By: Sarah Tessier
Added: 17th January 2020
Owning a home is a long-standing benchmark for having achieved the American Dream. It is only natural for American veterans to want to participate in this fundamental aspect of living in the U.S. After touring the world on behalf of their homeland, veterans are likely seeking the stability and roots-building that home ownership offers compared to renting.
Home buying is often stressful, even those who have already owned a property. Since veterans spend a great deal of their time traveling, it may add to the stress that can accompany the process.
It may help to explore some tips and resources when it comes to investing in a property. From deciding on a geographic location, determining financial matters and understanding the local real estate market, veterans may need some up-to-date ideas.
Types of Financial Options Available to Veterans
Financial advisors and real estate agents understand how important it is to help veterans find the right property. When it comes to financing the purchase of that property, they may need the reinforcement of an impartial financial advisor to answer questions and ease the process.
Financial advisors understand that veterans are a crucial factor in home buying demographics and strive to make the process easier. Financial professionals help veterans navigate issues that include identifying and avoiding predatory lending schemes and managing the financial issues that often accompany the transition from military to civilian life.
Ideally, veterans start saving for their dream home as soon as they join their branch of the armed forces. One frequent recommendation from financial advisors is that military personnel start a comprehensive savings plan as soon as possible in their military career.
Deployment is not an obstacle since the Department of Defense offers a special Savings Deposit Program. With this, military personnel can invest up to $10,000 for a 10% return once overseas for 30 days. Even better, they can collect interest for an additional 120 days after return to the U.S.
Once veterans begin to explore the financial opportunities available to them, they will find reasonable financial solutions that fit their circumstances.
Take a closer look at a few of the best financial options available to veterans.
VA (Veterans Affairs Loan)
The U.S. Department of Veterans Affairs (VA) offers assistance to eligible service members, veterans and surviving spouses of service members who want to become homeowners. VA works based on the mission of serving those who served the U.S. and provides a loan guaranty benefit and other home buying and housing-related programs. These programs allow veterans to buy, build, repair or adapt a home to those who intend to occupy it.
Private lenders that provide home loans for veterans include mortgage companies and banks. In conjunction, VA guarantees a portion of the loan, which enables the lender to offer the veteran more favorable loan terms. (1)
VA offers a direct home loan that allows the department to serve as the veteran’s mortgage lender. Further, with a VA-backed loan, the department guarantees a portion of the loan the veteran receives from a private lender. This means that, if the loan goes into foreclosure, the guaranty allows the lender to at least partially recover some losses.
With this protective element, lenders are often more likely to offer better terms. Nearly 90% of VA home loans do not require a down payment. (2) The standards veterans must meet to qualify for this loan include having a sufficiently high credit score or seeking an updated home appraisal.
To sum up, a VA-backed loan offers the following benefits: (3)
- No down payment from home buyer unless lender requires one or the price exceeds the reasonable value of the property.
- Seller may pay the closing costs.
- No private insurance premium requirement.
- No penalty fee from the lender for early loan payoff.
- No excessive closing costs, per VA rules.
Grants and Loans Available to Veterans
There are additional grants and loans available to veterans from VA. These loans include the following:
- Native American Direct Loan Program. A Native American Direct Loan (NADL) allows for a Native American veteran, or the spouse of a Native American veteran, to seek a loan to buy, build or improve a home situated on federal trust land. (4) Financing and interest rate reduction services are also available.
- Interest Rate Reduction Refinance Loan. An Interest Rate Reduction Refinance Loan (IRRRL) works in tandem with an existing VA-backed home loan to reduce monthly mortgage payments. (5)
- Cash-out Refinance Loan. This loan lets veterans replace their current loan with a new one with better terms. (6)
State and Local Options Available For Veterans
Some states do offer financial support options for veterans who want to buy a home. All states in the nation do offer first-time homebuyer programs, available to all veterans. However, some states have developed highly specialized programs exclusively for veterans.
Here is some information about a few of the selected states and their home buying programs for veterans, active military personnel and spouses of military personnel: (7)
- Alaska: Alaska has created a program devoted to service men and women who want to buy a home and offers the State Veterans Interest Rate Preference program that features a 1% interest rate reduction on the first $50,000 of the original loan amount.
- Florida: The Florida Military Heroes Program offers veteran and active military home buyers a below-market interest rate for a 30-year fixed rate mortgage. The program features no first-time buyer requirement and requires a 640 credit score.
- Iowa: The Military Homeownership Assistance Program allows eligible servicemembers and veterans to receive $5,000 in grant money to assist with downpayment and closing costs.
- Massachusetts: Operation Welcome Home offers veterans and active-duty military personnel a 30-year fixed-rate mortgage, which includes a $2,500 credit for downpayment and closing costs.
There are also local homebuying programs in each state that make homeownership more affordable, especially in cases where there are hardships. Some cases include those where veterans cannot afford the 20% downpayment ordinarily required for a conventional loan.
The Department of Housing and Urban Development (HUD) provides a list of states in which veterans can find local programs to help ease the process of buying a home. (8)
Veteran Investment Tools
Forward-thinking veterans can start planning to buy their future home early in their military career with the right tools and strategies.
Explore a few investment tools that veterans can use as soon as they begin investment planning.
Using Other People’s Money
Using someone else’s money is an age-old strategy in finance. People do it all the time to buy a car, home, business, or to pay for college. Most homebuyers take out a mortgage for a substantial portion of the price of the house then pay it off with monthly interest and principal payments.
Even if it seems like a daunting prospect for some people when using other people’s, the investment is worth it. The veteran can stop paying monthly rental fees and start investing in their future.
Sometimes homebuyers are looking for an investment as much as they are seeking a home of their own. VA loans allow them to do this. Veterans may buy up to a four-unit house as long as it is owner-occupied. (9) These multifamily dwellings often feature separate entrances and operate as separate apartments that the owner may rent for profit.
Veterans who have made investments in the stock market or in local businesses can benefit and use the dividends to supplement and ease the financial burden of homebuying.
It is important for veterans to continually seek new information on investment strategies. There are websites that offer free information, such as Quandl and Multpl, for investing variables and stock information. (10) With some core information through books, a broker and news sources, veterans can take good care of their money in the short-term, long-term and the important homebuying process.
Investment Software and Apps
There are several software programs and apps designed and developed to help people better manage their budgets and investments. (11) Veterans should choose apps based on their potential to increase investment returns and decrease expenses to enhance asset allocation and profile.
Top Real Estate Tips For Veterans Looking To Invest
As soon as veterans know that they want to purchase a home, it is a good time to start looking for ways to invest and plan for the future. There are plenty of things everyone can do to prepare for this exciting endeavor, such as the following: (13)
- Start Saving. It is never too early to start saving for the future. As soon as veterans or active military personnel start planning for the future, especially when it comes to buying a home, it is a good time to start storing away funds.
- Explore VA Loans for the Lowest Rates. VA core homebuying loans along with several auxiliary loans for special circumstances.
- Track Credit Score. Many times, loans require a certain minimum credit score. It is important that veterans maintain a healthy credit score to make sure to avoid missing out on loan opportunities. Active duty military personnel can receive a Bright-Score report for free, which includes a credit report and tips on improving that score.
- Pay Down Debt. For anyone holding onto any debt, it helps to pay that down as soon as possible to raise one’s credit score and lower the mortgage rate. It may help to pay off credit credit cards then search for low or no downpayment loans for veterans.
- Search for a Good Broker and Real Estate Agent. It is important to have good people working on the homebuyer’s behalf. Working with a trusted investment broker and real estate can help reduce the leg work and build confidence in the process. These professionals may also help find additional solutions for veterans.
- Consider Take-Home Pay. Take a realistic look at what it is possible to comfortably pay. Veterans should limit the cost of housing—-including insurance, taxes, maintenance and utilities—-to 30% of take-home pay.
Veterans certainly deserve the chance to own a home after the service they provide to their country. Like everyone else, it is important to plan for this exciting adventure as early as possible.
Fortunately, there is also plenty of financial assistance available for veterans. Former military personnel should take advantage of resources specifically allocated for them like VA-backed loans special programs, and state and local programs.
Taking on the homebuying process is time-consuming and sometimes frustrating, but by developing a strong strategy and taking advantage of the available resources makes it much easier.