Category: Military

How to Get a VA Loan

What Exactly is the VA Loan?

The VA Loan is a mortgage that helps veterans finance the purchase of homes with good loan terms and interest rates that are typically better than what you would see on other types of mortgages.

VA home loans aren’t made by the VA itself, but by private lenders such as banks, savings and loans associations, and mortgage companies.  VA guarantees the loan if and when the applicant is approved. 

People often say the VA guarantees loans, but that’s not accurate.   Actually, the VA guarantees a portion of the loan.  This still gives lenders a lot more comfort in lending, because if you stop paying, there is a higher chance they won’t lose any money on the deal.

For loans over $144,000, the maximum guarantee amount is 25% of the 2019 VA county loan limit.  For most counties in the U.S., this amount is $484,350.  For high cost of living areas such as Honolulu or even certain parts of Denver, the amount is $726,525.

What’s the Most I Can Borrow?

There actually is no limit.  The issue is, are you trying to avoid a down payment?

In most cases, if you don’t exceed the county loan limit, then you can get that loan with no money down (Yay!).

Once you surpass the county loan limit, the lender will want a down payment from you because the VA will not provide a guarantee for that portion of the money.

Click here for a PDF linking to all the 2019 county loan limits

I want to be clear about this, because it’s confusing.

If you wanted to borrow $800,000 for a house in Honolulu, you might be required to put up a down payment on a VA loan, but it won’t be as big as you think. 

You wouldn’t be responsible for the down payment on the entire amount, just for a down payment on the amount exceeding the county loan limit.

$800,000         want to borrow

$726,525         county loan limit

$73,475           amount exceeded county loan limit

The lender may ask you to make a 20% down payment on $73,475, which works out to be about to be $14,695.

That’s way cheaper than paying 20% on $800,000 which is $160,000.  Ouch!

So buying a really expensive house (even a 4-plex) in Honolulu or a similar HCOL area with a VA loan may not be possible with no money down, but you might be able to do it with a small down payment. 

You CAN, but that doesn’t necessarily mean you SHOULD.  There are many factors to consider.  Often, expensive rental properties in HCOL areas do not make great rentals, and I recommend against them for military members.

Read my article Real Estate Mistakes Military Members Should Avoid

So bottom line, there is no VA limit to how much you can borrow.

You have to put a down payment on the amount over the county loan limit you want to borrow.

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The Best TSP Investment Strategy Out There

I’m sharing several options for investing in the TSP.

The Thrift Savings Plan is a defined contribution plan for United States civil service employees and retirees as well as for members of the uniformed services.

It is essentially like a 401K for military and civil service employees.

I’m not here to tell you which TSP recommendation is best, that’s a fool’s errand.

The only way to do that is to go into the future, see how things turn out, and then tell you which TSP asset allocation would have been ideal.

I will, however, give you the tools to make an informed decision.

Most of these TSP investments strategies should work well if you regularly contribute to your thrift savings plan, ensure you are getting matching if it’s offered, and stick with the same strategy over the long term.

I would caution against jumping back and forth between strategies every time you find something bright and shiny.  Many people erode their long term returns by “dancing in and out of the market.” (Warren Buffett)

First, it’s important to understand the five core funds inside the TSP and what they consist of.  This is important in understanding how they are used in building investment portfolios.

THE FIVE CORE FUNDS PLUS L

  • The G fund contains short term U.S. Treasury securities with no exposure to the risk of the bond or stock market

  • The F fund is an index of world-wide government, corporate, and mortgage-backed bonds

  • The C fund is equivalent to the S&P 500 index.

  • The S fund is an index of mid and small-cap stocks not included in the S&P 500.

  • The I fund mimics the MSCI EAFE Index of international stocks in 21 developed markets excluding the United States and Canada.

  • The L funds are professionally managed investment funds tailored to a specific time horizon.

 

Now we dive into each one a little more in depth before going into our TSP investment strategies:

The G fund – The Government Security Investment Fund

Pros: No volatility and backed by full faith and credit of the U.S. government

Cons:  Can barely match the inflation rate; rate based on prevailing interest rate, which is currently low

This unique investment is only available to TSP investors.  It’s rate is equal to 10-year treasuries, but their liquidity and protection from interest rate fluctuations is superior to 3-month T-bills.

The interest rate resets monthly and is based on the average of U.S. treasuries with a duration of 4 year or more.

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