Can I Really Buy a Home With No Money Down?

Social Image Hanging Flag on Wall

It sounds too good to be true. As a member of the military, you have many benefits and one of those benefits is the VA home loan. The VA home loan is a program set up to help military members purchase a home by making a guarantee to the lender of payment up to a certain amount. Basically the VA says they will still repay the lender up to a certain amount in the case you default on your mortgage. This reduces the risk of the lender and serves the same purpose of a down payment allowing you to acquire a home with nothing down.

To be eligible you must meet certain criteria but if you served in the military for more than a few months then you should be good. First, you must obtain a certificate of eligibility from the veteran’s affairs. This can be done a few different ways but the easiest is through their website here. The certificate will indicate the amount that you are guaranteed for which will most likely be around 36000. This is not how much your loan will be for. You will be qualified for up to 4 times this amount depending on the home you are purchasing, your credit (although VA loans are usually not as strict), and other typical qualifying requirements. So if you are eligible for 36000 guaranteed repayment from the VA, then you should be qualified for up to $144000 loan. It is possible to receive a larger loan amount and varies by location.

The VA home loan is to be used for you primary home only which means you must intend to live in the home rather than buy for a family member or use as an investment rental. You can purchase a multifamily unit up to four units as long as you live in one of the units yourself because technically 4 units and less is considered residential property and 5 units and up is considered a commercial property.

Assume you buy a $100,000 house with a mortgage at 3% interest for 30 years.

Scenario 1: Total monthly spend=$1300. You save up 20% by setting aside $500 a month over 40 months while renting an apartment for $800 a month. After 40 months you buy a $100,000 home with $20,000 down and owe $80,000. Therefore you have $20,000 in equity.

Scenario 2: Total monthly spend=$1300. You buy a home with nothing down using the VA Home Loan paying about $600 a month for principal, interest, taxes, and insurance. You also use the extra $700 that you have to prepay down on your home each month. After 40 months you have a $100,000 home and owe $62,417. Therefore you have $37,583 in equity.

In scenario two you end up with $17,583 more inequity than scenario one after 40 months paying out $1300 a month. Total PT Savings=$17,583.