Your Complete Guide to the VA Loan

The Veteran’s Assistance loan or the VA Loan as it is generally called, is an amazing loan. We bought our first and fourth house using the VA loan (using the same loan). Over the years I have seen a lot of myths perpetuated and questions asked regarding this loan.

As a self-proclaimed empire builder, who is also a mortgage nerd who struggles to understand this awesome but complicated loan, I put together this guide. I hope this helps you not only have a better understanding about the loan itself, but also about the different benefits that you might not have realized it offered.

Reluctant Landlord’s Guide to the VA Loan

Eligible Parties:
While everyone always associates the VA loan as the loan for those who served in the military or veterans, there are eight parties that are eligible for the VA loan.

1. Veterans.
2. Current or former National Guard or Reserve member who has been activated Federal active service.
3. Active Duty Service member.
4. Current National Guard or Reserve member who has been Federal active service.
5. Discharged member of the National Guard who has never been activated for Federal active service.
6. Discharged member of the Selected Reserve who has never been activated for Federal active service.
7. Surviving Spouse in Receipt of DIC (Dependency &  Indemnity Compensation) benefits.
8. Surviving Spouse and not receiving DIC (dependency & Indemnity Compensation) benefits.

You can find more information and how to prove your eligibility on the VA benefits website. The specific service requirements and time periods can be found here.

Use
Unfortunately, the VA loan cannot be used for ANY type of purchase. Like many federally sponsored programs there are very specific requirements to what can be bought with a VA loan.

As defined by the VA, the loan can be used for five types of homes, all of which must be your personal home. The specific VA wording can be found here.

1. Buy a home or condominium unit in a VA approved project.
2. Build a Home.
3. Simultaneously purchase and improve a home.
4. Improve a home by installing energy-related features or making energy efficient improvements.
5. Buy a manufactured home and/or lot.

My Thoughts: 

Condominiums – Personally, I will not buy a condominium. The VA, FHA and other government approved loans have very specific requirements regarding condominiums. At one point (not sure if it is still in play), complexes that had more than 30% that were rentals were not eligible for these programs.

Once these complexes were no longer eligible to meet these requirements these units sat longer and even lost value. To further exasperate the problem, many condo communities have or create rules regarding the number of rentals allowed or they forbid it all together. This creates a huge issue regarding an exit plan. This is why I don’t buy condos and I check all HOA’s very closely to make sure there are no laws against making my home a rental once I move out of the area.

Multi-plex – The VA allows you to buy a single family, duplex (2 units), triplex (3 units) and a quadplex (4 units). The key is that you have to live in one unit, however, you are still allowed to rent the other unit(s) out.

Eligibility
Once you know that you qualify, the next step is to figure out your eligibility. Unfortunately, it’s not as simple as it sounds because it’s based on your location. The lowest total amount is $417,000 for a single family. All the numbers after that are based on location and the number of times the loan has been used. The VA location list to check eligibility can be found here.

The  funding fee works is also based on your current location. For example, If you lived in Virginia Beach you would have $458,850. The amount changes based on your physical location.

Multiple Loans
The great thing about the new VA rules is not only are you given a set amount, but you can buy as many houses under the amount of the last local place. You entitlement includes the purchase price AND the funding fee (described below) of your location.

This is the Equation: Current Location Entitlement – Previous Entitlement(s) if you have multiple (Funding Fee included) = amount you have left.

Personally, we have bought two houses with the same loan. Our first house was bought in Virginia Beach. We paid $234,000 and after the funding fee we had used $239k. We then bought a $163k house in Hanford, CA, for $168k after financing. While these are off the top of my head, the point is you can totally buy multiple houses. The key is to make sure you have money left over from the first house, so you can use it again.

The location amount is based on your last amount. So currently, we have used up a little less than $417,000 so most locations we would move to would not have anything less. That being said there are a few places that have a top limit of closer to a million. In one of those locations we would be able to use the difference (approx. 500,000) to buy another house.

So just because you are “out” in one location in regards to your VA loan eligibility, does not mean you should not have your mortgage broker check your eligibility in the next place you go. It never hurts to ask, you could be missing out on an opportunity!

Financing Above Your VA Loan
The VA loan does allow you to finance above your VA loan amount. The key thing to note is anything above the VA funding amount requires a down payment of 25%. So if you go above your funding amount by 10,000 you will now owe a down payment of $2,500.

It important to check all the rates. The last time I checked, mortgage rates for the VA loan they were MUCH lower than many of the of the rates available. Even with the funding fee, and having a down payment amount, this might have a lower payment than another type of loan–ESPECIALLY if you qualify for the funding fee to be raised.

VA Funding Fee
The VA funding is the only downside to the VA loan and using it for multiple loans. The VA loan charges a funding fee for all their loans. The rates depends on a couple of different variables so certainly look at this chart to figure out your funding fee.

Waiving of the Funding Fee
If you have a VA disability rating then you should definitely check out this article. I explain all the regulations and how all those fees/other expenses could be waived.

The VA loan is truly an amazing loan. There are so many nuances and great benefits. I highly recommend you find a great mortgage broker who can walk you through all the different possibilities. Did I miss anything regarding the VA loan? What has been your experience?