Buying a home with a VA loan has tons of benefits but the main one is probably the no down payment feature. The home loan program helps active duty as well as veterans own a home more quickly without having to save up for a hefty down payment. Yet this same benefit can also have a negative impact. How so? A no money down deal, VA or any low down payment program for that matter, may be difficult to get out of when trying to sell in the short term.
For example, say you made a fair offer on a home near base for $200,000. The appraisal came back and agreed with you and the seller and the property appraised for $200,000. You also rolled in the VA funding fee of 2.15%, or $4,300. Three months later, it’s PCS time and guess what? You’re moving to the other side of the country. You need to either rent the home out or sell it. In this situation, it’s best to rent. Why?
Say in three months you put the home up for sale and the market has been pretty much the same, maybe a little better but you need to sell quickly so you list the home for the same amount as you paid for it. In a couple of weeks you get an offer for the asking price of $200,000 and you close in 30 days. So far, so good, right? You sold the home for the same price you paid for it and you’re closing soon. But the problem has not been solved. There are closing costs associated with selling your home and you’ll have to pay for them. What sort of costs?
Let’s say you negotiated a 5.00% commission with an agent to sell your home. Title insurance also added up to $2,000 and other fees such as escrow, document recording and attorney fees among others. All said, your closing costs add up to $12,800. You have to pay off the old mortgage when you close and it’s just a nudge below $200,000. In this example, just to get out from under the note and sell the home free and clear you would have to write a check for somewhere north of $12,000 for the privilege.
If you’re not sure you’re going to own a property financed with a VA loan, it might be best to rent for a while instead. When renting, all you need to do is present your PCS documents noting your transfer to your property manager and you can get out of your lease without penalty. The no money down feature is great, but not all the time.