There seems to be a steady expectation that everyone can find a house perfect for them, so long as they are prepared, patient and practical. However, many also soon learn that this perfection is fleeting. The house that comfortably fits two newlyweds becomes cramped beyond belief with a family of five, and so begins the search for the new perfect house.
Redfin CEO Glenn Kelmen calls this “moving up,” and he says now’s the time for those considering it. In fact, Kelmen suggests the most common mistake homeowners make in the process is waiting until their current property value increases before moving up.
Whether it’s a need for more bedrooms, storage space or even a backyard for the kids to play in, 1 in 3 growing families are unable to buy because they lack a sufficient down payment, according to Integra Realty Resources .
Fortunately, a fantastic benefit of the VA loan benefit program is the ability to purchase with no money down, meaning service members and veterans could bypass this traditional barrier to homeownership. There’s also no maximum on how many times a veteran can use the home loan program, so many veterans may have the option to obtain a second VA loan.
Entitlement: What It Is and How It’s Used
Veterans and active military members who meet the program’s service requirements have what’s known as VA loan entitlement. This is a specific dollar amount the VA promises to repay to a lender if the veteran defaults on the loan.
Qualified borrowers have two levels of entitlement, a portion of which is applied whenever a veteran purchase a home. Depending on how much is left over, it’s actually possible to retain and rent out that first home and purchase again with no down payment. One of the most common examples is when an active service member purchases a home at one duty station and then has to PCS to another.
Entitlement is a concept that even confuses people in the mortgage industry. Check out this post from VA Loans Insider for a more in-depth look.
The bottom line is that when it comes to “moving up” the homebuying ladder, current VA homeowners may actually be able to capitalize without having to sell their current residence.
Selling and Starting Fresh
Veterans looking to move up are more commonly going to sell their current home rather
than try to keep it. Generally, in these cases buyers don’t have to worry about how much entitlement they have left. That’s because once the house is sold and the loan is repaid veterans can seek to get their entitlement amount fully restored.
For example, let’s say you purchase a home for $144,000. Since the VA insures a quarter of the loan, you’ve likely got $36,000 of your entitlement tied up in the property. Once you sell that property and the lender is made whole, you can file paperwork to get back the $36,000 used on that first purchase. At that point, veterans looking to “move up” can do so with their full entitlement intact.
While deciding to rent or sell is just the beginning of the process in securing a second VA home loan, it’s perhaps one of the most vital steps in “moving up.” Without the stress of saving up for a hefty down payment, the VA home loan gives military members and veterans an advantage in an otherwise uncertain housing market.
Your VA home loan benefits are not a one-shot deal, whether you’re a Vietnam veteran, an Air Force reservist or currently serving our country in Afghanistan or other points abroad. The VA Loan Guaranty program was created to make homeownership more accessible to our service members and their families. Since 1944, the Department of Veterans Affairs has backed more than 18 million mortgages. This is a benefit that binds generations.
It’s also a benefit that continues throughout your life. Anyone who tells you this is a one-and-done program doesn’t understand the basic foundations of the VA home loan.
VA borrowers who sell their home and pay off the mortgage can seek to have their full entitlement restored. We wrote about Restoration of Entitlement a couple months ago. When your full entitlement is back on the books, you’ll have the same purchasing power you did on that first home, depending, of course, on your overall financial health.
Entitlement is one of the more confusing aspects of the VA Loan Guaranty program for borrowers and even mortgage industry folks. You can talk with a loan specialist at 888-212-1958.
Feel free to send me any questions you have via the VA Loans Insider Facebook page. You can also email me at firstname.lastname@example.org .
Photo courtesy of gurdonark