5 Things You Probably Didn't Know About a VA Loan

For active duty service members, reservists, and veterans, there is arguably no greater financial benefit than using a VA Loan to purchase a home. It simply can't be beat.

Everyone knows the basic benefits of using a VA Loan - no downpayment, incredible interest rates (on average, .5% better than the national average), and no mortgage insurance. These are reasons enough to use a VA Loan, but there's so much more.

Here's 5 things you probably didn't know about a VA Loan.

1. You Can Purchase a Home More than the VA Loan Limit

Prior to 2020, VA homebuyers could not purchase a home more than the VA Loan Limit in their area. In most counties throughout the U.S., this loan limit is $726,200.

However, as of 2020, if a VA homebuyer has his or her full VA entitlement, these limits are no longer applicable. In other words, you can purchase a home of any price (as long as you qualify with a lender) regardless of the VA Loan Limit in your area.

So what's the purpose of the VA Loan limit then?

As mentioned above, the VA Loan Limits are not applicable if the VA homebuyer has his or her full entitlement. But the limits DO apply if you don't have full entitlement. Let's look at an example.

Suppose you own a home with a VA Loan of $400,000, and you want to purchase another home for $300,000. Since the total amount ($400,000 + $300,000) is still less than the VA Loan Limit of $726,200 (in most counties), this is permissible.

Well, what if you want to purchase another home for $400,000 (while still keeping your original $400,000 home)?

Obviously, some quick math indicates that this total of $800,000 is over the VA Loan Limit of $726,200. But the good news is you can still purchase the home with your VA Loan; you just have to put down 25% of the difference between $800,000 and $726,200 - or $18,450.

2. VA Loans Can Be Assumed By Another Buyer

A special feature of a VA Loan is known as VA Loan Assumability.

This is when a homeowner who has used a VA Loan to purchase his or her property then sells the home to another buyer who qualifies for a VA Loan; the VA Loan is "assumed" by the new buyer at the same terms of the current homeowner.

For example, let's suppose a homeowner purchased a home for $500,000 using a 30-year fixed VA Loan with an interest rate of 3.375%, and a couple years later, interest rates are now 6.25%. The good news is that a new buyer for that home and who qualifies can receive a new VA loan at the same 3.375% interest rate.

That's a monthly mortgage payment difference of roughly $868/month, which is very attractive for any buyer when he or she is considering between a home with VA Loan Assumability and one without.

In the times of low interest rates, VA Loan Assumability is rare. However, as the Federal Reserve raises the discount rate and mortgage rates increase, VA Loan Assumability becomes much more common, and it can be an attractive selling point of your home to the right buyer.

3. A VA Loan Can Be Used to Purchase a Rental Property

A common misconception about a VA Loan is that it cannot be used to buy an investment property. This is incorrect.

However, there is a caveat: the property must also be your primary residence. As a result, you must purchase a duplex, triplex, or quadplex - it doesn't matter as long as you live there too! Also, the VA loan limits are higher for multi-unit properties.

Many service members buy multi-unit properties using a VA Loan, and then rent from the other units covers their mortgage, expenses, and generates income. Pretty cool, right? Absolutely, especially with no down payment!

4. VA Loans Can Be Used to Purchase Foreclosures and Short Sales

Another common misconception is that VA Loans cannot be used to buy foreclosed homes or short sales.

Indeed, some homes that have been foreclosed or listed as short sales are in poor condition and therefore don't meet the requirements of a VA Loan (such as the home's roof must have 5 years remaining of serviceable life).

However, not all foreclosures or short sales are in poor condition, and as long as the home condition requirements of a VA Loan are met, a VA Loan can be used to purchase a foreclosure or short sale.

Bottom line, use of a VA Loan is not tied to the property's status; instead, use of a VA Loan is tied to the condition of the home.

5. The VA Loan Funding Fee Can Be Waived

In general, the VA Loan does charge a funding fee, which is 2.3% of the home's purchase price for the first use of the VA Loan. This funding fee is rolled into the life of loan and spread out in payments over 30 years. In other words, it is not an upfront closing cost.

However, the VA Loan funding fee can be waived for any veteran receiving any amount of compensation for a service-related disability.

In other words, a veteran who is rated 10% disabled by the VA (lowest compensation amount) can have the VA funding fee waived. What an awesome benefit for those who paid a significant price!

The Bottom Line

Without question, the VA Loan benefit is an outstanding financing vehicle for those who are serving and those who have served. There has never been a better time to use your VA Loan benefits!

If you are thinking of buying a home in Jacksonville and using a VA Loan, we have helped many buyers use this fantastic benefit to buy the home of their dreams.

As a Navy veteran and realtor as well as veteran's spouse, it's important to us to continue to serve by ensuring our clients are educated on all aspects of VA Loans.

Give us a call at (904) 479-8785!

ABOUT THE AUTHOR:

Rob Hastings is a top-producing real estate agent in Jacksonville, Florida and helps buyers, sellers, and investors of homes and property throughout all of Northeast Florida. He works with his wife Nancy as a husband-and wife-team with Keller Williams Realty Atlantic Partners. When not helping his clients navigate the real estate process, Rob enjoys working on old Corvettes and playing music (guitar and piano). A U.S. Naval Academy graduate and former Naval Officer, he also loves boating and simply spending time on the water.