If you're like most Veterans, you've earned VA home loan benefits serving our country. You want to buy a place for your family to call home, but the competition is fierce. It’s a seller’s market, which means inventory is low and demand is high. To add insult to injury, prices keep rising. If you’ve already started house hunting, you may have noticed that sometimes new listings are sold at or above asking price before you even get a chance to see them. With a little strategy, Veterans can use a VA loan to score the home of their dreams.
More Flexibility with a VA Loan
VA loans have a unique set of features not found together with any other mortgage program. If you know how to use it, your benefit may give you more flexibility in a bidding war. Use these VA mortgage features to your advantage:
- $0 Down Payment Up to Loan Limits (with full entitlement)
- No Private Mortgage Insurance (PMI)
- Straightforward Qualifying
- Lower Interest Rates on Average than other programs
With all the amazing features of VA loans, most Veterans are drawn to the zero-down-payment offering of the program. In fact, about 90% of all VA purchases have been made without a down payment since the program started in 1944. The VA generally requires a funding fee to close a loan, and some borrowers are exempt.
To compare apples to apples, look at the average down payments of two loan programs. A standard conventional loan requires a 20% down payment. The average down payment on a VA loan is just 2%. The following graph helps you visualize the average loan-to-value (LTV) percentages and down payments for both programs:
SCORE: Leverage the zero-down-payment feature for little or no down payment, and you may find yourself with more negotiating room than a competing prospective buyer who has to bring a higher down payment to the table.
Stay Open Minded About Homes You’ll Consider
Starter homes are sparse in today’s market. According to Trulia, homes available for the average first-time homebuyer saw its sharpest year-over-year decrease in three years—down 12.1%.
First-time buyers often gravitate toward the smaller, more affordable homes. Repeat buyers tend to go for dwellings with room to grow. But the market is changing. According to the National Association of Realtors (NAR), the 2017 market has more young, first-time buyers. In fact, 61% of first-timers are under the age of 35. What’s more, millennials don’t want starter homes or fixer-uppers. Many want bigger homes with all the bells and whistles, like big yards in safe neighborhoods. To get all the features they want, more first-time buyers are looking to suburbia, for bigger, more affordable homes.
If you had your heart set on a starter home, just realize they are in short supply. It’s not a bad idea to be flexible about the kind of home you see yourself living in. Some of this may come down to what you can actually afford. Sometimes all it takes is widening your search area slightly to see larger homes in your price range.
SCORE: Expand your options by seeing listings outside your original target neighborhoods. You may find more house for your money, and more of the features you want, in suburban areas.
Use Low VA Interest Rates to Your Advantage
Historically speaking, VA interest rates are very low. Ellie Mae’s monthly Origination Insight Report indicates that 30-year conventional rates have ranged between 3.81% and 4.48% from February 2016 to February 2017. VA loans have had consistently lower rates ranging from 3.52% to 4.08% for that same one-year time frame. Check out this interest rate comparison graph using average 30-year note rates reported by Ellie Mae:
SCORE: Veterans using their VA home loan benefits to buy a home can expect competitively low VA mortgage rates, which can, in turn, allow them to qualify for “more house” than they might be able to buy at a higher rate. This can also be useful in a bidding war.
Beat Other Buyers to the Bid
Real estate markets are moving fast. The old adages “he who hesitates is lost” may really apply here. You might lose a home you love to another buyer is you wait too long. According to NAR, homes were on the market for an average 68 days in March 2017. That’s nine days fewer than this time in 2016. And in real estate hot beds, you may find that before you even cross the front door threshold of an open house, the home is already under contract. In San Francisco, for example, homes were on the market for an average 25 days in March.
Check your local multiple listing service (MLS) every day for new listings. If you’re using a real estate agent, they may even hear of listings before they hit the MLS.
SCORE: Get prequalified for your VA loan so you’re prepared to act fast when a home you like comes on the market.
Consider Getting Into a Home Now In Case Prices Rise
NAR reports that the median home price rose above $250,000 for the first time. At $260,000, the median price is 8% higher than a year ago. This can be good news or bad news depending on your perspective. If you’re ready to buy, it may be smart to act now should prices go up.
SCORE: Get into the homeownership game as early as possible to benefit from values appreciating, which usually goes hand-in-hand with high demand.
Use your VA loan benefits, remain flexible about your price range and strike when the listing is hot. These can all add up to good home-buying strategy for Veterans and military families.
Fill out our quick online form to see if you prequalify for a VA loan.
