I’m convinced that the VA loan is the greatest loan product in the entire mortgage industry. I’ve covered the VA loan extensively in several articles on the Military Millionaire blog. Today I want to cover what I believe are the top 13 benefits of the VA loan!
- 1. No Down Payment
- 2. No PMI
- 3. Lower Interest Rates
- 4. VA Loans are Backed by the Government
- 5. Refinance Opportunities and the VA IRRRL
- 6. No Prepayment Penalty
- 7. Lower Closing Costs
- 8. Foreclosure Assistance
- 9. The VA Loan is Assumable
- 10. No Limit to How Much You Can Borrow
- 11. Can Be Used More Than Once
- 12. Veterans Can Split Their Entitlement!
- 13. The VA House Hack!
1. No Down Payment
First, there is no down payment required when you buy a house with the VA loan. This is one of the most widely known benefits of the VA loan, but let me just elaborate on how powerful this is.
I have a friend in San Diego who purchased a 4-plex for $1.23 million and got paid a few hundred dollars at closing. On top of that, between renting three units as well as some of the rooms of the unit he lives in, he is getting paid to live in this house.
In case that isn’t sweet enough, he is paying off over $2,000/month of principal on the loan.
The VA loan allows service members and veterans to purchase a home even if they haven’t amassed a ton of savings.
When used properly, this is an incredible benefit to the service member!
2. No PMI
Typically when you pay less than 20% down on a house, you are required to pay private mortgage insurance (PMI). This monthly payment is fairly significant and absolutely unnecessary when you are able to utilize the VA loan.
I have spent nearly $10,000 in PMI alone over the last five years because I got talked into using the FHA loan instead of the VA loan by a lender who didn’t know what he was doing.
Not having PMI is one of the reasons that VA loans are often cheaper over the long run even when you use 100% bank financing to purchase the property.
3. Lower Interest Rates
More often than not, VA loans have a lower interest rate than their competitors. The reason for this is that they are government-backed loans and viewed as less risky than their counterparts.
Also, military buyers are (generally) in a pretty good position with their finances and deemed to be responsible borrowers.
4. VA Loans are Backed by the Government
I mentioned this before, but one of the main benefits of the VA loan is that it is government-backed. The reason you aren’t required to put any money down with the VA loan is because the government is essentially saying that they’ll cover up to 25% of the purchase price in the event that you default on the payments.
This government backing makes the loan a safe bet for banks because the government is always going to pay them back, even if you can’t.
This is a win-win because it allows the homeowner to buy a home without a massive down payment and allows the bank to mitigate its risk.
5. Refinance Opportunities and the VA IRRRL
The VA Interest Rate Reduction Refinance Loan (VA IRRRL) is incredible!
In my opinion, this is one of the greatest mortgage products in the entire industry. The VA IRRRL allows you to refinance your mortgage and reduce the monthly payment without having to provide an income verification or credit verification. And you don’t even have to live in the home anymore!
You can refinance a VA loan and drop the interest rate, even if the property is currently a rental!
There are several other refinance products with the VA loan, including a cash-out refinance option that will allow you to refinance up to 100% of the property value!
These products are unique to the VA loan and, when used correctly, can be incredibly beneficial to building your portfolio!
6. No Prepayment Penalty
This isn’t necessarily unique to the VA loan, as a lot of mortgage products don’t have a prepayment penalty. That being said, it is still nice to know that you can pay off the VA loan early if you so desire without any penalties or extra costs.
7. Lower Closing Costs
Typical closing costs when you purchase a home range from 2% to 5% of the home’s purchase price, according to Investopedia (source). Meanwhile, the average closing costs with a VA loan hover around 1% to 2% of the purchase price.
This may not seem like a huge difference, but if you extrapolate it over an expensive purchase, it adds up quickly. On top of that, the VA loan allows the seller to cover all of the closing costs, which is super cool!
Realistically, there are a lot of ways to avoid paying closing costs, as I discuss in more detail in my real estate investing course. In fact, in the 5 years I’ve been investing in real estate, I’ve only paid the entire closing cost expense one time.
That being said, the VA loan makes it easy to pay less in closing costs—a big win in my book!
8. Foreclosure Assistance
Another of the great benefits of the VA loan is that the Department of Veteran Affairs will assign a VA loan technician to provide financial counseling and help you deal with your servicer.
The Department of Veteran Affairs is more invested in ensuring you don’t lose your home to foreclosure than most lenders will ever be.
9. The VA Loan is Assumable
Another veteran can assume the VA loan, too. This is great if you’re in a situation where it doesn’t make sense to sell the home, but you don’t want to rent it out either.
For example, I have a friend who owned a $600,000 home in Hawaii. He didn’t want to rent the home when he moved because he was going to have to come out of pocket to cover the mortgage, even with it rented.
Unfortunately, because he hadn’t owned the home very long and it hadn’t appreciated a ton yet, he would have also needed to bring around $20,000 to the closing table in order to sell this home.
Being stuck between paying $20,000 to your real estate agent to sell your home and losing hundreds of dollars (or more) per month even after renting it out is not a fun spot to be in.
Luckily, the VA loan is assumable, which means that another veteran could come alongside my friend and pick up where he left off. When you assume a loan you take over the monthly payments and the remainder of the mortgage balance.
This would have allowed my friend to sell the home without having to come out of pocket $20,000 at closing. It also would have allowed another service member to buy the home with the existing loan and walk into some equity at closing.
Unfortunately, my friend decided just to bite the bullet and sell the home anyway, haha.
10. No Limit to How Much You Can Borrow
As of January 1, 2020, the VA loan no longer has a limit to how much you can borrow on your first purchase.
As long as you meet the lender’s overlays for a loan, you will be able to purchase with 0% down!
For example, I have several friends who have purchased homes for over $1,000,000 with zero down. Many of them have been enlisted, and one was even a single E-5!
That being said, you need to meet the lender’s credit requirements, debt-to-income requirements, and other personal finance overlays that the bank may have.
11. Can Be Used More Than Once
Despite common misconceptions, the VA loan can absolutely be used more than one time!
If you move more than 50 miles away for work, you can use it to purchase another home.
If you need to upgrade to a larger home because your family is growing, you can use the VA loan again.
If you refinance your first VA loan into a conventional loan or sell the home, you can reuse it.
There are actually a ton of ways to reuse the VA loan, but there are some caveats regarding the amount you can borrow, as it is only unlimited on your first usage.
If you would like more information on specifics, I would be happy to introduce you to one of my recommended lenders.
12. Veterans Can Split Their Entitlement!
You can partner with another veteran to purchase a larger home. You can also combine your entitlement if one veteran has used his or her VA loan before and the other has not, in order to purchase more home without using your entire entitlement amount.
This is especially cool in scenarios where both spouses are veterans and can utilize the VA loan together to increase the benefits.
13. The VA House Hack!
The VA house hack is one of the best investment strategies in existence!
House hacking is when you buy a home and rent out other rooms, units, in-law suites, etc., in order to cover your living expenses.
You can legitimately buy a home for zero down and then live in it for free, all while saving a ton of money to reinvest into other real estate investments!
I could go on and on about how awesome this strategy is, but read my House Hacking article or watch my house hacking videos for more information!
Benefits of the VA Loan
These are the top 13 benefits of the VA loan.
There are so many more benefits to this loan though, and you owe it to yourself to read my full VA loan guide in order to utilize this incredible loan product to its maximum potential!