Question of the week:  Should I use my VA eligibility to buy or refinance my home?

Answer: Probably.

As we honor our fallen heroes this weekend, it is timely to review the tremendous benefit awarded our active duty and Veteran members of the military.

Quick overview of VA loans.

  • The Department of Veterans Affairs, aka VA, guarantees of portion of home loans for eligible veterans. This guarantee results in lenders being able to fund mortgages with more favorable terms and qualifying than those for conventional or other mortgages.
  • To be eligible a veteran must meet certain requirements that include length of service, duty status and “character of service.” Essentially, most veterans who have received an honorable discharge, or active military or military reserve, likely have VA eligibility.
  • VA loans may only be used to purchase a primary residence the veteran must move into within 60-days.
  • Depending on the price and location of the home, a veteran can purchase a home with no down payment; or refinance and pull cashout up to 100% of the appraised value.
  • VA does not have a set maximum loan amount, depending on Veteran’s ability to qualify, Veterans can purchase very high valued homes with no money down; note that some lenders do set down payment requirements for very high priced properties depending on region.
  • VA loans have a funding fee that is added to the loan amount, or can be paid in cash at closing. The amount of the funding fee is 2.15% for Veterans using their benefit for the first time, and 3.3% for subsequent use. Veterans with a disability rating higher than 10%, recipients of the Purple Heart, and surviving spouses of veterans who died in the line of duty are exempt from the funding fee.
  • The only co-signers allowed with the veteran on a VA mortgage are the veteran’s spouse, or another veteran or active service member. All signers on the loan must occupy the home as their primary residence. Note, non-spousal partners are eligible per the VA to co-sign, however most lenders will not accept this type of co-signer as the amount of the loan the VA will guarantee is greatly reduced.
  • Income qualifying is easier for a VA loan vis-à-vis conforming mortgages as debt-to-income ratios are not used. VA loans qualify with “residual income,” how much money you have left each month after making your new house payment plus other obligations.

Back to our question of the week, should you use your VA eligibility to purchase or refinance your home?

Going through the basic guidelines above, one stands out: 100% loan to value, or reduced down payment for high priced properties.

In the current market, another benefit is the current VA 30-year fixed rate is significantly lower than a conforming mortgage, and extremely lower than high-balance and jumbo mortgages (loans over $647,200). Today’s rate for a VA loan is 6.00% for loans within conforming loan amount, and 6.125% for higher balances.

Consider, you wish to purchase a home for $800,000. For a conforming loan you put 5% down ($40,000), for a $760,000 mortgage; because of this down payment amount you will have mortgage insurance. With rate of 6.75% and mortgage insurance your monthly mortgage payment will be $5215 per month.

A $800,000 purchase with no down payment for a first-time user of VA eligibility will have a loan amount including funding fee of $817,200. With a rate of 6.00% your monthly payment will be $4900 per month.

Using your VA eligibility, you save $40,000 in cash to close and have a loan payment that is $315 less per month; over a 5-year period that is a total savings of almost $60,000.

For very high-cost areas, a veteran using VA benefits can purchase a $1.5 million home with about no down payment, and have a 30-year fixed rate mortgage at 6.125%. For most conforming loan programs, down payment of 20% ($300,000) would be needed for this transaction and the rate would be about 7.00%. The VA loan with down payment would have a payment of $9310 per month versus $7985 for the conforming loan. For $1325 more per month, the Veteran saves $300,000 in down payment; the math shows it would take over nineteen years to save back the $300,000 down payment by putting the $1325 a month into the bank for the conforming home buyer with the lower payment.

Should you use your VA to purchase a home? In this market the answer is yes, you can save money on the purchase and on your monthly payment.

For real estate agents reading this, please strongly consider VA offers on your listings. The conventional wisdom in the industry is that more cash down is a better offer. As well, too many agents are ignorant of how VA mortgages work and the think “they take too long to close.” VA loans are easier for qualifying and take the same amount of time to process and underwriter as other mortgages.

Like all transactions, if a buyer, lender, and buyer’s agent have done their diligence to ensure the buyer is pre-approved with all the documents required for loan approval in the file, a VA loan with no down payment is no less risky to a conventional mortgage with 25%, or 30% or even 40% down.

If you, or someone you know, is a veteran considering purchasing a home, please contact me to run through options and qualifying. If you, or someone you know, with VA benefits own a home and want to explore refinancing, possibly pulling cash-out for home improvements, debt consolidation, college costs, or whatever, I can assist with those options as well.

Have a question? Ask me!

Rates for Friday May 23, 2025: Rates have been climbing as investors digest the “big, beautiful tax bill” passed by the House of Representatives and more tariff talk.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:

30-year conforming                             6.75%          Up 0.125%

30-year high-balance conforming        7.00%          Up 0.125%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

Thanks to those who checked in last week to see if I was okay since they did not get the WR&MU, having missed the message the week before that we were in New York City attending our youngest daughter’s college graduation. We had a great trip, it was nice for all to get together for the first time since Christmas, and perhaps the last time until Christmas this year.

Enjoy the long weekend, but please take time to give thanks for those who lives were lost fighting for our nation, and the freedom of those of other nations as well.