Industry Interview: How to Be Financially Prepared Before Buying a Home with a VA Home Loan
Let’s face it: buying a house is a big decision. For most people, including many Veterans, it’s the biggest financial choice they’ll make in their entire lives. This decision can also be one of the most rewarding when done right, and that means getting financially — and mentally — prepared for it.
As part of our commitment toward educating Veterans about the VA home loan process, we reached out to leading industry experts and asked for their tips on Veteran financial readiness. Their responses covered a wide range of advice, from the basics of VA loan prep to unique insights into the process.
Mike Kothakota is a Certified Financial Planner (CFP) and the CEO of Wolfbridge Financial. He’s also an Army Veteran who has bought three homes with a VA loan. During his service during Operations Iraqi Freedom and Enduring Freedom, he was awarded three Army Commendation Medals and the Combat Infantryman Badge. He went on to earn his Ph.D. in Financial Planning from Kansas State University. His financial expertise gives him a very practical perspective of the VA home loan process.
Ryan Guina is the Founder and Owner of The Military Wallet and Cash Money Life. He’s an Air Force Veteran who has consulted for the Department of Defense and who currently serves in the Air National Guard. Through multiple channels, including a regular column on Forbes, Ryan has an audience of over 120,000 military members, Veterans and spouses. His advice about retirement and Veteran finances is clear, actionable and straight to the point.
VA Loans 101
According to the CFPB, an increasing amount of active and retired servicemembers are opting for VA home loans. Upwards of 78% of eligible Veterans who are buying a home for the first time are doing so with a VA loan. Ryan Guina explained the reasons why VA loans are popular:
“VA loans are a great benefit and, in some cases, can be better than buying a home with a conventional mortgage. For example, VA loans may have slightly lower interest rates and may be easier to qualify for than conventional mortgages. Because the Department of Veterans Affairs guarantees a portion of every VA Loan, these loans do not require a down payment and there is no Private Mortgage Insurance (PMI) requirement.”
What’s the first piece of advice that Mike Kothakota would offer to first-timers? Mind your DTI. “If you are buying a home for the first time and you are a Veteran, you need to make sure that you keep your debt payments to income ratio as low as possible.” That means making sure your payments on loan principal, interest, taxes and insurance are a manageable percentage of your income.
What to Look Out For
Although the benefits of VA loans aren’t hard to spot, there are also a few downsides to consider. It’s no surprise that loan fees aren’t the most popular aspect of the VA home loan, and Ryan Guina highlighted the main fee to look out for:
“The biggest potential downside is the VA Loan Funding Fee, which is charged by the VA to offset any VA Loan defaults. The Funding Fee is based on the type of loan (purchase or refinance), and how many times the Veteran has previously used a VA Loan. The funding fee can be rolled into the home loan, but it can add several thousand dollars to the purchase price.”
Though the Funding Fee can sting, many Veterans are exempt from paying it. Ryan went on:
“The good news is the VA Funding Fee can be waived if the veteran has a Purple Heart, has a service-connected disability rating, or if the buyer is a qualified surviving spouse of a veteran who died while serving in the military or from service-related injuries.”
What If I Need to Move?
Anyone with military service history has done their fair share of traveling. This often means having to uproot and move to a new location, even during civilian life. Knowing that this is a very real issue for Veterans looking to purchase a home, Mike Kothakota offered the following advice:
“Keep in mind that if you are active duty (or a Veteran civilian who may need to move jobs in the near future), that you may need to move while your house has no equity in it. If you fully financed this home via a VA loan, you may want to make provisions for the possibility of renting this home when you change duty stations or move for your job. It may cost more to get out of the house.”
If you think this situation could apply to you, contact your VA home loan lender to discuss your options.
The Bottom Line
Since every situation is different, it’s important to weigh all of your options and work with a loan service provider you can trust. “Potential homebuyers should compare VA Loans to conventional loans to make sure they understand the differences and that they determine which loan option is best for them,” said Ryan Guina. The more informed you are going into the homebuying experience, the more prepared you’ll be for homeownership.
Working with the right VA loan lender is a critical part of financial readiness. SoCal VA Homes is dedicated to Veteran homebuying success at every step of the way. Find out what sets us apart.