Once upon a time, in a land far, far, away, there existed a magical kingdom where every citizen had the opportunity to realize the dream of homeownership. The banks in this magical kingdom were so benevolent and of such unparalleled generosity that they designed home loans to fit the needs of every citizen, regardless of credit or job status. Many citizens were able to purchase the homes of their dreams, even with little or no “gold” as a down payment.
The citizenry of this magical land lived blissfully for many years, until, one fateful day, the evil credit default witch appeared in front of the king and said, “Many years ago, when your land was in the midst of drought and famine, we made a deal. I provided easy access to the gold you needed to grow your banks and build up your kingdom. But you lent this gold too freely, and have jeopardized my investment.”
With that, the witch cast a dark cloud which hung over the land. Almost immediately, the citizens found themselves unable to make their payments. Banks began to close their doors and all the homebuilders were forced to slash their prices to try and make ends meet. The king watched gloomily over his lands from atop his castle tower and remarked to the queen, “The irony, my queen, is that homes have never been more affordable and yet, unaffordable at the same time.”
The queen considered the kings words for a moment, then remarked, “Truer words hath never been spoken, my king, unless of course, one is a veteran.”
For most of us, the days of 100% financing for home purchases are gone. For veterans, the VA purchase program still makes this possible. In some areas home prices have fallen by more than 50%. Veterans with active VA eligibility have a unique opportunity to take advantage of this perfect storm of low prices. Analysts agree that this is one of the greatest buyer’s markets in history. In many markets, those with access to financing (i.e. veterans) can name their price. For example, last month I helped a veteran in CA buy a home for $290,000 that once listed for $630,000. When the VA appraisal was finished on the home I could hardly believe what I saw. The home was 4300 square feet with hardwood floors, granite countertops (kitchen/baths), crown moulding, wine closet and (drum roll please) a fully landscaped backyard with a custom pool and spa.
If a veteran were to buy this home using the VA purchase program they would be able to purchase the home with:
- 0% down
- No mortgage insurance
- No closing costs (assuming an easily obtained seller credit/concession)
The VA purchase program allows veterans to take advantage of the same breadth of loan programs available on the VA IRRRL (Interest Rate Reduction Refinance Loan) or “VA Streamline” program. These loan programs include:
- VA 30 year fixed loan
- VA 3yr Hybrid ARM or Adjustable Rate Mortgage
- VA 5yr Hybrid ARM or Adjustable Rate Mortgage
If you’ve read any of the earlier posts on this blog, you’re probably already aware of the benefits of the most popular VA loan program right now, the VA 5yr Hybrid ARM. The veteran I referenced on the aforementioned purchase in CA was able to get into the home with the following payment breakdown
- $1393.01 + Taxes and Insurance on VA 5yr Hybrid ARM at 3.875%
- Taxes: $303
- Insurance: $130
- Total Payment : $1826.01
We are talking about a payment of $1826.01 on a home that was once financed with a payment of $4500+.
While a payment of even $1826.01 on a VA Hybrid might be out of reach for many veterans, the point is still valid. Veterans who know that they will be living in an area long enough to justify a home purchase should consider the benefits afforded by the VA purchase program. For now, VA guidelines have remained flexible enough to accommodate most veterans. However, Low VA Rates encourages all veterans to consult with a VA loan specialist prior to qualifying in order to determine payment tolerance. There is a significant difference between what one can qualify for and what one can comfortably afford. This doesn’t necessarily mean that a veteran should exclude the possibility of a VA purchase, it just means that they need to be more realistic about their expectations.
There is an old adage that says in real estate, the only rules are “location, location, location.” I might argue otherwise. Any location can be a good deal if the price is right. If prices are informed by the market, and we can accept that the market is an abstract entity that adjusts over time, then a more apt rule might be that real estate is all about “timing, timing, timing.” To paraphrase the queen, “Truer words hath never been spoken, especially if one is a veteran.”