The Mortgage for the Young, Single Veteran

Funding your Bachelor Pad

So you’re young, you just got out of the military (or are still serving), and you’re single. You’re probably not even thinking about buying a house, and it could be for a number of reasons.

You may not think you need a house, or you may not want to buy a house now and have to sell it as soon as you get married (or, if you’re still on active duty, as soon as you get new PCS orders). If you’ve just gotten out of the military, perhaps you don’t want to learn the ropes of buying and owning a home at the same time as you’re trying to learn all the other aspects of civilian life.

All of these reasons make sense, but believe it or not, there’s a mortgage available through the VA loan program that works well for many young, single veterans.

It’s Called the VA Hybrid ARM

ARM stands for an adjustable-rate mortgage, and you may have heard of this type of mortgage. Let’s talk about why the hybrid ARM is perfect for the young veteran bachelor.

It bridges the gap between the cost of buying a home and renting one

Buying a house is usually much more expensive than renting at first, and it can take years and years of being in the same home to make buying a house more financially advantageous. However, as a single young veteran (or active service member), chances are you may not have years and years in your house.

So, rather than drop a huge sum that you may not have on a down payment, then pay a much higher monthly payment than you would if you were renting, you can take advantage of the VA loan program’s no-down-payment option. In other words, you skip the down payment completely and can finance the entire purchase price of the home. So if, for some crazy weird reason, you don’t have $20-$40,000 burning a hole in your bank account, you can still buy a house.

Hybrid ARMs also start out with absurdly low-interest rates. Since hybrid ARMs have an initial fixed period (usually 3 years, sometimes 5 or 7), you have that incredibly low interest rate for possibly as long as you’re going to be in the house anyway. What does the low-interest rate do? It makes your monthly payment super low. Depending on the renting and housing market, in your area, it can easily bring your monthly payment down lower than what you could get for renting a comparable residence.

It’s flexible and can work even if you’re in the house for a while

As we mentioned before, hybrid ARMs start out with an initial fixed period, where you enjoy an extremely low fixed rate for 3-5 years. The benefits for someone who’s expecting to move soon are fairly obvious, but what if you end up staying in the home? Perhaps you find that special someone and they like the house and move in. What happens when the fixed period is over? Well, for those who started their hybrid ARMs three years ago and are currently entering the adjustable-rate period, their rates are mostly dropping and some of them are staying the same. Why? Because the CMT index, which hybrid ARM interest rates are calculated off of, is very low, and is not a volatile index at all. In fact, the VA chose the CMT because they didn’t want to offer a VA guarantee on a loan based on a risk index.

Also, even if the CMT were to somehow skyrocket over the next three years during your initial fixed period, your interest rate will only adjust once per year, and can only rise a maximum of 1% each year, so if you started your loan at 2.25%, the highest it could ever rise is 7.25%, and it would take at least 8 years from the start of the loan to get there. For the record, such a worst-case scenario has never happened in the history of the CMT. While it’s quite possible that your interest rate could get to 7.25% over the life of the loan, it’s much more likely to take closer to 15 years, and it wouldn’t likely stay at the maxed-out point the rest of the loan term.

Conclusion

So, the VA hybrid ARM can make buying a home more affordable than renting even in the short term, and it has protections built in so that even if you stay in the home longer than you’re planning on, it’s potentially still a good bet for the future. These are the two main reasons why it can be a great mortgage option for the young, single veteran.

 

How Much Money Should I Plan on Putting Down?

One of the first things a home buyer thinks of or plans on when preparing to purchase a home is, how much money will need to be put down to buy the home.  From about 2003-2006, no money down loans were a dime a dozen and very few home buyers were putting money down even if they had substantial money saved up.  Well after the mortgage meltdown of 2007-2008, the 100% financing or no-money-down loans are a thing of the past; for most home buyers.

Veterans and those using a VA home loan for the purchase of their house, still do not have to put any money down when purchasing or buying a home whether getting a Texas VA loan, Florida VA loan, or any other VA loan type.  Just because veterans are not required to have money to put down and are able to borrow the full sales price of the home, doesn’t mean it is always in the veteran’s best interest.  There are reasons to consider for making a down payment on a VA loan.

VA loans do not require mortgage insurance (PMI) and this is the main reason people would be interested in putting money down on a home purchase; by putting money down you can in many cases avoid paying mortgage insurance.  So if VA loans do not require the payment of a monthly mortgage insurance, then why would a veteran want to put money down?  Below is a list of some reason or options to consider for making a down payment on a VA loan.

Reasons to consider for making a down payment on a VA loan or VA home purchase:

Make your monthly payments on your mortgage smaller.  (budgeting) By putting money down, a veteran is able to control more of the monthly mortgage payment that will be due each month.  Suppose you are buying a home for $250,000 and your rate is 6.5%.  Your monthly payment, if you did not put any money down, would be $1580.00 (PI only).  Putting down 20% or $50,000 would lower your monthly PI to $1264 and save you $316 a month.  These examples do not take into account your VA funding fee.
Pay a lower % on your VA funding fee. (lower your closing costs) The amount of money a veteran puts down on a VA purchase, will affect the amount of the VA funding fee charged by the department of veterans affairs and also has an impact on the monthly payments for the VA loan.  To fully understand how your VA funding fee will affect your VA loan please click here.  Just like a down payment will lower your monthly payment purely mathematically, a VA funding fee will also affect the final loan amount and thus have an impact on your overall monthly payment.
Emotional satisfactions of having some instant equity in your home. When a veteran doesn’t put any money down on the purchase of a home, the veteran will not have any equity in the house.  Knowing you have skin in the game and that you owe less on your home than what it is worth goes a long way in making you feel good, responsible and you also have given yourself more peace of mind.
Possible lower interest rate. Though most lenders or mortgage companies that work with veterans and do VA loans will not give lower rates or incentives for veterans that put money down, it has happened in the mortgage industry that a lender may be more willing to give a lower rate to a veteran that has shown responsibility in saving money and putting it down on the home.

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*Annual savings calculator based on 2015 monthly average savings extrapolated year-to-date.