The 3 Most Misunderstood Things About The VA Home Loan

I have heard family members, neighbors, co-workers, CO’s (Commanding Officers), real estate agents and even lenders give bad information on these topics and many others when it comes to the VA home loan. Because of that, numerous Veterans do not get to take advantage of one of the best benefits that comes with their service. Honestly, I do not think anyone is being malicious but unfortunately, they were given bad information and in turn are sharing that bad information with others.

Some Veterans will already know some or all of these three topics, but with five military bases between Colorado Springs and Fountain Colorado, we have the opportunity to work with numerous Veterans and have found that the majority were given bad or inaccurate information about their VA home loan. So let’s clear up the most common of these misunderstandings.

1. A Veteran can use their VA home loan as many times as he or she likes.

They can use their VA home loan repeatedly, so long as their VA entitlement is in good standing, meaning they need to pay off or sell any homes they purchase with their VA home loan and avoid foreclosure, short sale and deed in lieu.
Keep in mind that if the veteran has incurred a foreclosure or short sale, he or she still may have partial eligibility (the opportunity to use the remaining VA entitlement to purchase), but that is another topic to address another time.

This is probably the most common bit of bad information out there. We typically come across many Veterans looking to rent or use other, less beneficial financing to purchase a home, because they want to save their one use of the VA home loan for their retirement home…as their co-workers or CO has instructed them. Sadly, as mentioned above, that reasoning is not based on good information.

2. A Veteran can actually have up to two VA home loans in place at one time.

Each Veteran, regardless of rank, gets the same amount of entitlement ($104,250 being the 25% VA guarantee). There is a pretty detailed formula to calculate this, but basically it boils down to a maximum of $417,000 between the two VA home loans. Keep in mind that this allows a Veteran the opportunity to purchase two homes on their VA home loan without putting any money down, for either home.

Another side note here, you can exceed this $417,000 amount, but would have to make a down payment of 25% on the amount that exceeds the $417,000.

Example: First home is $217,000 + the second home at $210,000 = $427,000. Minus the $417,000 equals $10,000. So, on the second home, the Veteran would need to make a down payment of $2,500 ($10,000 x 25%= $2,500).

I know I am about to get a great deal of push back on this (even from most lenders) but I can assure this is accurate. You can actually negotiate the seller paying the down payment (the $2,500 in the above example), so long as it does not exceed 4% of the sale price. Keep in mind this only applies to the VA home loan and no other loan.

Again most real estate agents are unaware of this and therefore this opportunity is missed by most Veteran buyers, simply because the people they are working with are not aware of this opportunity. Also, most lenders do not know this and will not complete the loan because of it. This is just an example of how important it is that the agent and your lender truly know the VA home loan and communicate.

The opportunity to have two VA homes in place at one time also creates an investment opportunity for many Veterans that purchase and then get transferred/ PCS’d or move; renting the first home (cash flowing ideally) and then purchasing where they are relocated. Of course rental property may not be for everyone but there are many Veterans that are taking advantage of this opportunity.

3. VA does not lend money.

Veteran Affairs (VA) set the guidelines for the VA home that investors must follow in order to have a VA home loan backed by the VA guarantee. That VA guarantee is actually for the investors so that if a Veteran defaults (foreclosure, short sale, etc.) on their VA home loans, VA will reimburse that investor a portion or all of their losses, up to 25% of the purchase price. So in short, Veteran Affairs (VA) provides the required loan program guidelines and guarantee to investors that in turn allows the Veteran 100% financing (ZERO required down payment) when using their VA home loan.

This is a pretty common misunderstanding and because of it, many Veterans think they are limited to having to use one of the military niche banks, or mortgage companies that use “VA” or “Veteran” in the company’s name…which is simply a marketing ploy. This can actually cost the Veteran, as most of these lenders to do not have access to many of the Grants and Tax Credits that can be used in conjunction with the VA Home Loan and can save the Veteran a substantial amount of money.

So Don’t Miss Out On The VA Home Loan

Just one these three misunderstandings can cost each Veteran a great opportunity and/or a great deal of money. The VA home loan is a fantastic opportunity for our Veterans, and is one of their best benefits of their service. This is why it is so troubling when we constantly hear that a Veteran has been given bad information and missed on an opportunity for him or her and their family.

Because of this, I find it good practice that when given the opportunity talk with a Veteran, whether renting or buying, to make sure they are aware of at least these three facts regarding their VA home loan. Just to ensure they are basing any decisions regarding their family’s home on accurate information. Truly, with the opportunity the VA home loan offers and comparing the savings with it versus any other home loan (and even renting, for that matter), the VA home loan wins every time.

– Nicole Lee