Are you thinking about moving to Cheyenne, Wyoming, and want to use your VA home loan benefit? In this episode of Wynot Wyoming, I’m going to share the pros and cons of the VA home loan program. We’ll look at everything from the benefits to the qualifications so you can decide if the VA home loan is right for you and your family.
Who Qualifies For The VA Loan?
While you may not know it, we are certified veteran mortgage advisors as well as regular lenders. This means we know a lot about the VA home loan program.
If you're considering a VA home loan, there's a pretty good chance that you either served our country previously or you're currently serving. So first of all, I just want to say thank you so much for your service. Here at Double H Home Loans, we get no greater pleasure than serving those of you that have served our country.
If you're not a vet, chances are the VA loan isn't going to work for you and this information doesn’t apply. However, the good news is that you can come back for future episodes where we talk about other types of loan programs—such as FHA, conventional, and even some outside-of-the-box options called non-QM loans. But for today, we're dedicating this to our veterans.
The first thing you need to know about getting a VA loan is that it is, hands down, the best option for every veteran that's eligible. If you're going to use it, you need to know everything there is to know about it.
When it comes to eligibility, this is a question of entitlement. Of course, I'm not talking about the kind of entitlement that old timers make fun of young timers for. Rather, I'm talking about the entitlement that you earned during your enlistment period.
There are different timeframes and requirements for this entitlement, depending on when you've served, whether you're in the guard, or where you're at in your military career. So if you're unsure about where you're at with your entitlement, reach out to me. In just a couple of minutes of conversation, I can pull up your eligibility and entitlement to tell you exactly where you stand.
No Money Down
We're going to start by giving you a couple of the top reasons why veterans would choose to use the VA loan. The first and most popular reason why a vet should choose to use their VA home loan benefit is that it doesn't require a down payment in most cases. Of course, this depends on your level of entitlement, including whether it's been used and restored or if you’ve had a foreclosure.
You may qualify to have no down payment based on your entitlement, or what's called your Second Tier Bonus Entitlement. If you don't know what that means, reach out to me so I can explain what those options are. Many times, you're going to be able to buy a home with no money down and leave a lot more cash right there in your own pocket.
No Mortgage Insurance
Now that we know you're going to be able to buy a house (and quite possibly with no money down), let's talk about the second reason why the VA home loan is so popular with veterans: even when you don't use a down payment, you have no mortgage insurance.
With other loan programs, if you don't have a 20% down payment, you're going to be paying mortgage insurance every month. However, with a VA loan—and even with no down payment—there's no mortgage insurance for the life of the loan. This means you're going to be able to keep even more of that money in your own pocket every month.
I would like to say that if you're using your VA loan for the second or the third time, there's another part to it that we're going to discuss a little bit later. It might dictate whether you want to use a down payment, but that's going to be your choice. And let's be honest: having a choice is powerful. When you're shopping for a home, you want to leave all of the choices available to you as often as possible.
Having no downpayment, no mortgage insurance, and keeping that money in your own pocket are obviously great benefits. However, there's a third benefit to the VA loan that I'd like to share with you: the interest rate. When you compare a VA loan to a conventional loan, for example, the rate would be a quarter percent lower with a VA loan than a conventional loan on average.
When you add that to the fact that you're not paying that mortgage insurance every month. You're going to actually qualify for a little bit higher loan amount than you would maybe with some of those other loan programs.
Lastly, one thing I'd like to touch on is that VA loans are quite often a little bit easier to qualify for. This is contrary to popular belief, as there are a couple of myths out there about VA loans.
The VA guideline book that lenders rely on encourages lending underwriters—companies like my own—to find every possible way to approve a loan for every qualified veteran. This is very different than what you might find in the underlying underwriting policies for other loan programs, where it seems like they quite often are finding reasons to deny a loan.
Combatting The Stigma
Now that we’ve listed off a bunch of different pros—including how powerful the VA loan program is—we’ll have to look at the cons. Everything in the world isn't perfect, and there are a couple of negatives that I want to share with you. The very first and major con that I find with the VA home loan is the stigma that's associated with it.
I hate even having to talk about this, to be perfectly honest. I spend a lot of my time trying to debunk some myths that VA borrowers are less qualified or that their file is going to be a little bit harder to close. The number one way that you can overcome some of these myths or that stigma is by working with a great lender.
If you choose to work with a certified veteran mortgage advisor like myself, you're going to have the right people in your corner. We're going to do a really good job of talking to all of the parties in the loan process or in the transaction, including you as the buyer. We want to make sure you're educated and that you know all of your options.
The Right Representation
When we represent you as your lender, we want to make sure your agent, the seller, and their agent understand how the VA program works. We’ll make sure they know how well qualified you are as a borrower and why they don't have to be so skeptical of accepting an offer that's using a VA home loan.
The reality is, the VA borrower is quite often better qualified than their counterpart. That might be a first-time homebuyer using an FHA loan, for example. In 2021, they did a survey showing that VA borrowers had more money in the bank, better credit scores, higher paying jobs, and ultimately closed on a higher level loan amount—meaning they bought a slightly more expensive house.
Lenders love the VA loan, especially because they rarely default. Only about 0.3% will default, compared to double digits with an FHA loan. So if you hear somebody say that the VA borrower is not qualified or that lenders don't like them, that is absolutely a myth—that we’re debunking right here.
Funded By Borrowers
The other thing that you need to know about the VA loan program—which is somewhat of a con—is that the VA program is funded by its own borrowers. This is funded in the form of a VA funding fee. This means that whenever a veteran uses that benefit, they're going to pay a VA funding fee up front.
They don't really pay it in cash up front, though you do have the option to pay it right away. You can also roll it into the terms of the loan and just string it out over however many years you're going to keep the loan—even up to 30 years. The other thing to know about the VA funding fee is that it's on a sliding scale.
Depending on whether this is the first time you've ever used your benefit or if it's a subsequent use, the funding fee could be higher or lower. Within that, there are times when you may have had a VA loan before and then had a calamity in your life and had to foreclose on a home. That doesn't mean you can never use your VA benefit again.
There's actually a second-level entitlement called your Bonus Entitlement or Tier Two Entitlement. It might require a small downpayment, though quite possibly it won’t. However, that funding fee is going to be dependent on where you're at in that entitlement conversation that we had earlier.
One other thing to note—and it will be listed on that same entitlement form that we would pull up, though you’ll already know this—is if you have a service-related disability, you are funding fee exempt. This means you're not going to pay a funding fee, whether it's your first time or your 10th time and whether you're buying a single-family home, duplex, or triplex.
You're never going to pay that funding fee if you have a service-related disability listed on your certificate of eligibility (which is where we find that entitlement).
I’m Here To Help
I hope this video really gave you some good information about the pros and the cons of the VA home loan and how they can affect you and your situation. If you have additional questions, please reach out to me via email, text, or phone call. I'm happy to answer any questions that you have about eligibility, entitlement, funding fees, and whether the VA program is even the right loan for you.
If you’d like to consider other possibilities, I’m also happy to look at all of your options with you so you can choose the best one for you. If you're interested in relocating here, I can also absolutely help you with all the home loan questions you have. I work with some of the best real estate agents, insurance agents, and whatever else you need here in town. I’d be happy to give you a good quality referral to help you with your relocation.
Don’t forget to subscribe to my channel so you never miss an episode of Wynot Wyoming, my show all about living here in Cheyenne. We talk about all sorts of things related to Cheyenne, including entertainment, recreation outside of town, the real estate market here in town, and even the home loans that it's going to take to get you living right here with us in Cheyenne. Stay tuned to see what I feature next!