What is a VA Loan, and what are the benefits of a VA loan?
Also known as Veterans Home Loans and military home loans, the Veteran Home Loan is a method of financing by which service members, veterans, and eligible surviving spouses can take advantage of their VA Loan benefits to become homeowners. These loans serve as a “guaranty benefit” to help you buy, build, repair, retain, or adapt a home for personal occupancy (and stay out of Barksdale AFB housing).
Note that the Veterans Administration does not lend you any money with these veteran home loans. Instead, these veteran home loans are provided through private lenders, such as local, regional, and national banks and other mortgage companies.
When private lenders give these loans to veterans, the Veterans Administration guarantees a portion of this loan (usually 25% of the loan amount), which reduces your private lender’s risk and allows the lender to loan veterans money with an increased certainty that, if the veteran does not pay the loan back, the lender can recoup at least a significant chunk of the outstanding debt from the Veterans Administration. Because of this, the VA Loan can often allow veterans to receive more money at a lower interest rate.
If you want to hunt homes outside of Barksdale family housing, use your VA Loan benefits to find homes in Bossier City, Haughton, Benton, and houses for sale in Shreveport with the insight of a local real estate agent. If you’re not looking for Shreveport real estate, you can do a Google search for “real estate agents near me” or visit realtor.com or Century 21 to find a reputable real estate agent.
However, if you want to hunt homes and houses for sale in Shreveport LA, and you don’t want to live in Barksdale housing, just visit www.BarksdaleRealtor.com and you’ll find that the results will be akin to a search of “Best Realtor near me.”
Comparing the VA Loan against Everything Else
When you want to become a homeowner by purchasing homes for sale in Shreveport LA, there is a number of ways you can pay for the purchase without using your VA Loan benefits…As we’ll soon discover, it is always preferable to use veterans home loans, especially if searching for houses for sale in Shreveport.
Paying with All Cash
If you have enough cash in a bank account to purchase the house, you can pay all cash for any Shreveport homes for sale! This is often favorable to sellers, because there is less paperwork to do and fewer variables to make the deal fall apart. However, very few of us have hundreds of thousands of dollars of cash sitting in a bank account. And if we did, I’m not so sure spending it all on Shreveport houses for sale would be a wise move.
Assuming you cannot or do not want to pay hundreds of thousands of dollars in pure cash-money, you can use the principle of leverage through debt. In other words, have someone who does have hundreds of thousands of dollars lend you that money to purchase the house. You promise to repay them at an interest rate, which is the rate of return at which the lender deems it necessary to make the loan worth their time, costs, and risk exposure.
Through financing, a lender makes money by lending you money and getting repayment over time with an added bonus, known as interest—generally, you repay that loan over 30 years for residential real estate loans. For perspective, if a lender gives you $100,000 at a 5% interest rate, and you repay that loan over 30 years, the lender will receive the return of their initial loan of $100,000 (the principal) plus an additional amount of money—in this case, $93,256 (the interest).
That interest is a fat chunk of change, no doubt, but it’s the price that we agree to pay our lender over the course of 30 years for the benefit of having $100,000 available to us now so that we can become homeowners. And as we’ll see in subsequent chapters, it’s well worth it.
So what are some ways we can use a loan, i.e., financing?
The following information is not something that can necessarily be found on a whim by visiting realtor.com or Century 21. This information is a deep-dive into the alternatives to military home loans, which we’ll see are not that great compared to the benefits of a VA loan.
“Conventional” Loans with 20% down payment
A “conventional” mortgage is any loan package that is not guaranteed through the government, but rather through private lenders or a non-government-sponsored enterprise. Most conventional mortgages can be guaranteed by government-sponsored enterprises such as the Federal Home Loan Mortgage Corporation (a.k.a. “Freddie Mac”) or the Federal National Mortgage Association (a.k.a. “Fannie Mae”)**.
The requirement for a 20%-down payment isn’t based on a random amount. Most lenders believe that a home will rarely decrease in value by more than 20% over time, so in order to “secure” their loan—i.e., in order to ensure lenders can recoup their money if a borrower fails to make payments, they make sure they can re-sell the home on the open market and recoup their loan.
Joe searches “houses for sale Shreveport,” lands on realtor.com. Using the guidance of a real estate agent, he buys a piece of Shreveport real estate for $250,000 using a conventional loan with 20% down payment (a down payment of $50,000 in this example).
Since Joe paid 20% = $50,000 down payment, the lender only has to pay $200,000 of the lender’s own money to the seller in order for the seller to receive the agreed-upon $250,000 purchase price. The seller transfers ownership of the Shreveport real estate to Joe (and essentially to the lender, as well). Joe is thus a “homeowner,” but he still owes the lender $200,000. He will repay this money over 30 years at an interest rate of, say, 5%…So every month he will owe around $1,100 to the lender until that $200,000 has been repaid.
If Joe stops making his monthly payments to the lender, the lender can foreclose on Joe’s house, meaning the lender kicks Joe out of his house for non-payment and the lender re-sells the house. Because the home value was $250,000 when Joe bought the house, it is rather unlikely that the house will be worth much less than $250,000 when the lender re-sells the Shreveport home months or years later…
This is why a 20% down payment tends to rule the roost of Shreveport real estate lending (and lending across the country): in a worst-case scenario, the bank would only need to re-sell the house for approximately $200,000 in order not to lose any money on the deal. This 20% is therefore an amount that ensures a lender can loan money with some relative assurance that they will not lose any money if the borrower fails to make his monthly payments.
|Standard/Low Interest Rates||High down payment amount|
|No PMI (see next section)||Good credit score is expected|
|No limits on income|
Of course, not every veteran, military member, or civilian has $50,000 of pure cash-money for a down payment, either! I know I certainly didn’t have that kind of money when I started real estate investing. In order to assist Americans with the goals of homeownership, the U.S. government has created loan packages that require less of a down payment. There are other “conventional” loans requiring a lower down payment, as well as FHA Loans, and, yes…veteran home loans!
“Conventional” Loans with Lower Down Payment
The aforementioned “Fannie Mae” recognizes a program called HomeReady which allows a homeowner to purchase a home with only a 5% down payment (and in some cases only 3%). There are many regulations that must be followed when using a HomeReady loan, so be sure to consult with a professionally certified and licensed lender for details.
In short, anyone earning no more than 80% of a given area’s median income (AMI) is eligible for a Home Ready Loan. In addition, HomeReady loans are intended for first-time homebuyers, so if you owe money on another home somewhere else, a HomeReady** loan may not be allowed for you if you are going to look for houses for sale in Shreveport LA.
Finally, you will have to pay private mortgage insurance (PMI) every month until you only owe 80% of the home’s value…wait, what? What is PMI, and what is 80% of the home’s value?
**If the AMI in your region is $100,000 per year you would not be allowed to earn more than $80,000 per year and still use the HomeReady loan.
Remember, when you make a down payment of 5%, you still owe about 95% of the home’s value to your lender. We call this a loan-to-value ratio (LTV), because the lender made you invest 5% of the home’s purchase price as a down payment, and the lender gave you 95% of the home’s purchase price to cover the remaining balance.
Until your LTV reaches 80% from your monthly payments paying off your principal (the amount you still owe on the loan), your monthly payment will have an added amount of PMI which is usually a couple hundred bucks or so, depending on your loan amount.
So if you’re paying $1,100 per month towards your loan repayment (principal and interest), but you don’t have a LTV of 80% or less, you’ll be paying closer to $1,300 per month under a HomeReady loan.
|Lower down payment amount||Higher interest rates|
|Minimum credit score of 620-660||PMI payments for the first 5-10 years|
|Income limits: not all will qualify|
Overall, the benefit of using a lower down payment conventional loan such as HomeReady is wonderful: for houses for sale in Shreveport which cost $250,000, you’d only need about $12,500 cash towards the down payment on that home! (Does this still sound like a lot of money? Yes, it did to me, too—this is why VA Home Loan benefits are much better than every other loan package’s benefits.)
Federal Housing Administration Loans with 3.5% Down Payment
The FHA Loan is a non-conventional financing package which exists through the U.S. government’s Department of Housing and Urban Development. This type of loan has existed since 1934. It is important to note that the FHA does not lend you any money here…Rather, the FHA insures your loan so that your private lender can reduce the risk of lending to you. In essence, the FHA agrees to repay the lender if the borrower fails to make payments to the lender.
This does not mean a borrower gets to stay in his house if he doesn’t pay, and the FHA keeps making payments on the borrower’s behalf. Quite the opposite. The lender will foreclose on the asset, in this case the house…And re-sell the property, just like they did in the example of Joe above. However, in Joe’s case he only owed $200,000 on a $250,000 property. In this case with an FHA loan, someone may owe $241,000 on a $250,000 property!
This makes the lender’s risk much higher, and the likelihood of they lender being able to recoup the money owed much lower. As a little added insurance, the FHA promises to pay the lender a percentage of the loan amount in the event a borrower fails to make payments. This enables the lender to provide financing to borrowers with a reduced risk…the government agrees to assist the lender in the case of a borrower’s non-payment to the lender.
The borrower still loses his house, but the lender recoups the loan amount by turning the asset into yet another one of the properties on the list of houses for sale in Shreveport.
In exchange for the FHA promising to have your back in case you fail to make payments, the FHA charges you a monthly insurance fee that is very similar to PMI…However, the FHA calls it a Mortgage Insurance Premium (MIP). This monthly MIP payment requirement usually expires after 11 years. This MIP amount is generally in the similar realm to PMI, e.g., a couple hundred bucks per month, give or take**.
|Lower down payment amount||MIP payments for the first 11 years|
|Minimum credit score of 580||Income limits: not all will qualify|
|Reasonable interest rates||Loan amount limits, dependent on zip|
Similar to HomeReady, the benefit of using an FHA Loan is nice: for a home which costs $250,000, you’d only need about $8,750 cash towards the down payment on that home. Sounds good, right? Well, just hold that thought until we talk about the benefits of a VA Loan in the next section.
Veteran Home Loans: a VA Loan with 0% Down Payment
This is your #1 benefit as a military service member. Used correctly to your advantage with a good real estate agent and lender, it can be the most valuable aspect of your military service. I know it was for me.
Unlike any of the common loan packages above, since January 1, 2020, the VA Loan allows us to purchase homes for sale in Bossier City, homes for sale in Shreveport (and across the country, for that matter) with no limit to its purchase price with a 0% down payment. In addition, all of the “closing costs” (miscellaneous fees to pay the title company, lender, etc.) can be rolled into the loan amount.
With the VA Loan, we can truly purchase homes for sale around Barksdale with nothing more than a blue pen and a bunch of signatures—zero dollars out-of-pocket!
For a full run-down of eligibility requirements, please visit the official VA website. For the vast majority of us reading this book, anyone who has served for at least 90 days of continuous active duty service is eligible for VA Loan benefits. This includes those who are currently active duty military, and those veterans who have either separated or retired from active duty.
In addition, it is expected that the VA Loan user (or borrower) have at least a 580 credit score—although in some cases, applicants have their veteran home loans approved with a credit score as low as 500…Speak with a professionally certified, licensed lender familiar with these wonderful military home loans if you have any questions specific to these requirements.
Also, email me at email@example.com and I can point you to a qualified lender in your area.
How It Works
Similar to the FHA Loan program, the Veterans Administration will not be your lender for the VA Loan. The money for your home financing will be given to you by a private lender. The Veterans Administration guarantees 25% of your VA Loan, which means your lender will feel more comfortable loaning you money because they know that they should most likely be able to recoup their money if they need to.
The lender also knows that, because you are associated with the military (and if you’re lucky, with Barksdale Air Force Base), you probably have a good work ethic and a steady paycheck every month. All of these factors ensure that the lender’s risk is lower than it would be if you were not a veteran.
It’s Not Even Close: VA Loans Kick Assets Sky-High
Because of the lower amount of risk, the lender can give veterans very competitive interest rates. Indeed, VA Loans allow our lenders to offer veterans the lowest interest rates of any other loan package in America…by a lot!** For instance, as of November of 2021 the average 30-year conventional loan charged 3.625% interest; the average 30-year FHA loan charged 3.5% interest; and the average 30-year VA Loan charged 3.125% interest. Compare the differences among all options using a home purchase amount of $250,000.
**VA mortgage rates are the lowest of any mortgage program.” Lucas, Tim. 19 Nov 2021, TheMortgageReports.com.
|30-year Conventional, 20% down at 3.625%||30-year Conventional, 5% down at 3.625%||30-year FHA, 3.5%||30-year VA, 3.125%|
|Interest Paid over 30 years||$128,358||$152,424||$148,746||$135,538|
Let’s compare the various loan packages and note the following:
The 30-year conventional loan with a 20% down payment is competitive against the benefits of a VA loan, with one exception: the homebuyer would have to spend $50,000 in cash at closing in order to purchase the home using the 30-year conventional loan. Think of the opportunity cost involved with spending $50,000 cash on something when we could put that money to better use with home improvements, 10 to 15 really nice vacations, or other forms of investment!
If you’re moving to the area around Barksdale AFB, Louisiana, please know that you can work with a fellow veteran who is also a Shreveport-Bossier real estate agent with much understanding regarding VA Home Loan benefits to assist you as you search for homes for sale in Shreveport, Bossier City, Benton, and Haughton.