Top 5 Mistakes Veterans Make Before Buying a Home

Top 5 Mistakes Veterans Make Before Buying a Home

Are you worried about making costly mistakes with your VA loan when buying a home? You’re not alone.

I’m Rick Elmendorf, and with 30 years in the mortgage industry and a track record of being in the top 1% of loan officers nationwide, I’ve seen plenty of veterans face challenges in the home-buying process.

Today, I’ll share the top five financial mistakes veterans make using VA benefits to buy a house. Understanding these downsides allows you to make your home purchase more confidently and efficiently.

Whether it’s your first home using VA benefits or looking to move, let’s ensure you’re prepared to avoid these common errors and secure the home of your dreams without the financial headache.

Mistake #1: Choosing a Conventional Loan Over VA Financing

Mistake #1 Choosing a Conventional Loan Over VA Financing

One common mistake I notice among veterans is opting for a conventional loan instead of utilizing their VA loan benefits. It’s a belief that conventional loans make an offer stronger due to perceived better terms or conditions.

However, while conventional loan rates might seem attractive on the surface, as of January 2025, average rates for a 30-year fixed mortgage hover around 7.01%.

30 year mortgage rates

VA loans offer benefits that conventional loans can’t match, including the possibility to waive both appraisal and financing contingencies, just like their conventional counterparts.

Unpacking the VA Benefits

Unpacking the VA Benefits

VA loans come packed with advantages tailored openly for veterans. These benefits are competitive and often surpass what’s available through conventional financing. For example, VA loans allow for the possibility of waiving certain contingencies typically required in conventional loan agreements.

This can significantly streamline the buying process, making it less stressful and more favorable to the buyer. I’ve covered this in greater detail in another video.

The Role of Your Lender

The stigma that conventional loans are inherently better than VA loans largely stems from biases held by sellers and, crucially, their real estate agents. Overcoming this requires your lender to play a proactive role.

They must ensure effective communication with the seller’s agent to emphasize the strength and reliability of your VA-backed offer. This can involve being more aggressive with financing terms and potentially waiving contingencies if your situation allows. This is one of the most important things a veteran or military member must know before buying a home.

Refinancing Considerations

If you’re considering refinancing due to high current rates, transitioning from a conventional to a VA loan can involve additional costs. Starting with a VA loan avoids these future expenses.

Mistake #2: Not Putting Enough Money Down

A common drawback I see with veterans is the uncertainty or strategy to minimize the down payment when purchasing a home using a VA loan. Taking advantage of VA loans’ no down payment feature is tempting, which makes homeownership more accessible.

However, zero money can sometimes weaken your offer in competitive real estate markets. Sellers often perceive a larger down payment as a sign of a serious and financially stable buyer, making your offer stand out.

Strengthening Your Offer with a Strategic Down Payment

Strengthening Your Offer with a Strategic Down Payment

If you’re in a position to do so, consider increasing your down payment. Even a modest 5% to 10% down can substantially strengthen your offer. This demonstrates financial commitment and integrates a built-in appraisal gap coverage.

If the appraisal comes in lower than the purchase price, you’re prepared to cover the difference up to the amount you’ve agreed upon, which can be very reassuring to sellers.

Impact on VA Funding Fees

Beyond enhancing the appeal of your offer, a higher down payment can significantly reduce your VA funding fee, especially for veterans using their VA home loan benefits for subsequent uses. The VA funding fee, which helps fund the VA home loan program, varies depending on the amount of down payment and whether it’s your first time using the VA loan benefit or a subsequent use.

For those without a service-connected disability, the funding fee can be a considerable expense. Here’s how it breaks down:

Funding Fee with down payment

Thus, putting down at least 5% reduces this fee drastically, from 3.6% to 1.65% for subsequent users, which can translate into thousands of dollars saved over the life of the loan.

Read here for a detailed guide on calculating the maximum VA loan amount.

Financial Planning and VA Loans

Balancing your immediate home-buying goals with your long-term financial stability is crucial when considering your down payment options.

Opting for a no down payment option might seem advantageous if you’re trying to preserve cash. However, if market conditions and your financial situation allow, placing a down payment could save you money in the long run on funding fees and potentially on private mortgage insurance (PMI).

However, PMI is not required with VA loans despite the down payment. This approach doesn’t just prepare you for upfront purchasing costs but also positions you better for any refinancing opportunities that might arise should interest rates fall.

Remember, every percentage point you save on your mortgage can significantly reduce your monthly mortgage payment, freeing up funds for other investments or financial needs.

Mistake #3: Saving Up Money Unnecessarily

Mistake #3 Saving Up Money Unnecessarily

A common misconception among potential homebuyers using VA loans is the perceived need to save up a substantial amount for a down payment. The beauty of VA loans is their flexible zero-down payment feature, which facilitates home buying without the upfront financial burden typically associated with conventional loans.

  • Zero Down Payment Advantage: VA loans offer the possibility to purchase a home without a down payment, freeing up your savings for other expenses.
  • Financial Flexibility: Even if your VA loan benefits are tied up in another property, you can still qualify for 100% financing on a new primary residence.
  • Strategic Use of Savings: Instead of holding cash for a down payment, consider using available funds to clear debts or bolster your financial cushion. This can enhance your credit score and reduce your debt-to-income ratio, making you more appealing to lenders.

Action Steps

Take the following steps immediately to ensure you get the best deal on your VA loan:

Don’t Delay Homeownership

There’s no need to wait until you’ve saved a large down payment with the VA loan’s no down payment feature.

Seek Professional Guidance

If you’re unsure how to proceed or have questions about VA loan eligibility and benefits, reach out. I’m here to help guide you through the process and ensure you use your VA benefits to their fullest potential.

Contact me or leave a comment below to discuss how you can use your VA loan benefits without unnecessary financial strain. Let’s ensure you’re taking full advantage of this powerful home-buying tool!

Mistake #4: Paying Off Debt Before Buying a Home

Mistake #4 Paying Off Debt Before Buying a Home

Many potential homebuyers, especially those eligible for VA loans, mistakenly believe they must clear all their debts before purchasing a home. Here’s a breakdown of why this common belief could be counterproductive:

VA Loan Flexibility

VA loans provide considerable flexibility in handling debt. Significantly, sellers can assist by paying off a portion of the buyer’s debt. Specifically, sellers can contribute up to 4% of the loan amount to cover costs not typically included in closing costs, such as paying down the buyer’s debt.

Seller Concessions

Besides standard closing costs, sellers can cover 100% of non-recurring closing costs, including fees for title work, appraisal, and credit reports. This flexibility can greatly reduce the financial burden on the buyer and make the purchasing process smoother.

Non-Allowable Fees

It’s also worth noting that there are specific fees that VA borrowers are not allowed to pay, which can be covered by the seller, the buyer’s agent, or the buyer’s lender. This further reduces the financial strain on veterans.

Strategic Financial Planning

Instead of depleting your savings to pay off debt before buying, consider leveraging these VA benefits to maintain your financial reserves. This approach not only keeps your cash accessible for other needs or emergencies but also lets you take advantage of the market conditions without delay.

Market Timing

Delaying a home purchase to pay off debt might mean missing out on favorable market conditions. Interest rates fluctuate, and waiting could result in higher rates or increased home prices due to market appreciation. The best strategy often involves buying sooner rather than later, especially when conditions are right.

Mistake #5: Not Interviewing Real Estate Agents

Mistake #5 Not Interviewing Real Estate Agents

One critical oversight many buyers make, particularly those utilizing VA loans, is not taking the time to interview real estate agents thoroughly. Here’s why and how you should approach this step:

Experience Counts

When selecting an agent, asking about their experience with VA loans is crucial. Inquire about how many deals they’ve handled in the past year that involved VA financing and military families. A good benchmark?

I have managed 20 VA deals in the last 12 months, which is a solid indicator of expertise in handling the specific needs of veterans.

Why Experience Matters?

Agents experienced in VA processes can be very crucial. They understand the nuances of VA loans and can advocate effectively on your behalf. This expertise is vital during negotiations and when interacting with sellers who may be less familiar with the benefits and processes of VA loans.

Local Lenders vs. VA Knowledge

The misconception that a local lender offers advantages simply due to geographical closeness is common. However, being local offers no real benefit in the context of your transaction. What truly matters is having a lender proficient in VA loans and who can effectively communicate this expertise during your deal.

Bonus Tip: Don’t Use a Credit Union

Many veterans come with pre-approvals from credit unions, which historically were seen as a go-to for military families. However, it’s important to recognize their limitations.

Many credit unions don’t operate over weekends, which can be problematic since real estate transactions often require timely communications. Their staff may also lack the specialized knowledge needed for VA loans.

The significance of having a VA-knowledgeable lender cannot be overstated. Unlike local lenders whose physical proximity adds little value, a lender with deep VA loan knowledge can facilitate critical discussions with the listing agent to enhance the attractiveness of your offer.

Ensure that both your loan officer and real estate agent are experienced and can conduct professional, persuasive conversations with the seller’s agent. This ability can make a significant difference in competitive situations.

Final Words

And there you have it. My rundown of veterans’ top five financial mistakes when purchasing a home using their VA benefits. I hope this discussion has well-lit some key points and given you the tools to navigate your home-buying journey more effectively.

Remember, knowledge is powerful and significant when maximizing your VA benefits. Don’t just go with the flow. Make informed decisions by understanding all your options and the potential drawbacks.

Whether choosing the right type of loan, understanding the impact of your down payment, or selecting the best professionals to stand by your side, every choice matters.

If any part of this has sparked questions or you feel unsure about your next steps, don’t hesitate to reach out. I’m here to help guide you through the complexities of the VA home-buying process.

Drop a comment below, or better yet, schedule a time to chat with me directly. I’m always ready to help a fellow veteran in their journey to homeownership.

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