What are the benefits of being a first-time home buyer when using the VA loan?

My name is Evan Kaufman, and I’m your VA loan originator, here to help explain.

So, if you’re going out to buy a home and this is your first time doing so, and you’re debating on using a VA loan, congratulations! It’s a fantastic loan product that can work well for most folks; we deal with them all the time.

Now, if you’re buying a home for the first time, there is a benefit when utilizing a VA loan. Let’s say, especially if you’re active duty or do not have VA loan disability compensation, which we’ll touch on here in a minute.

So, if you happen to be active duty or you’re a veteran that doesn’t have the VA disability compensation, then a big plus of being a first-time buyer when using a VA loan is that means most likely you’re going to have the lowest VA funding fee.

So, the VA charges directly to you a VA funding fee at the time of closing, and the whole purpose of that is to give you the benefits of more competitive interest rate, the ability to put 0% down with no private mortgage insurance, like having no monthly penalties, and the ability to do a future VA streamlined refinance, which is incredible.

But for that, the VA charges that funding fee, and if you’re putting 0% down for your first use, it’s like your first time as a home buyer, typically, that ultimately is going to be 2.15%.

Now, you could also be a seasoned home buyer and just happen to be your first use of a VA loan, that’s okay as well. But for a lot of our folks, especially if I’m talking to a lot of military families who just ended up commissioning or just ended up graduating boot camp, now all of a sudden, you’re trying to go buy a home at your first or second duty location, it’s your first time.

Mind this will typically apply for it, since your first use of the VA loan, that funding fee is lower at 2.15% versus when you’re going to use a VA loan for future uses, it bumps up to 3.3% if you’re putting 0% down.

Now, here’s the deal: if you have put money down on a VA loan, which we’re actually fans of, a lot of folks always say 0% all day long.

Well, one of our secret missions is that we want to see folks have a paid for and near paid for home by the time they get out of the military, reason being is because when you transition out, I did it myself, right?

That when you transition out and your housing payment is either less of a burden or completely eliminated, meaning having no mortgage, it helps make those decisions when getting out easier.

So, we believe that as you move from station to station, it’s possible to build up equity to make that easier. So, the deal is if you put money down on a VA loan, the VA cuts that funding fee back.

If it’s your first use, they cut it back from 2.15% to 1.5% with 5% down. On subsequent uses, they call it future uses of the VA loan because you can use it multiple times, remember that, and you can have multiple outstanding VA loans, meaning multiple active ones at a time, those are other lessons that we have.

But if it’s your future use, subsequent use after you’ve used it your first time, that funding fee jumps up to 3.3% at 0% down. But if you put that 5% down, it pulls it back to 1.5% again. If you put 10% down, they drop it to 1.25%, and that’s where your value maxes out.

If you put 20%, 30% down on the VA loan, that doesn’t change your VA funding fee; the lowest you can get it is 1.25%, unless you’re now out of the military.

Typically, it’s uncommon that we see active duty folks with it, but once you’re out, if you happen to apply and receive VA disability compensation or you had a Purple Heart, for example, that’s for some of our active duty folks, we’ve seen that where we can get it waived, or you’re a surviving spouse, then you can get that funding fee completely waived, so it’s gone.

But overall, because the point of this message is, hey, what is the benefit of being a first-time buyer with a VA loan, is that if you’re using it for the first time, you have a reduced VA funding fee if you’re putting 0% down.

And oftentimes it’s what we’ll see, especially from a lot of our active-duty members who are younger and newer into the service, it can be hard to get that 5% down to lower the funding fee. The VA kind of recognizes that and essentially, hey, for your first use, that funding fee, if you’re putting 0% down, is going to be a little lower.

But in the future, it’s going to bump up unless you start putting some money down, then that pulls out that funding fee down with it.

As we always say, it’s ideal that after your first or second assignment, it’s ideal that you start being able to put at least 5% down to drop that VA funding fee back to 1.5%.

But again, if you have VA disability compensation, remember, funding fees is completely eliminated.

So, hopefully, that just points out one of the big benefits of using a VA loan on your first use. That funding fee is lower than what it would be in the future. And then, on top of that, it’s just the VA loan in general, which has a whole lot of benefits: a more competitive interest rate, we typically see it beating conventional loans in every case, unless you are putting a large down payment, maybe doing a 15-year mortgage, sometimes that can change it.

But typically, VA loan interest rates going to be significantly more competitive. You don’t have private mortgage insurance; that’s that monthly penalty essentially for putting less than 20% down. You can put 0% down on a VA loan or 5% down and not have private mortgage insurance; very cool.

And then, lastly, you have that ability to do a streamlined refinance if rates come down in the future and we can finance you by at least half a percent, you can do so without an appraisal, minimum income verification work and all you just got to make sure is that you made your payments and you can do that refinance; pretty incredible, whereas other loan types have more stringent requirements for refinances.

So, there are benefits to the first time use of a VA loan. My name is Evan Kaufman again; hope this helps you go out there, win a home with a VA loan. Take care.