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What You Need To Know About The VA “Home Loan”

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One of the most substantial benefits offered to veterans upon completing their service to their country is the VA Loan Guaranty Home Loan.  It’s a program where the federal government “guarantees” your loan with a bank, lowering your interest payment, saving you a lot of money and making you eligible to buy a home.  For me, it’s one of the most exciting benefits I have to look forward to.  Since I’m only doing eight years, I don’t have retirement available to me, and I’ve already used the GI Bill to get my degree.  But let me tell you – for a kid who grew up as poor as I did to have a shot at owning a home is a dream come true.

However, the most important thing to know about the VA “Home Loan” (as it’s most often referred to) is what it isn’t:  It isn’t a home loan.  In most cases, the Department of Veterans’ Affairs doesn’t loan the money to you, they simply arrange to insure it with the bank that you choose to go through (although there are VA-financed homes, which you can ask them about.)  Also, remember that their involvement in the process can sometimes add a lot of pain and frustration and delay; don’t forget that you’re calling in government administration on the deal, after all.  If you don’t believe me, just ask anyone in the military whether they’d rather go down to their admin shop or have their gums scraped with a rusty scalpel.  I’ll tell you from experience (I’m an administrator myself) that the responses are usually 50/50.  

But the end result of using the VA Loan Guaranty is worth it – having the VA guarantee your loan can get you a much lower interest rate than you might be able to secure on your own.  Almost all veterans are eligible for the program.  As long as the sale price of the house doesn’t exceed the appraised value, you can buy it without a down payment (as long as you make enough money, of course, and your credit is okay.)  The VA serves as mortgage insurance, which saves you more money, and they’ll limit the closing costs the banks would otherwise try to squeeze out of you.  Two of the best features are that you can pay your house off early without a penalty (for those of you who like to overachieve) and if you run into some trouble down the road, the VA does have some options to help you with your payments until you’re back on solid footing.

There are some limitations, though:  You can’t go pick out a giant mansion somewhere and expect the VA to rubber-stamp it.  They’ll work with you on a process to determine what they think you’ll be able to afford, based off your income and your other expenses.  You also need to live in the home.  There are a lot of enterprising military families out there that have gone looking for VA loans so that they could turn around and rent their properties out or fix them up and sell them at a premium (this is called “flipping”) and the VA won’t stand for it.

There are also some drawbacks:  The VA will charge you a “funding fee” that you can fold into the loan, so be aware of that right up front.  However, if you’re a disabled vet, and your disability is because of your service in the military, you won’t have to pay that fee.

You can find absolutely everything you need to know here, at the VA’s Home Loan site.  It contains a lot of useful links, as well.

Home ownership is the most crucial component of the American Dream.  And though it’s gotten a bad rap lately, with mortgage frauds, subprime derivative whosie-whats-its on Wall Street blowing up the economy and home sales in a terrible slump, owning your own home is still a solid, excellent investment for your family.  The VA can help you realize that dream.