Stop giving your BAH to on-base housing or a landlord and see if purchasing a home is the next step for you. As an active-duty or prior service member you may have access to a loan that civilians don't– the VA loan. With this guide and videos below you will learn the ins and outs of the VA loan from experienced real estate agents and mortgage lenders who have also served in the military.
Should I Rent or Buy Using the VA Loan?
The most common question that gets asked and the question that you should begin with is, should I rent or buy? The video to the right speaks specifically to those who are still serving in the military, but is still relevant if you've already gotten out.
You can use Sentry's Rent Vs. Own Calculator to see what your net worth variance would be if you rented vs. owned over a period of time. This previous blog post will show you how to use the calculator and read your results.
Every person's situation is different which makes the answer unique for everyone. There are many factors that should go into your decision of renting vs. buying like how long will you be at your current duty station, your financial situation, the housing market, and more.
To get a personal analysis on if homeownership is the right decision for you, we recommend reaching out to an agent and lender who is well-versed in the VA loan. They will be able to take into consideration your wants and needs of the home you're wanting to purchasing and see if it lines up with what you can afford and help you make the best decision for you.
What is the VA Loan and its Eligibility Requirements?
If you've heard of the VA loan you've probably heard that it's 0% down. But what does that actually mean and how can be it $0 down? If you've ever tried to get a home loan, other than the VA loan, you've certainly seen what a downpayment is. Depending on the loan product that you're looking at, a downpayment could be anywhere from 3% to 20% of the home's purchase price that's required for you to pay in order for you to qualify for that loan. A VA loan actually does have a down payment, but it comes from your service in the military. The government, through Ginnie Mae, is actually financing 25% of the purchase and guaranteeing that loan in the same way that you would be doing with a down payment on a conventional loan. While that does mean you're able to have a 0% or $0 downpayment, it doesn't necessarily mean that it's $0 or 0% out of pocket for the rest of the transaction. For most people, you actually will have a VA loan funding fee. The first time you purchase a house, that fee will be 2.3%. The second time you purchase a house, meaning yes, you can reuse the VA loan it's 3.6%. Should you find yourself ever refinancing a home the VA funding fee is going to be 0.5%. The good news is that if you meet any of the requirements below stated on va.gov, the VA funding fee will be waived entirely:
You receive VA compensation for a service-connected disability or
Eligible to receive VA compensation for a service-connected disability, but you’re receiving retirement or active-duty pay instead, or
The surviving spouse of a Veteran who died in service or from a service-connected disability, or who was totally disabled, and you're receiving Dependency and Indemnity Compensation (DIC), or
A service member with a proposed or memorandum rating, before the loan closing date, saying you're eligible to get compensation because of a pre-discharge claim, or
A service member on active duty who before or on the loan closing date provides evidence of having received the Purple Heart
Not having to put any money down on a VA loan will require some participation from your lender, agent, and likely even the home seller that you're purchasing the property from. You, the buyer, may be able to negotiate with the seller who pays for your remaining closing costs. Having an experienced agent who is good at negotiation is key for this step as they will be the ones who can successfully lead you to a $0-down home buying experience with the VA loan.
How can the VA Loan be used?
The VA loan does have residence occupancy requirements, meaning, the property you purchase with VA loan must be a primary residence. You must also move into the home within a reasonable timeframe, which is typically 60 days.
Many people inquire about the VA loan and using it to purchase a short-term rental. Unfortunately, that is not allowed. There are ways around that, though. Sentry Residential Co-Founder and USMC Veteran, Mike Chiesl, explains how you can use you VA loan for a short-term rental in this video.
Another common way people make the most of their VA loan is by using it to purchase a multi-family residence. A multi-family property is a house or development that can also be referred to as a 2, 3, or 4 family house. Each unit is typically separated to be considered its own apartment. There are some things you need to know before you go out to use your VA loan for that type of investment though.
There must not be more than four units in the development or building. The benefit to making this kind of investment is the rents that you're receiving from tenants other than yourself are actually going to be used as qualifying income for that purchase. Instead of only looking at your income to qualify you for the loan the rent received will also be factored into your income which will allow you to qualify for a larger loan amount. Keep in mind, only 75% of the gross rents will be able to be used though. Hypothetically, let's say you purchase a four-unit multi-family with the VA loan, the three units outside of yours rent for $100,000 a year. That means that you'll actually get credit for $75,000 a year of additional income to help you to qualify for that loan. That could mean you being able to double your purchase price based on the income that you may have today.
Those tenants can't be hypothetical. You actually have to have signed, active leases in place in order for the VA to allow you to use those to qualify. Having active tenants with signed leases verifies that you will be receiving rent from the tenants which helps you qualify for a larger loan amount.
You yourself are going to have to occupy one of those units or at the very least have an intention to occupy one of those units. Obviously, there are conditions that are in place to make sure that for unforeseeable circumstances, orders elsewhere, et cetera that don't prevent you from being able to purchase the property.
Using the VA loan for a multi-family property is a great investment that can bring in passive income. As always, if you have any questions regarding this type of purchase or any other kind of home purchase reach out to a Sentry Residential agent to help get you started.
How to Find the Right Agent
So, you've decided that purchasing a home using your VA loan is the next step for your family. One of the first steps you're going to take once deciding you're ready to buy a home is find a real estate agent. Not any real estate agent, but the best agent to fit your needs. You may be wondering, how does one go about finding a good real estate agent?
A great way to start is by asking your friends or family. Ask people who have purchased a home if they have a referral for anyone that they would recommend based on the service they received. Consulting a friend or family member first about an agent they've used is a great way to get an honest recommendation. It is important to keep in mind that everyone has different expectations and needs that need to be met when looking for a real estate agent. For example, if you're in the military it would be in your best interest to find a real estate agent who is familiar with the VA loan.
The next thing you're going to want to do, even if it is a referral, is do some vetting. The easiest way to do that is to go online and check out what this agent has been able to do in the past. Some useful tools for that are going to be Facebook, Google, as well as Zillow. By doing this research you will be able to see what their total review volume looks like and whether or not they've been able to receive five stars from previous clients.
After receiving any referrals from your friends or family you're going to want to do is understand if the agent is experienced. One simple benchmark you can use for that is the number of transactions they've had in the last 12 months on Zillow. An average agent that's a full-time agent is going to have between 8 to 12 per year. If you see far more than that, that's likely a good sign. Do understand that not all agents are going to be updating that Zillow profile with all of their transactions.
Last but not least, interview any agents you come across that you think may be a good fit for you. It's best to have a couple of agents in mind so that you can make sure you find one that will be a good fit for you professionally, as well as personally.
Now, if that sounds like a lot, we'll make it a lot easier for you as these steps are exactly what we at
Sentry Residential do when we are choosing agents to join our brokerage. If you are wanting to get in touch with a vetted Sentry Residential agent be sure to visit us at www.sentryresidential.com.