Just 10 percent of the some 5.1 million houses that changed hands last year were brand new.
But 19 percent of the veterans who bought homes in 2015 bought new, as did 21 percent of all active-duty buyers, according to the National Association of Realtors’ (NAR) first-ever profile of military buyers and sellers.
NAR trotted out the standard reasons for the strong preference for new houses among military buyers: the desire to avoid renovations and upgrades and the ability to customize. But these are the reasons all new-home buyers prefer new over existing houses.
Why Military Buyers Go New
Vets and active-duty personnel have a couple of additional reasons for buying new. One, it’s often easier to work with builders and their sales staffs and, perhaps, their affiliated loan companies or recommended lenders.
Some real estate professionals are under the misconception that working with military buyers is too cumbersome, especially when they want to make use of their GI housing benefits. Sellers, too, have an antiquated view of dealing with VA loans. But that’s not the case with a builder’s sales rep, most of who are happy to walk the extra miles for our nation’s heroes.
It’s also easier — and less expensive — to build a new house for wounded vets than it is to retrofit an old one. The kitchen and baths can more easily be fitted for wheelchairs, for example, first-floor master bedrooms are the norm and even hallways can be built wider if necessary.
VA Home Loans
Many military people don’t realize they have a housing benefit or how to it works. According to a 2010 survey by the Department of Veterans Affairs, 65 percent of the 22 million respondents said they had little or no understanding of the VA home loan program.
In addition, 32 percent said they weren’t even aware it existed and 36 percent said their lender never even discussed the VA loan option, even though a government-guaranteed VA loan is often the best bang for the military borrower’s buck.
Those numbers ring true to Louise Thaxton, a Louisiana loan officer with Fairway Independent Mortgage who is on a personal mission to make sure GIs returning from the Middle East get a fair shot at owning a home.
Thaxton, who travels the country for Fairway teaching real estate agents how to work with those in the military, finds that military buyers typically are young people who are financially inexperienced.
Tony Nigro, director of operations at the Veterans Association for Home Ownership, agrees. “It’s a travesty that so few of our eligible veterans are financing their homes” with VA loans, he says.
In some cases, Nigro says, some vets have fallen prey to “inferior, more expensive loans” by those who don’t have their best interests in mind. “But by far the biggest factor is the general lack of understanding of how the VA Loan program works.”
How Does the VA Loan Program Work?
For starters, the VA doesn’t make loans directly. Rather, it promises to pay back private lenders if a borrower should fail to make his or her mortgage payments. Lenders accept that promise as a substitute for a down payment.
The basic advantage for borrowers is that borrowers may not have to put any of their own money into the deal. The agency does not set a cap on how much you can borrow, but there are other limits.
The basic entitlement available to every vet is $36,000. But lenders will generally lend four times that amount without a down payment. Consequently, in most places, vets currently can borrow up to $417,000 without putting up any cash of their own. But the limit is higher in some high-cost areas such as Denver ($458,800), the District of Columbia ($625,500) and Honolulu ($721,050).
Of course, you can borrow more, but for every $4 dollars borrowed above the limit, you’ll be required to put down $1 of your own money, or 25 percent.
Even without a down payment, VA borrowers have to pay a funding fee, just as other low down payment borrowers have to pay for mortgage insurance. Currently, the fee is 2.15 percent of the loan amount. But it drops to 1.5 percent with 5 percent down and 1.15 percent if you put down 10 percent or more.
The VA does not set interest rates. The lender does that and the rate may vary from lender to lender. But the agency does limit the amount you can be charged for closing costs. And a savvy VA borrower will persuade the seller to cover some — or even all — of his closing costs, up to 4 percent of the loan amount. Better yet, those charges — and the funding fee — can be added to the loan amount, so the out-of-pocket costs remain minimal.
Another benefit of VA loans is that they are fully assumable, meaning that they can be transferred to your buyer when it comes time to sell, as long as the buyer qualifies.
Vets also are allowed to use their VA housing benefit on a subsequent house — say a move-up model — if their original loans are paid off or if the person assuming their outstanding loans also is an eligible veteran.
Generally, servicemen and women who were on active duty for at least 90 days from Sept. 16, 1940 to the present are eligible for VA loans. But during some periods, 181 days continuous service is required. Surviving spouses also are eligible.
You will need to show your lender a certificate of eligibility from the VA. You can obtain a COE online, in the mail or through your lender.
For more information, go to the U.S. Department of Veterans Affairs’ website and click on the benefits tab.
Lew Sichelman is a nationally syndicated housing and real estate columnist. He has covered the real estate beat for more than 50 years.