VA Loans: Everything Military Veterans Need to Know | Military Money Manual Podcast Episode 40

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Active duty, guard, reserves, and military veterans are all eligible for VA loans if certain conditions are met.

I built the VA Loan Ultimate Guide to explain the confusing VA loan process.

1. What is a VA loan?
2. How to determine if you are eligible for a VA loan?
3. How to get a VA loan Certificate of Eligibility?
4. What credit score do you need for a VA loan?
5. What is the VA loan process, from start to finish?
6. Who are the best VA loan lenders?
7. What is a VA cash-out refinance loan?

In this episode Jamie and Spencer explain everything you need to know about VA loans and how to use them for maximum benefit.

Military Money Manual Podcast Episode 40 Links

• Free 5-day course to maximize your travel benefits and learn all about military credit cards
• The Military Money Manual book
• Military Money Manual article MLA Database – Military Lending Act 2022
• Episode 19 How to Get Chase and Amex Annual Fee Waivers
• Episode 30 VA Home Loans with Rich Carey from “Rich on Money”
• http://ebenefits.va.gov

Outline of Episode:

• A listener question about an active duty service member and their military spouse applying for two separate credit cards under the Military Lending Act 
• What is the VA Loan?
• Who is eligible? 
• What documents do you need when applying for a VA loan?
• What kind of home can you buy with the VA Loan?
• Is there a loan limit? 
• Starting to process 
• Tips when applying on an online mortgage finder or calculator
• Can I use VA loans to buy an investment property?
• Is it wise to put no money down on a mortgage?
• Jamie’s personal experience using a VA loan
  • Funding fees
  • Appraisals 
  • Inspections
  • Competition in the market
  • Potential downsides of using a VA loan
• The commitment of a mortgage and the potential challenges for military members

Military Money Manual Podcast Episode 40 Transcript

[00:00:00] Jamie: Just remember that buying a home might not always be the best option. I know there are times when the rental market is so crazy that it seems like it's your only option, but remember that when you buy a home, you're responsible for all the repairs, all the maintenance, all the HOA dues, the air conditioner goes out, the roof starts leaking. You have to fix that.

[00:00:16] Spencer: Hey everybody, Spencer Reese here from militarymoneymanual.com. I'm here with my co-host, Jamie, to present today's episode on everything you need to know about the VA loan. If you have any questions or feedback, you can send those to us on Instagram @militarymoneymanual or email info@militarymoneymanual.com.

[00:01:00] Jamie: Hey Spencer, before we get started, we got a question from Whitney I wanted to share. Whitney joined the free Ultimate Military Credit cards course that you host at militarymoneymanual.com/umc3. 

And Whitney writes, “Hi, I love your content and I'm excited to get to earn more travel rewards. We already have a Chase Preferred card and love all the benefits, but we just have one card and both my husband's and my name are on the account. When you say to get a card for you and your wife, is that applying for two separate cards?

So Spencer, what do you think about Whitney's question?

[00:01:40] Spencer: Yeah, it's probably the most common question I get from people who take the course. So maybe I need to add a little bit more information in the course about it. Yes, that's exactly what I mean when I say open up a card for you and your spouse is opening up two separate accounts.

Don't add the other person as an authorized user and make sure you use a referral link as well. So to be crystal clear, Chase and American Express waive the annual fees for civilian spouses married to active duty service members, and they also waive the annual fees for military service members. So there's, you can think about it either way, but it's a benefit that's extended to military spouses under the Military Lending Act or MLA.

So if you go to my website, militarymoneymanual.com/mla-database, or just Google Military Lending Act database, Military Money Manual, or anything like that. I've got an article up there that lets you check your social security number in the MLA database and if it returns a positive hit meaning that you are eligible for Military Lending Act benefits, then you as a civilian spouse are going to get your annual fees waived on your own separate account, and that's the way to maximize the benefits and to double dip all the military benefits.

Yeah. If you go back to episode number 19, we have all the details about getting your Chase and American Express credit card annual fees waived then, like I said, I've got that MLA dash database article on my website as well to get some more details on how to get the fees waived.

[00:03:08] Jamie: Great. Thanks, Whitney, for listening and for taking the course, and for sending in that question.

One more reminder before we dive into today's episode. If there is a friend or coworker that you think you could share this podcast with this week and help grow in their personal finance journey, we would greatly appreciate it and help the podcast grow and help the content reach more people who are interested in taking this journey alongside us.

I think they would appreciate it and we would as well, and get them hyper-focused on the military financial independence content. As always, this podcast episode today is for informational purposes only. Neither of us is an investment advisor or tax professional or anything like that, mortgage professionals, and nothing in this episode constitutes investment advice today.

Spencer, our topic let's talk about pretty broad sense. First, let's talk about the VA loan. What is the VA loan?

[00:04:01] Spencer: So the VA loan is a benefit available to active duty service members, military veterans, and then some military spouses. It's basically a loan, a mortgage that you can get with little or no money down for the borrower.

It's not actually lent by the Veterans Administration or the VA. It's a benefit that you own by being a military veteran and it's guaranteed by the VA, but the VA is not actually lending any money. The way it works is if you go and get your certificate of eligibility from the VA website, and we'll talk about that in a minute, it's going to say your eligibility amount is $36,000 on $144,000 loan.

If you do the math really quickly there, that's 25% then if you look in the fine print of the certificate of eligibility, it says that the VA will guarantee up to 25% of the value of any loan over $144,000. So because the lender has that 25% guarantee from the VA, they can offer you a mortgage with no money down, and they know that if you default, they would be able to go to the VA and at least reclaim 25% of the value of the mortgage if they had to foreclose on the property.

The key thing here is that the VA is not actually lending any money. The money is lent by the lender. So whether that's a bank like Navy Federal Credit Union, or USAA or a mortgage company like Veterans United or Rocket Mortgage is another really big one. They're the ones who are actually lending the money, and the VA is just providing the guarantee that you or they will repay in case of foreclosure.

[00:05:44] Jamie: Yeah, so it's just a different type of mortgage that a number of different institutions may offer, but not all of them may participate in the VA loan program, but you can basically take the VA loan and take it to any mortgage company that offers VA mortgages compare rates. Some of them might have better rates than others or give different credits or points towards closing or things like that.

Right now you're not really getting many benefits as a buyer. The VA loan is just one product that a bunch of different banks offers as a type of mortgage.

[00:06:19] Spencer: Yeah and like you said there, it's really important to shop around. I know we are almost in the middle of 2022 and inflation and interest rates rising is on everybody's mind.

But just a couple of years ago, people were getting loans for 2% or 2.5%, and it's just really important to shop around and compare. The mortgage rates that you can get from the different lenders, and then also read the reviews online and see, who has an easy experience and who has a more difficult experience and then make the choice. I would find the top-rated VA loan lender out there who is offering the best rate, and then that's who I would go with.

[00:07:01] Jamie: Yeah. You mentioned earlier a little bit about who's eligible for the loan. Can you clarify what it takes to be eligible for a VA loan?

[00:07:10] Spencer: Sure. So, actually, the requirements are pretty basic. If you serve 90 consecutive days of active duty service during wartime, you're eligible.

If you've served 181 days of active service during peacetime, you're eligible. If you've been in the National Guard or Reserves for 6 years, you don't have to be activated, you just have to be in the National Guard or Reserves. So that's a great benefit right there. If you're a weekend warrior doing your 2 weeks a year and a weekend every month, that's a great benefit right there after you've been in the National Guard or Reserves for 6 years to access the VA loan.

And then finally, if you're a spouse of a service member who died in the line of duty or as a result of a service-related disability. Then you are also eligible for the VA loan. So that's the caveat there to allow a military spouse to be eligible for the loan without the service member.

Jamie, you actually have a unique situation.

Your wife is a veteran and you're on active duty. So both of you are actually eligible for a VA loan.

[00:08:10] Jamie: Yeah, which is unique, but there are probably several listeners that might be in the same boat of either a mil to mil couple or one's a veteran now and one's still active duty or something like that.

So that's a unique benefit where we could use up our entire entitlement at one duty station and use hers at the next duty station or something like that. If you get into the rental property game we talked about with Rich Carey in episode 30. Then it gives you another tool to look at rental properties. We haven't done that. We did use the VA loan once for our primary home when we lived in New Jersey, which we can talk about later that is unique if any of the other listeners are in a mil-to-mil situation or where one is still on active duty and one's now a veteran.

We know Spencer, when you go to get a mortgage, one of the first, or when you go to buy a house, one of the first things you do is you find a realtor, and usually they want some kind of pre-approval notice or something like that, that you can actually get a mortgage and you're going to be qualified to buy a house.

What other documentation, if any, do you need? If you want to use a VA loan or you're thinking about a VA loan to either give to your bank or to the realtor, to get the process started? When you're looking for a house that you might use a VA loan for?

[00:09:33] Spencer: Sure. So the easiest thing to do is go to ebenefits.va.gov or just Google VA ebenefits.

It's a super easy website that the VA has set up here. I actually just went and pulled my Certificate of eligibility is what they call it. So the certificate of eligibility establishes to the lender that you have entitlement to the VA loan. So if you've used a VA loan before, it'll behoove you to go log in and check and see how much entitlement you have left.

And when we say entitlement, what we're talking about is the amount that the VA will guarantee. So if you log in and a certificate of eligibility, you see the amount of entitlement is $36,000. That's full entitlement. So that's saying that the VA will guarantee a $144,000 loan. They'll guarantee 36%, or if you go read the fine print they'll guarantee up to 25% of any loan over $144,000.

We'll talk about what the upper limits of that loan could be in just a couple of minutes here yeah, so I logged into ebenefits.va.gov. I had set up my account because I recently went through TAPS to separate from the military, and so I already had an account set up there. If you have a CAC card then you can log in through there as well, I'm pretty sure 

It was super easy. It took me about a minute to log in and then 10 seconds to pull up my COEcertificate of eligibility and it's just a pdf. It has your name, and the last four of your social security number, and then it describes how much entitlement you have. So once you have that document in hand, then you're all set basically to start talking to VA lenders and then they're going to have a lot more requirements.

So they're going to see proof of income and they're going to want to see, a lot, just the normal stuff that any mortgage lender is going to want to see to give you a couple hundred thousand dollars loan in order to start the VA loan process, you can just go pull your certificate of eligibility. The other thing you can do as well, which is pretty quick, is if you find a lender that you like and you want to go with, any VA loan lender has to be VA loan approved by the Veteran's Administration and they're going to be able to pull your COE.

And all they'll need is your social security number, your name, and your date of birth then they'll be able to pull it for you as well. That's not that great of a benefit I think. Any bank can do it. So if someone is saying, “Oh, don't worry, we'll pull your certificate of eligibility for you.”

Okay, great. Thanks. That's like getting free coffee while you wait at the DMV. It's not that good. 

[00:12:07] Jamie: Yeah, it sounds great. Alright, so the VA. We talked a little bit about this a couple of episodes ago, but what kind of home can I buy with the VA loan? Am I limited to only a single-family home?

Does it have to be my primary residence? Things like that.

[00:12:25] Spencer: No. So this is something that I learned recently while I was doing a lot of research for this episode, but I always thought it was a single-family home only, but no, you can actually buy a duplex, a triplex, or a quadplex. So Rich talked about this a little bit in episode number 30 when we talked about the VA loan with Rich.

I think there's another guy out there from Military to Millionaire, David Pere, he talks a little bit about this house technique that you could buy a quadplex property, live in one of them, and then rent out three of them, and you could purchase it with the VA loan with no money down.

So that's one way there to start cash flowing immediately if you, let's say you've got three buddies that want to move out of the dorms and you're the entrepreneurial real estate mogul and you're a group of friends, this might be a great thing to do to buy that.

Just take half their BAH and then everybody lives together and has their own place and it's a nice setup off base. Another property that you can buy would be a condo, as long as it's in a VA-approved project, you could buy a home and improve it. So you could do a fixer-upper, you could buy a manufactured home or lot, so like a double-wide or a trailer.

You could build a new home which I don't hear a lot of people doing, but it is possible. Then you could also make changes or add new features like solar power. So there are energy-efficient VA loans that you can take out to improve your home then there are also refinance VA loans.

So If you have a mortgage that's not a VA loan, you can actually refinance it into a VA loan, and sometimes you can even get cash out of it too. So let's say you've paid down half the value of your home. You've built up a lot of equity then you can take a VA cash-out refinance loan and then you can take out some of that equity and invest it or use it for some other purchase.

[00:14:26] Jamie: And it can also be for a traditional single-family home too if you want just to be a more boring real estate owner, which is neat. You have so many options there. 

What about the borrowing limit? Can I borrow an unlimited amount of money from a bank in the name of the VA loan with up to 0% down or as little as 0% down?

[00:14:48] Spencer: Yeah that would be nice, wouldn't it? But no, the VA lo loan limits did increase in 2022. They actually increased by almost a hundred thousand dollars. So they went from, in 2021 about 548,000 then in 2022, they went all the way up to 647,000 that's just the standard VA loan limit.

So essentially the mortgage brokers want to be able to offload their VA loan to Freddie Mac or Fannie Mae, which are semi-government-backed mortgage entities and it's what allows the US to have 30-year fixed mortgages where like no other country in the world has the 30-year fixed mortgage rate.

But if you have these government-backed entities like Freddie Mac and Fannie Mae, then you're allowed to have these 30-year fixed mortgages because they can be there, to backstop the market. Long story long there, the standard limit is $647,000 for most US counties and then for high-cost counties.

So that would be probably like around Washington, DC, or maybe the San Francisco or San Diego area. High-cost counties go up to $970,000 for a single-family home. So pretty high loan limits there again, remember if you're going for one of these loans, it might be no money down, but remember starting that first month or the second month, you're going to have a monthly payment.

It's still a mortgage, right? It's not free money and depending on the interest rate you get too, it can be a pretty substantial monthly payment. Just note that those conforming loan limits are in effect and it doesn't necessarily represent a cap or a max loan amount. You could, if you were trying to buy a $2 million house and you had the income to support it you might be able to finance half of it through the VA loan, and then the lender would figure out another way to finance the rest of it.

[00:17:03] Jamie: Interesting. I just looked up all my previous duty stations. All of them are at the standard limit of $647,000 except for Honolulu County in Hawaii. The limit there is $970,800 is your VA limit. There you go. That's a lot. That's a lot. Obviously, Hawaii housing is expensive, but I could not imagine signing a mortgage for that much money.

You mentioned earlier how we talked about how you can pull the VA loan through a number of different lenders. What are some options I have and how do I start the process for finding a lender or a bank if you will, that does VA loans and starting the process of getting a VA loan mortgage through them?

[00:17:50] Spencer: Yeah, so like we talked about earlier, pulling that certificate of eligibility just so you have it for yourself and then just, whatever kind of financial institution that you trust the most. USAA and Navy Federal Credit Union or NFCU are always popular. Veterans United is out there as well.

They specialize just in the VA loan. Rocket mortgage is one. One thing that I would want you to do before you go out and look at mortgage rates is maybe creating a burner email. So like just have your regular email and then add VA loan@theendgmail.com maybe get a Google Voice number or a phone number that you don't use very often.

Maybe not your personal cell phone number. Because I remember when I was looking for a mortgage, and I don't think I even used a VA loan, but I was looking for a mortgage in Tacoma, Washington when we were moving there in 2012. I put my information into, I think it was Lending Tree or something.

I got 5 phone calls in a minute. These companies are hair-triggered whenever someone puts any information into any of these calculators or rates trying to get quotes on different mortgage rates. They know it's a hot lead and so they're going to call you immediately and try to say, “Hey, can we help you with this mortgage?” Because there's a lot of money to be made in mortgages.

So just maybe think about creating, like a burner email account and a burner phone number and go out there and there are tons of reviews. So Reddit is a great place to read horror stories, but also, positive reviews as well. You want to know, Is your company going to just get you the VA loan and then immediately sell it to another company, and then you have to deal with three different customer service departments?

Did that happen to you, Jamie, when you got your loan?

[00:19:56] Jamie: I don't think it did. I remember hearing stories from a friend or two where they bought it though I can't remember the bank, a normal bank. I think it was even USAA, maybe, they sell a certain block of mortgages to another company.

Then you have a new online account, a new login, and a new customer service. They don't change the terms of your contract or anything like that from under you, people usually go with USAA or Navy Federal, or someone they know for their reputation and positive customer service experience. So if you are looking with maybe a lesser known company, they might just be out there churning mortgages and just their business model is to take the initial mortgage and then sell it to another company that then rides out the life of the remaining 29 years of your loan that can just be frustrating as a customer to have to deal with a new company every year or something like that.

Yeah. What about rental properties? Can you clarify a little bit? We hit on this just briefly, but if someone wanted to make this kind of an investment opportunity, can I just go out and buy that house down the street that's for sale and use the VA loan to start building a rental empire?

[00:21:12] Spencer: So there is a way to use the VA loan to build a rental empire, but the biggest caveat is no, you can't use the VA loan for an investment property. However, you could, as we talked about earlier, you could use the VA loan for a duplex or a triplex, or a fourplex, and what are you going to do with all the other parts of the complex you just bought?

You're going to rent them out, the VA knows that you're going to do that. Yeah. So in that instance, that's okay then the other caveat is you have to when you take the VA loan, certify that you intend to occupy the property. I think it talks about, was it 60 days, like a year?

You have to agree to occupy the property or you have to intend to occupy the property. If you get military orders to PCS, then you still have the loan on that property, you're still making the mortgage payments and it would be absurd if they didn't allow you to rent out the property so you can rent out a property that you have a VA loan on as long as when you first purchased it, you intended to occupy the property, but if you're then directed to PCs, then you're allowed to rent out that home Rich Carey talked an about this like we talked about earlier in episode 30, if you want to get the details on that.

So the long answer is yes, kind of, but you can't just go out and buy an investment property. You have to intend to occupy the property.

[00:22:47] Jamie: Okay. Yeah, good point. The next question I have is about the up to 0% down or as little as 0% down. Is that a good model that fits a lot of mortgages?

Is it wise to put no money down on a 30-year mortgage? What are the downsides of that kind of approach to a mortgage? It's nice to not have the primary, the private mortgage insurance, the PMI that a normal conventional loan would have, but if you're only putting 0% down on a $300,000 home, are there any downsides of that?

[00:23:24] Spencer: It's, at the end of the day, it's still a mortgage, right? So if you don't put any money down, that means that your monthly payments are going to be higher and your interest is going to be higher. The amount of interest that you're paying is because you're just, you're borrowing more. It can be a great way if you don't have a lot of cash sitting around, you don't have a lot of money for a down payment.

It can be a great way to get into a home, but in the military especially, we're moving all the time, right? We, unless you're a Guard or Reserve you can probably expect to, to PCS at least a couple of times during your career, even if it's only four or six years or something, so when you buy somewhere that's a big commitment.

I advocate in my book, the Military Money Manual, that for most people unless real estate is a passion for you and you have the drive to be a real estate investor and a property manager, unless you have that, and if you wake up every morning, you're like, “Man, I love real estate, I love property.”

Then go for it. Get that rental property and buy that fourplex with your VA loan and rent that thing out. If you're like most people that I've encountered, it doesn't really motivate, I would say maybe 90% of people have real estate rental properties.

So long story, long again. I think it can be a good deal. It can get you into a home with very little money down, but you're still making a commitment. You're still buying a home, you're still going to have a mortgage and you're going to have, if you paid off on schedule, that's 30 years of payments. 

So if you're 30, I mean you basically, you're going to be paying that thing off until you retire. If you retired at normal retirement age, and if you are in your twenties, you're still going to be, your entire adult life is going to be basically spent paying that thing off. If you pay it off on schedule.

Most of the loans, I think all VA loans have to have no prepayment penalty. So, that is one nice thing that you could do is you could pay it off or you could pay it off early. If you have money invested in the market, you might want to keep investing in the market and maybe a 0% down mortgage makes sense for you because in the long run you're going to be making seven to 10% a year on your invested money and you don't have to lock any of it up in the equity of your home.

[00:26:00] Jamie: I think the other thing that's important to remember in this discussion is, the more you have to take out as a mortgage, the harder it is to sell that home and break even or make money when you get orders.

So if you buy a $300,000 home with nothing down, and let's say, I mean there are funding fees and different things, but let's say your mortgage amount is $300,000 and the home value is $300,000 for a simple history major level example. If you pay your mortgage payment for two years, let's say, and then you get PCS and you weren't expecting to PCS that soon, you thought maybe it was going to be a five-year assignment or something like that.

Say you still owe maybe $280,000 on your mortgage so now on top of all the realtor fees and everything, you need to make at least that when you sell the home to break, even when you make a down payment, say, on a $300,000 home, if you're able to put $50,000 down, then you start at $250,000 and then your monthly payments come out of that. Now, you only have to make, say $215,000 to break even on the home when you move. 

So we saw a lot of our friends in the 2008 timeframe or anytime there's a big market dip. It's hard to offload a house when the market crashes. So if you bought a VA loan or any mortgage really at the top of the market, you never know when the top of the cycle is.

You bought it at the top and then it tanks and you have to PCS, then that's where a lot of our friends got stuck with either short sales or foreclosures and things like that. Unfortunately, the military decides when you move, it doesn't really matter if it's a good time for the market or not.

So the down payment can help give you options when it comes time to sell. 

[00:27:54] Spencer: Yeah. So, Jamie, I'm just going to turn around now and let you talk about any downsides of the VA loan and if you have any personal experience with the VA loan. I know that you guys used one at one of your previous duty stations.

[00:28:13] Jamie: Yeah. So I'll start, let me start with the details of the loan that we did. We went through Navy Federal. This is almost exactly a little more than seven years ago now. When we moved from California to New Jersey, we bought a home in New Jersey. The sale price of our home was around $315,000.

Our rate back then was 3.25%, which doesn't really matter at all because it's different now. Basically, as we said earlier, Navy Federal does all this for you. It's either a VA loan or FHA or conventional, and there are just different products that they will offer for you to get a mortgage.

One thing we haven't really hit yet is the VA funding fee, and that is tiered, correct me if I'm wrong, it's a tiered structure based on how much you put down and Maybe even the value of the home. If you don't mind looking that up while I'm talking, but at least with how much you put down.

So in our case, we paid a 1.5% fee for a VA funding fee that doesn't go towards our mortgage. It doesn't go towards the value of the home. It's basically sunk money. So almost $4,500 there. That's just gone for the funding fee. So that could be one downside of the VA loan. Overall, it may still be cheaper, but that's something to take into calculus as well.

[00:29:33] Spencer: Yeah, so the VA funding fee for 2022. Let's see. So if you're using it if your down payment is less than 5%, then your VA funding fee is 2.3% of the total amount of the loan, but if you put a down payment of 5% or more, that drops to 1.65% yeah, like Jamie said, this is just money that goes into the VA basically to keep this program running.

And it's just sunk cost doesn't go into the value of your home or anything, but it does allow you to access the mortgage with no money down, and you can pay it in full at closing, or you can just roll it into the value of the loan as well. Yeah then just pay it off over time.

[00:30:32] Jamie: So it may work out to where the funding fee is maybe a better deal still than paying PMI especially if you don't have 20% down. A lot of times 20% down on a $300,000 home, can seem like a huge goal that you might feel like you can never meet that you save up for years and years and next thing you know, the house is doubled again in value.

It's just another thing to play into your decision calculus. Another possible downside if that's the right word about VA loans, is their appraisal. So the VA loan appraisal is definitely one of the most commonly discussed negatives I would say, about the VA loan. It's just an assessment of the property's value and the condition of the home by an independent VA appraisal appraiser. The appraisals are required for every VA purchase loan; it's not a traditional home inspection, which provides a more in-depth review of the home's physical condition. So the bank itself, the mortgage company, or the lender, may require some other things, but the appraisal is what the VA requires.

And there are two different things. Unlike the appraisal, the home inspection isn't required when you're buying a home, but many buyers do choose to invest in one because they're the typical inspector that will go look in the attic and in the crawl space and crawl around under the home, look at the foundation, and they know to look for those warning signs of, “Hey, there's been water damage in the basement,” or things like that you might not catch without a trained eye.

And then the last one I'll mention on the downsides of the VA loan is it because of all these extra requirements and the bureaucracy that's built into it can be hard to compete in the market that's hot, especially if you're going up against a bunch of cash offers that are right now going $10,000,  $20,000, $50,000 above asking price.

If you come to the table with a VA loan, they may not even pay attention to your offer at all. So those are some things I think about when I think about the potential downsides of the VA loan.

[00:32:34] Spencer: Yeah, those are all great examples. I think the VA appraisals are definitely misunderstood. A lot of people think of it as an inspection, but it's not an inspection, right?

So in the appraisal, they're looking for different things, but like termites and if there's water access, they're making sure that the heating's adequate, the roofing's adequate these are like very minimum standards, but it still takes time. I think there are 10 days that the VA assessor has to respond to it.

And like Jamie said if someone is making a cash offer and they're saying, “Hey, we got the money and all we want to do is a home inspection. We can have the home inspector there tomorrow, and then we'll close the next day.” It's really hard to compete. If you come in, and you've got the VA loan process, real estate agents might be skittish too.

If it's a hot market, then they might advise the person selling, “look, take the cash offer. Don't wait for the VA loan because we can have this done in a week versus two or three weeks.”

[00:33:50] Jamie: As you mentioned earlier, Spencer, a mortgage is a huge commitment in general, and this is not just a VA loan, but a little Jamie rant coming here, I think.

But just know that especially in the military, like you said, buying a home can be a big deal. It is a big deal and probably the single biggest purchase that most people make, especially younger service members, maybe in the first 5, 10, or 15 years of their career. So our age or younger. It is a huge commitment.

And it comes with a lot of uncertainty. Usually, we talk about how most investment professionals will say things like it takes three to five years, usually more like five years to turn around and be able to break even or start making money in a home, and military service members are lucky to get five years on station.

So remember that buying a home might not always be the best option. I know there are times when the rental market is so crazy that it seems like it's your only option, but remember that when you buy a home, you're responsible for all the repairs, all the maintenance, all the HOA dues, the air conditioner goes out, the roof starts leaking.

You have to fix that. So even if buying a home is “a hundred dollars a month cheaper” than renting a home, you have to pay attention to all those costs of home ownership, which probably means renting a home is in general cheaper. There are all kinds of fancy calculators you could probably find online that would show exactly the break even.

Should I rent or buy is probably a hot Google search item around the summertime around military bases? Is everyone PCSs, but keep in mind, the cost of home ownership is more than just the mortgage, I guess that is the takeaway I want to leave there.

[00:35:22] Spencer: Yeah, that's great, Jamie. In my book, I advocate that most military service members should rent, and buying a property should probably not be your first choice especially when you first get into the military.

my wife and I bought a condo at my first duty station after pilot training. While we made money on it was really just because we got lucky. I was only at that assignment for three years and we could have got to the end of the assignment and the market could have been another 2008, or 2009 and the market could have been flat or down.

I hated the idea of being a long-distance landlord, but that would've been the only option because we wouldn't want to have sold it at a loss. Now we were lucky we ended up selling it for a gain. What I took away from that experience was we got lucky. I didn't take away from that experience that we were some real estate investing gurus that have the market completely figured out.

No, I got out of that condo and I paid off the rest of my student loans with the money, the proceeds that we got from selling the condo that was actually the last time that we had any kind of debt, which was pretty awesome, but since then we've just rented, we've rented everywhere we've gone and it's been an amazing experience.

And now that I'm getting towards the close of my active duty career, I'm thinking about buying again. I have the freedom and the choice to decide where I live now, and I don't have to be afraid that I'm going to get PCS orders at an inconvenient time and become a long-distance landlord.

[00:36:58] Jamie: I definitely, in the instance of getting lucky, you feel great when you get a check at closing when you sell your house on the other side, but you have to keep in mind too that things like brack, the base realignment, and closure, those things happen. None of us know when that's going to happen. Or another round of sequestration.

You might think, “Oh, I'm at a huge base or a major post, it'll never go away.” Every year, Congress talks about retiring the A-10s, and like all these different things, like stuff could happen and we can't predict. What might happen, is you might think that the town that you're in is a great town that's up and coming, and then the money doesn't flow in, and the businesses don't move in as you thought. Or maybe it moves next door instead and the town that you bought in isn't the place to be any more for military families, it's the one town over. So there's a lot of uncertainty and I think the VA loan has its purpose. Personal opinion, if you're going to buy, definitely take a look at the VA loan, but don't let the allure of buying a house with no money down trick you into doing something that you're not financially ready for either.

[00:38:04] Spencer: Yeah just because there's no money down doesn't mean that there aren't costs associated with the transaction on both sides of it too. You have to figure out the buying side. You're going to be on the hook for maybe 6% of the cost, and that's not even including the VA funding fee.

And on the selling side, again, you might be on the hook for 6, 7, or 8, percent of the selling costs depending on the market that you're selling in, maybe you can get the buyer to pick up those costs, but it's never a guarantee. So real estate is a very very expensive transaction.

You don't want to be in the position where you don't have the cash to cover it, and you have to borrow even more money just to get out of owning a home somewhere that you don't want to own or that you don't want to be a long-distance landlord.

[00:39:01] Jamie: It sounds so easy and so good sometimes, and people get lucky and so they share their experiences at work about how they made money or they bought so and so your friend bought in this town and so it's a great investment, but there are so many risks to buying a home and being on the hook for that large bill especially if you aren't at the point yet where you don't have a fully funded emergency fund. 

In your book, you recommend at least three months for service members with a pretty stable job. If you're going to buy a house, you might want a little bit more, but at least three months of emergency savings. If you don't have that, then you're just asking for Murphy to move in and have something happen to your house, if you will. 

So anyway, I think that's enough about the potential risks of a VA loan.

We went over a lot of good details about the VA loan and some of the funding options and how to get it from a bank, how to talk through your certificate of eligibility, who's eligible for it, and what kind of houses you can use the VA loan for. 

Any other kind of closing thoughts? Spencer? 

[00:40:23] Spencer: Nope. Just want to say thanks again, listener for joining us today on this episode on VA loans, and episode 30 was our discussion with Rich Carey. More of a real estate investing episode, that one. This one's more about just the nitty gritty of the VA loan, how to get your certificate of eligibility and how to think about going about the VA loan process.

In Rich's episode 30, he talks about how he had 20 rental properties before he retired from active duty. I think the most he paid for one of them was like $60,000. So it's a pretty crazy story. Pretty incredible success story there of an active duty real estate investor.

But for every Rich Carey out there, there are probably 20 Spencer Reese's that just got lucky on one condo. I've kept my mouth shut about it because I don't think I'm a real estate investing genius.

[00:40:57] Jamie: Exactly. If you do have any questions or feedback on this episode or any other topics that we've talked about, remember you can message us on Instagram @MilitaryMoneyManual or email us at info military money manual.com.

If you do want to support what we're doing here on the podcast, please remember to go check out Spencer's book, The Military Money Manual. It's available now on Amazon Prime with free shipping. Also available as a Kindle ebook or on Audible remember, you can use your Amex Platinum audible credit and support that way or directly from militarymoneymanual.com.

Thanks again for listening. We'll see you on the next episode of the Military Money Manual podcast.

[00:41:34] Spencer: Thanks so much for tuning in to this episode of the Military Money Manual Podcast. If you are enjoying the show, please feel free to rate, subscribe and leave a 5-star review wherever you listen to your podcast.

This helps others find the show and we really appreciate it. Thanks again for tuning in and we'll catch you in the next episode.