What is the VA Loan?

You’re pretty sure you get one and you know you use it to buy a house… but that might be the extent of the loan knowledge that you have. I mean why would you now the ins and outs of different loans? Especially when they come in confusing names like Conventional, VA, FHA, Rehab, Commercial…and the list goes on and on. The first thing that you should know is you’re NOT alone! If I wasn’t a Realtor that worked every single day (she says as writing this on a plane lol) learning the ins and outs of this industry, I wouldn’t know. Many agents still don’t! Which is why I’ll give the warning that you should always speak to a lender, and then speak to another lender, and then another. Get yourself a Realtor that has the knowledge to help you and the knowledge to tell you when you need to talk to an actual lender that works the information.

Today, in an effort to provide at least a little clarity on the matter, I’m going to share my knowledge on the subject in hopes that it helps each of you build a better future for you and your family! I’m a Realtor here at Kloud Realty Group, Keller Williams where my boyfriend and I are stationed at Elemendorf AFB. My job provides me with the opportunity to work with a pretty large amount of VA buyers on a day-to-day basis. My plan is to touch on some basics, some not so basics, myths, and using your VA loan to build true wealth through investments.

WHAT IS A VA LOAN?

A VA loan is a loan available to active duty, veterans, national guard and reservist service members that can be used to purchase a residential property that you intend to owner-occupy (AKA – live in yourself). The VA is who guarantees your mortgage. This is the first reason you should consider using your VA benefits…since the VA is the one guaranteeing your loan, you get way lower interest rates than any of the other loan options. Take them and RUN!

PERKS TO USING A VA LOAN

We already spoke about lower interest rates.

Next is 0% DOWN. Putting money down = money you have on hand and bring with you to the closing of your property and just fork on over! With any loan the amount you can put down can vary. For example, with a Conventional loan, you normally have to put 20% down to avoid paying a hefty mortgage insurance payment. With VA, it can be 0%! So, no money is leaving your pocket. All of the sudden buying a property looks even better!
Lenders use an enormous amount of information to finalize your loan. They check your credit score, your debt to income ratio, your past history on purchases, your bank statement, etc. Meaning, they are even going to question why you spent that much at Target last week (and if we’re being honest it wasn’t groceries!). The good news here is that the VA can be one of the more forgiving options if you qualify. Sure they still check all of the same information, but you can come in with a slightly lower credit score than some other loan options. Even more importantly, you can come with a much higher Debt to Income ratio (the amount of debt you have accumulated to the amount of income that you claim is coming in each year). For those that know the lingo, I’ve seen it go slightly above a 60% Debt to Income. So the VA is pretty forgiving in that area.

ARE THERE ANY CONS?

Many people forget about closing costs when you purchase a home. Loans are going to have closing costs like discount points, insurance, and more (all for another time). The VA loan doesn’t. It has one cost which it calls the VA funding fee. The amount of this various, so I’m unable to give you an exact number, but I can tell you an estimate of 2.15% of the amount of the loan if its your first and 3.3% for any additional times you use it. Now how you battle this con? You finance it into your loan. Meaning it is no longer an upfront closing cost but is a part of the mortgage payment you make each month! Also, you don’t HAVE to put 0% down. If you have some money that you’d like to put down, you can adjust your down payment size. This can lower you VA Funding fee which could be worth it to get it as low as 1.5%

THINGS TO THINK ABOUT

So many people use their VA loan to buy their Single-Family home and that’s amazing, but why not do more? One of the most stable things you can invest your money into is Rental Properties. It’s a true way to build long term wealth and if you’re willing to make the sacrifices for it, you should. Go buy a nice duplex and have someone paying part if not all of your duplex mortgage or go higher into the triplex or 4-plex realm. What many people don’t know is that you can use your VA loan to buy up to a 4-Plex. A 4-Plex is still considered a residential property and is the best cash flow option compared to other properties without going commercial (5-Plex and above). If you’re willing to make the sacrifice and live in one of your units, all of the sudden you have 3 other units paying you monthly. So you can live in your unit for a while, eventually go buy yourself that nice home, and keep the 4-plex paying you. Or if you have large goals for investments, go buy your next rental property with the constant income from your 4-Plex. In Alaska, you have over $453,000 to use of your VA loan. Some areas in the state will have even higher amounts (in Alaska it can go up as high as $625,000!)

Now there are a lot of numbers going into which type of property you should choose and how to start in investing, but that in itself is an ENTIRELY other post and sometimes depends on the market you’re in. I will tell you to not let the 4-Plex buildings of the world scare you. It is much harder to get approved for a second loan after you’ve bought a duplex and then trying to go to a 4-plex. Lenders want to see an improvement in quality of life (think duplex to single family). It’s not impossible by any means, but you have to work much harder. It’s also nice that if you have a vacancy, only part of your income is gone vs all of it with a duplex. It comes down to choosing which option is best for you and what your long-term goals are. I work with many investors, am mentored by some of the best, and invest myself, so if you want to have the conversation on how to get started, give me a shout!

MYTHS

Something that I want EVERYONE to take away from this is busting a common myth. You can use you VA loan MORE THAN ONCE. Going even further, you can have MORE THAN ONE VA loan at a time. All that matters is that max amount. Example: In Alaska, if you used your VA loan for $200,000. You could have over $400,000 of it left and use it to purchase your next property. This is huge for all of us PCS’ing all over the place and leaving homes behind as rentals. It is also HUGE for investors wanting to try and get multiple properties with it. If your lender says you can’t, go find someone that says you can.

So all in all, I hope I didn’t nerd out too much. It’s a lot of information and I’d be happy to talk to anyone that has more specific questions about the VA loan or about investing in general. If you’re in Alaska, let’s catch up! I’d love to help you out and refer you to some great lenders who know wayyy more about this than I do.