Expedia, an online travel service, was launched as part of the Microsoft Network on October 22, 1996, and was the first online travel service to be launched by a technology giant.
The travel company not only allowed customers to browse through an online multimedia travel guide, but also make hotel, car, or air ticket reservations online.
Richard Barton was responsible for the creation of CD-ROM travel guides for Microsoft at the time. As the CD-ROM market started losing popularity, he approached CEO Bill Gates with the idea of selling travel online, which the latter approved readily.
By November 1996, Microsoft was running full-page advertisements in leading publications, encouraging the public to use the newly-launched service.
In March 1997, Microsoft claimed to have booked over $1 million in hotel and airline reservations within a span of a week.
By 1998, Expedia had expanded its operations to the United Kingdom, and by 1999, in Canada, Australia, and Germany as well. By 2001, these operations were extended to Italy, Holland and France, and in 2002, the company was spun off.
Now a part of USA Interactive, Expedia offers a military discount to show appreciation to verified members of the military, past and present, with a service called Expedia+Gold Status. Let’s take a look at this offer.
Military Discount Policy
Exclusive for the members of the military and their families, Expedia offers great discounts on top of their already impressive travel deals.
In appreciation of their service, Expedia offers members of the military, including veterans, retirees, National Guard, reservists, and personnel on active duty exclusive discounts.
Expedia has not released the exact details of this year-end’s offer yet, so we will take a look at the offers from July of last year to get an idea of what could be offered.
To eligible members, Expedia offers complimentary room upgrades upon availability. It also offers exclusive amenities at over 2,000 VIP Access hotels.
Eligible servicemen can also earn 30% more bonus points for their bookings. They get access to member rates and get an exclusive 10% off on select hotels. You also get access to exclusive travel offers.
Expedia uses the services of SheerID, a firm that performs binary verification against authoritative data. It has no need for sensitive data such as a Social Security Number.
SheerID can check the authenticity of personnel on active duty, retirees, and veterans, whether they are from the National Guard, reservists, or registered dependants.
Does the Discount Work with Coupon Codes?
Expedia doesn’t clearly state a policy on coupon codes on its Military Offer page. But usually, these discounts do not work during an ongoing special event or with any other special rates, and it’s unlikely the Expedia military discount would be an exception.
Who Is Eligible?
Personnel on active duty, retirees, veterans, reservists, or National Guards and spouses or dependents of the military family are eligible and required to provide all the proper identification to take advantage of the Expedia discount.
Just like a lot of companies that offer military discounts, with Expedia, too, you can choose from a selection of identification proofs.
In the same way, all the family members would also have to produce their identity proofs to get the discount.
You will also need to provide identification in some form to show that you are a retired or active member of the military.
Proof of service is required to be eligible for the 10% discount. A few eligible forms of proof include:
military ID card (issued to personnel on active duty, National Guard, reserves or retirees),
DD Form 214/215 (issued to members when they are discharged from the service)
state veterans ID card or veterans designation indicated on a driver’s license
a veterans ID card
DD Form 1173 and DD Form 2 (for eligible dependents of active duty service members, Medal of Honor recipients, retirees and surviving dependents)
The branches of service that are listed under the verification process are Army, Navy, Marine Corps, Air Force, Coast Guard, Army National Guard, Army Reserve, Marine Corps Forces Reserve, Air Force Reserve, Army Reserve, Coast Guard reserve, National Guard Reserve, and Air National Guard.
Are There Exceptions?
In order to be eligible for the offers, users must verify their credentials through the landing page provided by Expedia.
The offer is open to current and retired United States military personnel who must sign in to Expedia Rewards or join the Expedia Rewards program.
The Expedia Rewards membership is free. The offer may be modified or canceled at any point of time by Expedia Inc. This offer is not redeemable for cash or transferable.
If you do claim this offer, you might receive more offers for military discounts on flights, military discounts on vacations, veteran travel discounts or military travel deals.
All the eligible persons should claim their offer and Gold status not later than 12/31/19 by 11:59 p.m. Pacific time.
The offer terms made by Expedia may not be changed by any employees of Expedia Inc. or by an unauthorized person and is void where prohibited by law.
Other Ways to Save at Expedia
You now know about the fabulous discount offered by Expedia. Regardless of how you are traveling, you can book with a service that is one of the largest and most respected in the world. Here are some tips you can use while still using Expedia’s services:
Use the Expedia App: Apart from the joy of booking on the go, there is also the benefit of getting up to 40% off and points on bookings with this nifty app.
Watch for Deals: Always keep an eye on the day’s deals when looking to book for your travel. You might be in for a surprise as Expedia often offers pop-up special offers from many top cruise liners.
Choose the Right Card: Save money on insurance and try booking with a travel card, most of which offer attractive benefits such as baggage delay insurance, trip delay reimbursement and trip cancellation insurance.
You’re likely using a site like Expedia anyway as you plan business and personal trips for you and your family, so why not maximize your savings by enrolling in Expedia’s military program?
You may find that the rewards from Expedia allow you to take trips you wouldn’t be able to afford otherwise.
Military discounts allow companies to thank you for your service and allow you to enjoy your favorite services and products.
With Expedia’s discount and the tips above, you can save in a big way as you book your travels.
Military discounts are businesses’ generous way of thanking military personnel and veterans for their service to the country.
Discounts range everywhere from store rewards cards to restaurant discounts to savings on resorts and amusement parks.
One of those parks, SeaWorld, offers a generous promotion to military families.
Take a look at SeaWorld’s military discount below to see how you can enjoy a free trip to the aquatic park with your family.
About the Company
SeaWorld is an Orlando, Florida-based company owned by SeaWorld Entertainment. It is a marine animal park and theme park with several animal attractions and rides.
It was founded in 1964 by David Demott, George Millay, Ken Norris, and Milton Shedd, with its first park being opened on March 21st, 1964, in San Diego.
The park received an overwhelming response with over 400,000 guests visiting the park in the first 12 months of its launching. There are now locations in San Antonio, Texas, and Abu Dhabi, United Arab Emirates, apart from its headquarters.
Guests have the chance to get up close to the marine animals that these parks have along with enjoying thrilling roller coaster rides.
The parks feature shows by dolphins, orcas, sea lions, and several other marine mammals. SeaWorld also offers educational demonstrations to increase awareness about marine and terrestrial animals among its visitors.
Apart from entertaining their guests, SeaWorld is also focused on animal welfare, veterinary care, behavioral management, and animal husbandry.
Over the last 50 years, the company has helped over 34,000 animals in need through the rescue program the company runs.
Military Discount Policy
SeaWorld Parks & Entertainment is a theme park that has a 50-year history in the United States with SeaWorld theme parks in Orlando, San Antonio, and San Diego and regional theme parks spread across various locations in the United States.
SeaWorld Parks & Entertainment own or license the popular brands SeaWorld, Sea Rescue, and Busch Gardens.
The SeaWorld parks showcase their unique zoological collection and all the parks feature a wide range of family and thrill rides, educational demos, shows, and other attractions that appeal to all age groups.
And, as a mark of respect and a way to thank the women and men of the US armed forces, as well as their families, for their sacrifice and service, the company created Waves of Honor.
Waves of Honor allows any active duty US military, drilling or activated reservist or National Guardsman a complimentary admission in a year to one of the attractions – SeaWorld, Sesame Palace, or Busch Gardens.
Active Military Promotion
This offer is for military personnel and up to 3 of their direct dependents and the offer is valid only for 1 park and 1 visit only.
To take advantage of the SeaWorld Military offer, the active service members and their dependents should have a military ID that is valid and active.
You must click on the “Troop ID” button in order to verify your active duty status.
“Troop ID” is the credential which is issued by ID.me. This allows the verified military community members such as active duty, retirees, veterans, military family members and military spouses to access the programs meant for the military community members exclusively.
Spouses of active service members should log in to the active duty member account to access their dependent tickets.
The offer is available online and the ticket for admission to SeaWorld expires on December 31.
The family members and spouses of military personnel can create a Troop ID; however, the discounted or complimentary tickets are accessible to only the accounts that are verified as a service member, retiree, or veteran.
Once the verification is done, you can print up to 3 direct dependent admission tickets for a single day.
If you are a single parent serving overseas and your children live with a relative, they can use the offer. The primary caregiver of the children must contact the guest relations of the park they want to visit and submit your military status proof and deployment.
Veteran Military Promotion
The veterans discount is a token of appreciation of SeaWorld to honor women and men who are veterans and have served in the US armed forces.
The offer allows former military personnel and up to 3 guests a 50% discount on a single day ticket at SeaWorld Orlando.
To avail the offer, the former service member should provide a military ID.
To avail the offer, you must click on the “Troop ID” button and verify that you are a veteran.
The veteran should be present along with the three guests at the park at the time of redemption.
The offer is valid until December 31st.
Who Is Eligible?Active Military Promotion
The Waves of Honor complimentary admission includes all the women and men of the armed forces of the United States:
Active duty military
Only active duty US military personnel qualify for the complimentary admission.
All the ready and active reservists and National Guard members qualify irrespective of their deployment status.
Veteran Military Promotion
The veteran military promotion can be used only by veterans and qualified service members including active, honorably separated officers, retired, and enlisted members of the United States military.
Are There Exceptions?
The Waves of Honor Program is applicable only to the members of the US military and does not apply if you are a service member from an Allied country.
The Waves of Honor Program is not applicable to inactive, retired and standby reserve members, retirees from the military, civilian Department of Defense workers and United States Merchant Marine.
Also, the brand partners of SeaWorld may accept only certain sub-segments of the military for a specific offer.
For example, an active duty member with a Troop ID may be eligible to receive some offers, whereas, a Military Family with a Troop ID may not be able to avail the same offer.
The Waves of Honor Program is not applicable for Water Country USA, VA, Aquatica Water Parks, Discovery Cove, or Adventure Island Tampa.
The offer is also not valid for ticketed events including Howl-O-Scream at Busch Gardens Tampa and Christmas Town at Busch Gardens Williamsburg.
SeaWorld is one of several business and organizations offering military discounts to service men and women and their families.
A visit to SeaWorld could be the perfect addition to your family vacation, at little or no cost to you. If you meet the qualification requirements, you could enjoy a complimentary day of aquatic fun with your spouse and children.
And if you’re serving overseas, you could still provide your kids with a memorable day at one of the country’s most famed amusement parks.
With Waves of Honor, planning your trip and securing your discount are as simple as visiting the park’s website, verifying your military status, and booking your trip.
This is a fairly massive subject, so let’s see if we can make your next or first car buying experience a (more) pleasant one. To make this an easier and more straightforward process, I will lay out the process in a logical order. First, second, etc.
Personally, I have purchased quite a few vehicles over the years. I have learned the hard way that mistakes cost time and money. Hopefully, this guide will help you avoid some of the more costly mistakes.
I should also point out that this is just a basic overview, a lot of variables will exist.
First – Buying a Car Within Budget
This is an easy step. How much do you want to spend on a vehicle?
Some of us will come up with a total dollar amount we want to spend and some of us will come up with a monthly payment. Either way, it’s a good idea to add up additional expenses you will see with this purchase on a monthly basis.
Setting a firm upper price limit on your purchase is one of the most important factors when buying a car, and it’s also a great negotiating technique. More on that later.
Dealerships are really good at squeezing a few extra bucks out of a sale. If you want to pay $300/mo, don’t let them talk you into a vehicle that is $375/mo. It’s not fun waking up a month later and wonder what you were thinking when you agreed to pay 25%+ more than you wanted to.
Finally, err on the side of a conservative purchase. Housing and transportation are most people’s largest monthly expenses. Controlling those two expenses can help you have more room in your budget for meeting other obligations, such as saving money, paying off debt, investing for retirement, starting an emergency fund, entertainment, and having some wiggle room for unexpected expenses.
Second – Financing Your Car Purchase
If I could recommend anything, I would say that you should save for a car and pay for it in cash. No, seriously. The best car is a paid off car.
Auto loans are tough to get out of, especially if you finance a car without a down payment. If you are ever in a financial crunch, that really sucks.
If you decide that getting a loan is the best option, then be an informed consumer. These tips can help you avoid the more costly mistakes that can occur when financing a vehicle purchase.
Get Pre-Approved First
If you need to get an auto loan, it’s best to get pre-approved from your current bank or credit union before you buy. Personally, I think companies like USAA, Navy Federal Credit Union, and PenFed are great places for military members and veterans to get financing.
The reason for this is that some auto dealers will send your info to many financial institutions which will run your credit report multiple times. This is especially true if you have less than perfect credit. When I was younger, I had my credit ran 14 times for a car, courtesy of a dealership. No thanks! I will also mention that just because you get approved for a $50,000 car doesn’t mean you should. See the budget topic above.
For example, when you apply with for an auto loan USAA, they will approve you for a max purchase price, give you a few different loan terms to choose from, then give you an approval letter that you can give to the dealer. They also will let you print a check to give to the dealer. Not all dealers accept the printed check. However, it’s catching on. Naturally, this can all be done online. Navy Federal’s process is fairly similar.
Auto Loan Terms
The actual terms of your financing are beyond the scope of this article. However, I will say that you should keep your interest rate as low as you can and the length of the financing as short as possible. I know you want that flashy car or truck, but paying on it for 8 years and 15% interest is a bad idea.
Aim for a loan in the 3- to 5- year range, and no longer. Most people don’t keep cars longer than 5 years and you don’t want to be in a position of trading in or trying to sell a car that still has a loan on it.
Auto loan interest rates will vary based on many factors, including your creditworthiness (credit report and score), how much debt you currently have, the type of car (new or used), and other factors, such as promotions.
If you are active duty, lenders love you. They know you are under a contract with the government, have a steady paycheck, and you can get into extra hot water if choose to miss payments. I have seen plenty of new recruits that have got sucked into a brand new car or truck just out of boot camp. I did. Don’t be that person!
Special note: If you are a current or former servicemember with a service-connected disability, you may want to check out the VA Automobile Allowance and Adaptive Equipment. Eligible servicemembers or veterans may be eligible for a one-time allowance of $21,058.69 towards a vehicle. Check it out here.
Third – Finding the Right Car
Thanks to the Internet, this is much easier than it used to be. We used to read newspapers for auto listings. Can you imagine?
Websites like Autotrader, Cars.com, Edmunds, and TrueCar are great places to start. Also, thanks to the Internet, finding the best deal is easier than ever. You can search on a variety of websites for deals, or contact dealers directly to get their best price up front.
But we’re getting ahead of ourselves. We shouldn’t worry about pricing until after we find the right car.
Which Type of Car Should You Buy? New, Used, or Lease?
This is another subject that may be beyond the scope of this article. Each one has its own benefits and drawbacks.
New vehicles are expensive and they depreciate quickly in the first few years. If you are making payments and had little to no down payment, your loan will be more than the value of the vehicle for the first few years (see GAP Insurance further down). The upside is that you get a nice new vehicle and a bumper to bumper warranty.
Used vehicles are quite a bit cheaper and the previous owner(s) paid for the depreciation. The downside is that you never really know what happened under the previous owner(s) and the vehicle will have little to no warranty.
You can reduce the risk and warranty issues by purchasing a Certified Previously Owned (CPO) vehicle. CPO vehicles are usually a little more expensive than a comparable car without the certification, but they must meet strict inspection criteria and come with an extended warranty.
Out of all the vehicles I have ever purchased, I always stick to the Used Vehicle category.
Leased vehicles also have pros and cons. A lease can be a great way to get into something you would usually not be able to afford because your payments are based on the value of the vehicle when you return it. You also get the benefits of a new vehicle.
The downside is that it is almost impossible to get out of it and you are responsible for tires, nicks and dings, and anything else that happens to the vehicle. This includes paying for every mile over your lease entitlement. Also, if you are bored, search “lease money factor.” It’s how they calculate interest rates on leases.
Overall, leases can be riskier than buying a car, since you don’t own it and must pay for additional usage and wear and tear.
Best option – new, used, or leased? Overall, used vehicles offer the most cost-effective means of buying a car. Used vehicles offer the best balance between reliability and affordability. You can avoid the big hit to depreciation that comes with buying a new car. And you can avoid the cost overruns and unknowns that come with leasing a vehicle. Finally, it’s generally easier to get out from under the purchase of a used car compared to either a new car or a leased vehicle.
Salvage Or Repairable Titles
If you are not comfortable fixing/repairing vehicles, stay away from this type of vehicle. I am a previously certified mechanic and I am still leery of this type of vehicle. A salvage or repairable title from an accident is one thing, but one that is from a vehicle being submerged in water is a no-go. I have owned two salvage title vehicles with no or very minor issues. They are easy to spot because they are 30%+ below book value. Also, you can NOT purchase GAP coverage for salvage title vehicles. However, you can get loans for them. Imagine that.
Separate the Search from the Purchase
Car salesmen are good at what they do. I’ve known several people who went to a dealership to test drive a car and drove off the lot a few hours later, wondering, “what just happened?”
Make sure you have a plan when you are still in the searching phase and deciding which car to buy. Until you decide upon the exact make and model of the car you will buy, you should hold firm to the “no purchase rule.”
All new cars are shiny and filled with features and upgrades that are likely an upgrade over your current vehicle. Of course, you can imagine yourself driving that vehicle! But don’t buy it until you have compared several makes and models to determine the best car for your needs, taking into account comfort, size, utility, and other features.
Once you have decided on the right vehicle, you should then start searching for the right deal. Buying before you reach this point in the process almost guarantees you won’t get the best deal, and you may not even get the right vehicle for your needs.
Don’t suffer buyer’s remorse!
Vehicle Values & Pricing
Only after you have decided on which vehicle to buy should you focus on the price of the car. There are several great resources to help you do just that.
Kelly Blue Book (KBB) is the standard reference to find a basic value. Other services you can use to get a free car valuation include NADA Guides (National Auto Dealers Association), Edmunds, and some others. Edmunds is a nice choice because you can also use their service to search for new cars and get quotes directly from multiple dealers.
Some companies use the Black Book to find values for loan purposes. USAA is one company that uses Black Book. True Car can also help you find a value range.
Finally, dealers also use auction or wholesale pricing to set price values, which you don’t have access to. If you are trading a vehicle in, this values your trade lower. Just remember that dealerships are out to make money, not give you good deals.
Buying a Car Stateside
As mentioned before, websites like Autotrader, Cars.com, Edmunds, and TrueCar are great places to start. The options are almost endless. Everyone seems to offer some sort of car buying/searching service. USAA, for example, will give discounts to its members if you purchase from its car buying service. Members can also sell cars through the program.
You also have the option of buying directly from the manufacturer. Each company offers its own program for Military members. Here are some of the available programs:
As mentioned previously, you can also buy from other Military members who are deploying or changing duty stations. Do some research and find members who need to sell it “fast.” I was actually given a car because the member had to have it gone now.
Overseas Military Car Sales
When you are deployed or stationed overseas you have options those of us in the US do not have. I am mostly talking about new cars for this. Companies like Volvo and BMW will give you great deals, low to no taxes, free stateside shipping, worldwide warranties, and so on. When I was stationed in Germany, a number of friends and coworkers were buying Volvos because the deals were really good.
Military Autosource is also an authorized contractor for AAFES (Army Air Force Exchange) and NEXCOM (Navy Exchange). They specialize in American vehicles that have discounts and worldwide warranties. I have personally ordered a new vehicle back when they were called Exchange New Car Sales. I later canceled my order because the delivery would have taken many months and the deal was not that good. However, it is an option worth checking out.
Buying from a local person is also an option while overseas.
Craigslist is international after all. Keep in mind that if you buy a vehicle from a different country, the emission and crash standards are usually different than the US. So, you would likely not be able to import the car back to the US. I was able to find some really great deals. Like anything else, rules and local laws will apply.
Check out the “Lemon Lot”
While not exclusive to overseas, a number of military locations have cars that local Military members are trying to sell. We lovingly called those locations the “Lemon Lot.” Honestly, it was hit and miss. I actually bought and sold a few cars from the lot with good luck. Just something to keep in mind when searching for a vehicle. Full disclosure, I was an auto mechanic in the military, so I felt comfortable buying and selling cars in that capacity. Used cars should always be inspected by a certified mechanic.
Fourth – Negotiating Your Car Purchase
This is somewhat of a lost art. Thanks to the Internet, dealerships are in a cut-throat competition with lots of others so negotiating is really tough. Usually, you have a bit more leeway when you buy from a private party.
Quite a few dealers will let you know fairly quickly that they don’t negotiate. However, many dealerships will still work with you on price in order to lock down a sale. Start by getting multiple quotes in writing from dealerships in your area.
Always Request “Out the Door” Pricing
Vehicle pricing is always more complicated than the sticker price. There are standard fees such as tax, title, and license, as well as many other potential fees that may vary by state. Some of these fees are required, while others are customary, but may be negotiable.
That’s why you need to always compare apples to apples when comparing vehicle prices.
How to get a quote: Contact the Internet Sales Department with an inquiry on the make, model, and options you want, and ask for an out the door price (to include vehicle price, options, tax, title, license, dealership fees, etc.). This gives you a firm number you can use to compare pricing at dealerships.
Getting an out the door price is essential for properly comparing prices with other dealers. Some dealers may refuse to give an out the door price via email and may require you to go to the dealership to get the price.
Don’t fall for this!
Their goal is to get you in the door then convince you to buy before you leave. They also want to convince you to purchase more add-ons at the time of sale. See below for more on this topic.
If the dealership refuses to give an out the door price, you can let them know you only have a limited amount of time and will go with the dealership that gives you the best out the door price. If they can’t give you and out the door price, they won’t earn your business. Give them one more opportunity to earn the sale, then move on. There are plenty of other dealerships that will do their best to earn your business!
If they don’t mind a little haggling, try and get more for your trade or get them to take some off the purchase price. I found that when you are shown the purchase price, make your counter offer and then say nothing.
Also, don’t be afraid to be firm. The dealer will almost always come back with way less than you initially wanted. For example, if you ask for $2,000 off, they may come back with a $300 offer. Hold firm and say, “I’m sorry, that just doesn’t work for me.” Granted this dollar amount is hypothetical. Private parties work in much the same way.
The dealer may not negotiate, so switch to plan B. Try to get free stuff! Floor mats, a year’s worth of oil changes, tires, full tank of gas, extended warranty, and so on.
This is an important and often overlooked step on the car-buying process. I recommend reading over everything before you sign. I have had a couple of times where the final price was different or an interest rate was off. Just take your time and make sure all the paperwork is legit. If you are buying from a private party, make sure you do a bill of sale.
Miscellaneous Add-ons and Upsells
Most car dealerships sell expensive upgrades, such as window etching, tire and wheel replacement, undercarriage coating, upholstery protection, and many more items.
Most of these are very overpriced. In fact, these “upgrades” can often add several hundred dollars to your purchase, or even upward of an additional $1,000, depending on your vehicle and the number of upgrades offered.
Unfortunately, most of these “upgrades” are built on fear and loss aversion and don’t add a lot of value to the buyer.
Buyers see their shiny new car and fear it being stolen (window etching), damaged (tire and wheel replacement), or worn out over time (undercarriage coating and upholstery protection).
Most of these items are unnecessary. But if you decide to get them, you can often pay for these items out of pocket for much less than the dealership cost, if you even decide to get them at all.
Basically, GAP insurance will cover the difference in your car’s value and what you still owe on it if you ever get into an accident and the vehicle is considered a total loss.
Say you get into an accident and the insurance company says your vehicle is not repairable (total loss). They will cut you a check for your vehicle, minus any insurance deductibles. Unless you had a large down payment or are aggressively paying down the vehicle, you will have a balance due. My car was worth $8,000 but I owed $12,000 at the time of the accident. GAP insurance covered the $4,000 that was remaining. It’s been around $300 every time I have purchased it.
Wrapping it Up
Buying a car can be complicated, even if you are well-prepared. The best thing you can do is arm yourself with knowledge, know which vehicle you want, understand what the average prices are for your vehicle of choice, and go into the experience with an open mind.
The Internet gives consumers more information than ever, making it easier to compare prices and get a better deal. Remember, vehicles are commodities. With rare exceptions, you should be able to find a comparable vehicle at a comparable price at another dealership.
Use this fact to your advantage. Don’ put up with high-pressure sales tactics, rude salesmen, or poor service. You have the power to get up and walk away at any time. Use your power to your advantage and walk away from any deal you aren’t comfortable with.
Military service can be hazardous, even if you never see combat. It’s not uncommon for men and women to join the military when they are young and healthy, then endure numerous injuries and illnesses during their years of service. Some of these injuries can impact the veteran for the rest of their life.
Thankfully, the Department of Veterans Affairs may offer military veterans VA disability compensation if they endured a serious injury or illness while serving in the military.
According to the VA, VA Disability Compensation is a benefit paid to a veteran because of injuries or diseases that happened while on active duty, or were made worse by active military service. It is also paid to certain veterans disabled from VA health care. The benefits are tax-free.
Let’s take a look at why all Veterans should apply for a VA disability rating (if they have had any medical or health-related issues in the service), how to apply, VA disability ratings, disability compensation tables, how to add dependents to your VA disability claim, how your VA disability rating impacts your military retirement pay, and finally, how Cost of Living Adjustments impact your disability compensation.
Why You Should Apply for a VA Disability Rating
Filing a VA disability claim is about more than a label or receiving disability compensation. The most important factor is getting the VA to recognize that you have a service-connected illness or injury.
It’s even possible to receive a 0% disability rating for certain conditions. This can occur when the VA acknowledges there is a medical condition that occurred while you were in the service, but it isn’t bad enough to warrant a higher rating or disability compensation.
At least not yet.
But having the service-connected rating, even if it is 0%, makes it easier to apply to have the rating increased later if it is warranted.
There are other potential benefits to applying for a disability rating – you may be eligible for financial compensation, additional medical coverage through the VA, or other benefits, such as Veterans Preference Points for civilian jobs.
Overcoming the Objections to Filing a VA Disability Claim
Many veterans don’t want to feel like they are stressing the system, especially when others sacrificed so much more than they did. They don’t want to feel like they are milking the system. Many veterans don’t want to label themselves as, “disabled.”
These are understandable thoughts. But let’s look at them from another perspective.
You aren’t milking the system if you are honest in your application and your claim is approved. You are receiving the benefits you deserve.
As for the term “disabled,” I’d look no further than the VA definition –
“VA Disability Compensation is a benefit paid to a veteran because of injuries or diseases that happened while on active duty, or were made worse by active military service.“
It’s just as easy to say,
“I am a veteran who has a medical condition caused by my service to my country.”
Submitting a VA Disability Claim & Receiving Your Disability Rating
VA disability ratings are awarded based on the specific injuries or illnesses that occurred while you were serving on active duty.
To apply for a VA disability rating, you must submit your disability claim to the VA. They will review your claim, your military medical records, and you will be examined by one or more VA doctors who will evaluate your claim.
After your medical examination and a thorough review of your records, the VA will make a determination on your claim. They will then send you an Award Letter detailing your disability rating, if any, for each item on your disability claim. You can even file an appeal if you disagree with the VA’s decision.
You can file a disability claim with the VA on your own. However, it’s a good idea to get some help with the process. There are several forms to fill out, including questionnaires which require the veteran to discuss how the injury or illness occurred or was made worse by military service, how it impacts them on a daily basis, and whether or not secondary injuries have occurred due to the injury in question. You will also need to be examined by one or more VA doctors, sit through interviews, etc.
These organizations often have trained benefits counselors who can assist you with your claim, free of charge. They have the knowledge and expertise to walk you through the claims process and help you avoid common mistakes that could delay your claim by months or even years.
It’s important to get your claim right the first time you submit it. Some mistakes on your claim could cause it to be rejected. In some cases, the VA may put it at the bottom of the pile when they receive the revised claim. Getting it right the first time will save you a ton of time and stress!
Finally, it is generally best to only submit one claim at a time, unless you have a very good reason to submit a separate claim. Having multiple claims in process at a time may delay how long it takes to fully process your claims. If possible, see if you can add an item to your current claim, rather than starting a new one.
VA Disability Compensation Rates
VA disability compensation rates are based on several factors, including your overall service-connected disability rating, and whether or not you have any qualified dependents listed on your VA disability claim. (See next section for more info about adding removing a dependent to your VA disability claim). VA Disability compensation rates are also impacted by annual COLA adjustments.
Calculating your VA disability rating is outside the scope of this article. Just keep in mind that VA math is not the same math you did in school. It’s a complicated algorithm. It’s recommended to read up on how multiple disability ratings are calculated so you have a better understanding of the benefits you have earned.
How to Add or Remove a Dependent from VA Compensation Benefits
The VA will increase your disability compensation payment if you have qualified dependents listed on your claim, and you have a disability rating of 30% or higher.
Qualified dependents typically include a spouse, children (up to age 18, unless attending higher education full-time), adult children with qualifying disabilities, and parents, if you if they qualify as your dependent.
VA Form 21-686c – Declaration of Status of Dependents, or
VA Form 21-674 – Request for Approval of School Attendance for dependents over age 18 and attending school, or
VA Form 21-509 – Statement of Dependency of Parent(s)
You will need to verify your children are attending school full-time once they reach age 18. You can continue receiving benefits for them up to age 23, provided they continue to attend school full-time.
Children are no longer eligible once they are married, or no longer attending school. There are exceptions for adult children with qualifying disabilities or special needs.
You want to file your claim to add or remove a dependent as soon as possible to ensure the VA is sending you the correct compensation amount. The VA can only retroactively apply benefits for dependents for a certain amount of time.
And it is your responsibility to remove dependents as soon as possible after they are no longer eligible. This could include major life events such as births, deaths, marriage, divorce, dropping out of school, and more. Failing to remove a dependent in a timely manner can result in an overpay of benefits which may incur a debt to the VA.
I cannot stress how important this is. I have received numerous emails from veterans who received debt notifications from the VA for failing to remove dependents from their account. The VA requires veterans to return the amount of the overpayment, either in the form of a one-time payment, or as a reduction from future disability compensation payments.
How VA Disability Compensation Impacts Your Military Retirement Pay
Prior to 2004, VA disability compensation offset a military retiree’s retirement pay. The retiree would receive their full VA disability compensation, but their retirement pay was reduced by the same amount, dollar for dollar.
The gross pay was the same, but the net pay was higher, as VA disability compensation is not subject to Federal taxes (it is also exempt from most state taxes).
Two laws have since been passed that change this for some veterans. These two laws are:
Concurrent Retirement Disability Pay (CRDP) is also referred to as Concurrent Receipt. CRDP was passed in 2004 and applies to military retirees who have a combined VA disability rating of 50% or greater. Military retirees who have a service-connected disability rating of 50% or higher are eligible to receive their full military retirement pay in addition to their full VA disability compensation, without any portion being offset. Those who have a rating of 40% or lower still have their VA disability compensation offset from their military retirement pay.
Combat Related Special Compensation (CRSC) was passed in 2008 and applies to military retirees who have a service-connected disability rating of at least 10% that stems from a combat-related incident. Members with a combat-related disability rating can receive their disability compensation in addition to their full military retirement pay without any offset. CRSC has a more complicated application process that must be made through your branch of service. I encourage you to do more reading on this topic if you believe you may be eligible.
Annual Cost of Living Adjustments
Increases in VA Service-Connected Disability Rates are tied to the Consumer Price Index (CPI). These are the same rates the government uses for determining Cost of Living Adjustments (COLA) for Social Security recipients, military retirees, and federal civilian retirees.
It’s not uncommon to see an annual COLA in the low, single-digit range. While a 1% or 2% or 3% increase might not seem like a lot, it can add up quickly. Remember, these annual COLA increases compound over time. The impact in a decade can be substantial.
Having a VA Disability rating can have a lasting impact. The most important is that it makes you eligible for health care from the VA for that specific injury or illness. Depending on the severity of your rating, you may be eligible for additional health care or benefits through the VA.
At its basic level, this means the VA will take care of your current and future health care needs as they relate to your service-connected disability rating.
Many states also offer certain benefits to members with a military disability rating, including reduced property taxes, eligibility for education or training benefits, and sometimes education benefits for dependents. For example, children of military veterans with a disability rating do not have to pay college tuition in the state of California.
Many of these benefits are on a case by case basis, depending on the member’s rating, when/where they served, where they live now, etc. It’s always a good idea to meet with a veterans benefits counselor at the VA or at a Veterans Service Organization to go over the benefits you may be eligible to receive.
Military personnel and veterans have access to a wide range of discounts from retailers, restaurants, banks, and more.
The Military Discount offered by Dell to all those serving in the military and their families is Dell’s way of giving back to them for doing their part for the country.
The Dell military discount is available nationwide and could be worth your time if you’re looking to purchase a new computer.
Whether you’re stationed overseas and want to keep your family more connected or entering the civilian life and looking for a new desktop for your business, you could benefit from Dell’s military program.
Below is an overview of how the discount and Dell’s VetRewards program works.
Savings: Dell offers savings of up to 30% on select models of notebook PC systems and desktops from Dell when you shop from the Dell.com store or use the Dell toll-free dedicated phone.
Dell Premier: The notebook PC systems and desktops are pre-loaded with Dell Premier, which is a powerful solution that has been created by Dell that will enable you to manage all the stages of your Dell product ownership.
VetRewards: You get an additional 10% off on Dell’s PCs, tablets and electronics, which comes with a special “VetRewards” coupon code that you can apply while you’re checking out online.
Price guarantee: When you shop in Dell’s private online store, Dell offers you a best price guarantee.
Tech support: Dell also offers you the services of a dedicated sales team, accelerated customer service and technical support that is available to you 24×7, which is not available to the general public when they shop on Dell.com.
The private online store of Dell for VetRewards provides you with the latest information on all Dell products, extensive IT solutions, support packages, options for upgrades, special offers, etc.
All the information that you require to shop and save with Dell is available in a single place, 24/7.
The discounts for the members of Veterans Advantage cannot be accessed directly via Dell.com. To get the Dell Military Discount, you must shop on VeteransAdvantage.com from the Dell Military Discount Marketplace.
If you shop directly with Dell.com, your VetRewards offer will be invalidated. The VetRewards discounts and the best-price guarantee on the Dell products are not available on affiliated non-Dell websites or at offline retail locations.
Dell for Military
Dell’s Military program isn’t limited to a discount to your purchase price. As highlighted above, Dell offers robust benefits to military families.
Here are a few of the key benefits you’ll get with Dell:
Price match: When you order from Dell.com, Dell not only offers you the best price guarantee on the PCs along with exclusive military discounts, it also offers a 30-day Price Match guarantee.
Discounts on top products: You can get military discounts on Dell PCs with the latest generation of Intel Core processors, electronics, etc., whether you are at home or serving abroad. You get a 10% savings coupon, PC deals, deals on Gaming PCs and on accessories and electronics.
Loyalty Rewards: You can benefit from the “Dell Advantage Loyalty Program”, which offers you 6% earnings back in rewards, exclusive offers access and expedited delivery free of cost.
Flexible financing: You can enhance your purchasing power with low monthly payments and special financing offers.
VetRewards: You get to enroll in the Veterans Advantage that offers discounts on Dell products, a Card ID that is nationally recognized which gives you more benefits and an Exclusive Benefits Plan.
SupportAssist: Dell offers Premium Customer Support and the customer service experts are available 24×7 to resolve any of your issues quickly and easily. The Premium Support includes automated support with the “SupportAssist” technology, software and hardware support, anytime access, and onsite support.
International shipping: Irrespective of where you are stationed, Dell’s international shipping will ensure that your order reaches you on time.
VetRewards Card Exclusives
Not only can you get a military discount on Dell products, with the VetRewards Card, you can get several benefits and save thousands of dollars with more than 300 VetRewards exclusives and many other brand deals.
Your VetRewards Card grants you access to discounts created for you by Veteran Advantage, as well as the partner companies including the following companies, and more:
Some of the deals include:
United Airlines: You and your family get a 5% discount on United Airlines flights that you have booked via united.com.
Verizon Wireless:Verizon offers you a 15% discount on your monthly wireless plan and 25% discount on selected accessories.
Apple: Apple stores recognize your VetRewards Card and you can also use it online to get discounts on Apple desktops, laptops, iPads, as well as, AppleCare plans.
JetBlue Airways: JetBlue offers you 5% discount on flights, and you get 2 free bags when you travel.
CVS Pharmacy: CVS offers a 20% discount on all online purchases, which can be combined with online discounts and promotions.
As military personnel, with the VetRewards card, you are eligible for all new military benefits each day of the year. These benefits are highlighted in the 60-page VetRewards Benefits Directory, which is mailed to cardholders.
VetRewards Care Package
What’s more? You also get the VetRewards Care Package, at no extra cost. This can help you save thousands of dollars each year and the VetRewards Care Package includes:
VetRewards travel services
Customized personal financial planning
Prescription drug discounts
50% discount on family cards
Replacement cards (free of cost)
VIP member support (live call center that is based in the US)
Does the Discount Work with Coupon Codes?
To get a unique coupon that gives you a discount of 10%, you need to verify your military status.
Dell’s coupon offer for military personnel can be used for select offers but it cannot be used with other coupons.
The coupon is valid only on particular order codes. One coupon is valid only on the purchase of 1 item.
Who Is Eligible?
Active duty personnel, military veterans and the family members of military service personnel can take advantage of the 10% discount on various Dell products. All that is required is verification of your military status, to receive a 10% discoun.
Are There Exceptions?
The Dell military discount coupon offer is not applicable or available with items or systems that are purchased via refurbished products or on spare parts. The coupon offer is not valid for online auctions and/or resellers of Dell products.
Dell’s military discount is a generous one, granting you access to discounted products, a rewards program, and exceptional customer support.
Technology isn’t cheap, and Dell’s discount could end up saving you significant amounts of money on a large purchase like a new laptop or desktop.
Dell salutes your service, and accepting their gift is as simple as proving your military status and signing up.
We’ve covered VA loans extensively here at The Military Wallet. They offer eligible veterans and active military personnel incredible benefits in purchasing or refinancing a home.
But are there times when a VA loan may not be the best option? There are, so it’s time to take a close look at VA loan alternatives.
There are basically three alternatives: FHA mortgages, USDA mortgages, and conventional mortgages.
Though you’ll definitely want to go with a VA loan in nine out of 10 home financing cases, one of these loans may be a better alternative in that tenth case.
Let’s take a high altitude look at all three alternatives, as well as discuss when they may be a better choice than a VA loan.
FHA mortgages are available to all borrowers, including veterans and active-duty military personnel.
Maximum loan amounts are identical to limits for VA loans and conventional mortgages, including higher loan amounts in areas designated as high cost.
Much like VA loans, FHA mortgages are for owner-occupied properties only. They are not available for either second homes or investment properties.
However, they can be used to purchase two to four family properties, where you will live in one unit, and rent out the others for income.
Qualifying for an FHA Loan
Down payment requirement. The standard down payment requirement on FHA mortgages is 3.5% of the purchase price.
Credit. The minimum credit score using a 3.5% down payment is 580. However, each individual lender is able to impose their own minimum. Many set that minimum at 620.
But FHA guidelines do permit a credit score as low as 500. However, you must make a down payment of at least 10% to qualify with a score that low.
If you have a previous bankruptcy, FHA requires that at least two years must pass since the discharge of a Chapter 7 (total) bankruptcy, and at least 12 months with a Chapter 13.
Since Chapter 13 is a repayment plan, you must show at least 12 months of on-time payments to be eligible for FHA financing. Foreclosure generally requires three years, but a shorter-term may be approved with extenuating circumstances, providing it was on a primary residence.
Debt-to-income (DTI) ratios. The maximum DTI is generally 43%. That takes in your proposed house payment, including mortgage payment, property taxes, homeowner’s insurance, and mortgage insurance – plus your recurring monthly debts, divided by your stable monthly income.
However, a DTI as high as 50% may be approved with compensating factors. Those can include a larger than the minimum down payment, excellent credit, a very small increase in your new monthly house payment compared with the current one (as long as those payments are being made on-time), or cash reserves after closing.
Mortgage insurance premium. FHA mortgage insurance is paid in two parts. You’ll generally pay 1.75% of the loan amount upfront, which is referred to as “up-front mortgage insurance premium” (UFMIP).
Much as is the case with the VA funding fee, the UFMIP is added to your loan amount, and financed over the term of the loan. There is also a monthly mortgage insurance premium.
For most borrowers making a 3.5% down payment, the monthly mortgage insurance premium rate will be 0.85%.
If the loan amount is $200,000, that translates to $1,700 per year, or roughly $142 per month. It will cancel out when your loan amount is paid down to 78% of the value of the property.
When To Choose an FHA Loan Over a VA loan
An FHA mortgage may be a preferred loan type if you decide you don’t want to use your VA entitlement for the purchase of a particular property.
That may happen if you’re purchasing a starter home that you intend to be a temporary arrangement, after which you may rent it out and use as an investment property.
You can then save your VA entitlement for the purchase of a permanent owner-occupied home. An FHA mortgage may also be preferred if you’re unable to qualify for a VA loan based on your credit profile.
While VA loans tend to be more flexible than conventional mortgages with credit, FHA is generally the most accommodating of all.
The main feature of USDA loans compared to VA loans is 100% financing. Just as is the case with a VA mortgage, you can purchase a property using a USDA mortgage with zero down payment.
Otherwise, the two are very different loan programs. USDA loans are available to the general public, while VA loans are restricted to eligible veterans and active duty military personnel.
But in order to qualify for USDA mortgage, you must meet eligibility as a low or moderate-income household. This will vary by your county of residence and can be determined by checking the USDA’s income eligibility calculator.
In addition, unlike VA loans, USDA mortgage limits vary by the county where the property is located. USDA loans are restricted to single-family properties only.
USDA mortgages are not available in all counties across the US, but about 97% of counties are eligible.
Eligible properties must meet the following requirements:
Generally be 2,000 square feet or less.
Not have a market value in excess of the applicable area loan limit (as described above).
Have no inground swimming pools.
Not be designed for income producing activities.
USDA mortgages have fixed interest rates, but can be modified by payment assistance, making them as low as 1%. Loan terms can range from 33 to as many as 38 years for very low-income applicants.
They also allow borrowers to add closing costs to the base loan amount, equal to up to 6% of the purchase price of the property.
Qualifying for a USDA Loan
To be eligible for a USDA loan, you must meet the following qualifications:
You must qualify as a low- or moderate-income household based on income limits in your county of residence.
The subject property must be occupied as a primary residence.
Subject property must be located in an eligible county.
The borrower must be a US citizen, a noncitizen national, or a qualified alien.
Credit. The minimum credit score is 640, though you may be able to go as low as 620 with compensating factors. If you have a bankruptcy or foreclosure, you must wait at least 36 months to apply.
Debt-to-income (DTI) ratios. As described above, you must qualify as either low- or moderate-income in your county of residence. USDA uses two DTI ratios to determine income eligibility.
First, your basic house payment – mortgage payment, property taxes, homeowner’s insurance, and mortgage insurance – shouldn’t exceed 29% of your stable monthly income.
Second, your basic house payment, plus other recurring debt payments, shouldn’t exceed 41% of your stable monthly income. However, with strong compensating factors, these ratios may be exceeded.
Mortgage insurance premium. VA loans cover this with a VA funding fee ranging from 2.15% to 3.30% of the base loan amount. USDA mortgages have an upfront fee of 1%, which is added to the base loan amount.
But they also add an annual premium equal to 0.30% of your loan amount. On a $200,000 mortgage, that will be $600 per year, or $50 per month.
When To Choose a USDA Mortgage Over a VA loan
A USDA mortgage will be worth considering if you qualify as low- to moderate-income, and can’t qualify for VA loan, based either on income or credit.
Conventional mortgages have loan limits identical to those for VA loans. But they tend to be less accommodating than VA loans when it comes to credit.
However, countering that limitation is the fact that conventional mortgages are available for the purchase of second homes and investment properties, while VA loans are not.
Much like VA loans, conventional mortgages can be used to purchase single-family homes, and two to four family properties, in which you will live in one unit, and rent out the others. Conventional financing may be used on properties throughout the US.
Qualifying for a Conventional Mortgage
Down payment requirement. This is probably the biggest difference between VA loans and conventional mortgages. While VA loans offer 100% financing, conventional mortgages typically require a minimum down payment of 5%.
Though there are programs available for first-time homebuyers and lower income households that will permit down payments as low as 3%.
Larger down payments will be required for second homes and investment properties.
Credit. Conventional mortgages require a minimum credit score of 620. However, they tend to be less forgiving than VA loans, because credit score will be a major factor determining the interest rate you will pay on the loan.
For that reason, rates on conventional mortgages tend to favor those with higher credit scores. If you have a bankruptcy, foreclosure, or short sale, you must wait a minimum of two years before applying for a conventional mortgage.
Debt-to-income (DTI) ratios. Conventional mortgages go by “28/36” – your proposed house payment, including the mortgage payment, taxes, and insurance – shouldn’t exceed 28% of your stable monthly income. The proposed house payment, plus monthly recurring debt, shouldn’t exceed 36%.
That said, DTI ratios on conventional mortgages are routinely exceeded. This is particularly true if you’re making a large down payment (20% or more), have excellent credit, or a large amount of financial assets available after closing.
Higher debt ratios may also be approved if your house payment is either remaining the same as your current one, or exceeding it only slightly.
Mortgage Insurance Premium
Conventional mortgages require mortgage insurance only when you’re making a down payment of less than 20% of the property you’re buying.
Unlike VA loans, and FHA in USDA mortgages, mortgage insurance on conventional mortgages isn’t standard.
It’ll be determined by several factors including:
The amount of your down payment (3%, 5%, 10%, 15%)
Your credit score
The term of your loan
The type of loan (fixed vs. adjustable rate)
Property use (owner-occupied or second home)
For those reasons, it’s impossible to generalize what the mortgage insurance premium will be. However, conventional mortgages come only with monthly mortgage insurance premiums.
There is no upfront mortgage insurance premium, either added to your loan amount or required to be paid up front.
When To Choose a Conventional Home Loan Over a VA loan
A conventional mortgage will be a better choice for an eligible veteran or active military person if he or she prefers not to use their VA entitlement for the purchase of a particular property.
That can be a situation in which you’re purchasing a home which will eventually be converted to an investment property.
You may want to save your VA entitlement for the purchase of your next house, which will be more permanent.
Conventional mortgages will also be necessary if you’re purchasing either an investment property or a second home. Since VA (and for that matter, FHA) mortgages don’t cover those property types, conventional mortgages will be the only choice.
Final Thoughts on VA Loan Alternatives
It’s worth repeating – in most cases, eligible veterans and active duty military personnel will be better served by taking a VA loan.
But if any of the above listed exceptions apply to you, you should look into one of the VA loan alternatives.
Be sure to carefully decide which of the three will be in your best interests.
One of the main reasons veterans choose VA loans to purchase a home is because of the zero down payment requirement.
But did you know that VA loans aren’t the only loan program that provides 100% financing?
If you live in a rural area and qualify as a low- to moderate-income household, you may qualify for a USDA loan.
What’s more, the USDA has a very generous definition of what constitutes “rural”. In most cases, that extends to suburban locations.
Chances are, you live in a USDA approved county.
If you have a choice, VA loan vs. USDA loan, which should you choose?
Both are excellent home financing options. It’s just a matter of choosing the one that will work best for your particular situation.
VA Loan vs. USDA Loan – The Basics
Both VA loans and USDA loans are sponsored by US government agencies. In the case of VA loans, that’s the Veterans Administration.
But as the name implies, USDA loans are sponsored by the United States Department of Agriculture.
Though most people assume the USDA is mostly about farming, they do provide home financing as well.
In the case of both loans, financing is actually granted through private lenders. However, either the VA or the USDA provides a guarantee for the lenders in the event the borrower defaults.
It works much like private mortgage insurance for conventional mortgages, and it makes it possible for private lenders to extend financing in situations where they ordinarily might not.
One significant difference between VA loans and USDA loans is eligibility.
Only eligible veterans and active duty military personnel can access VA loans. USDA loans are available to the general public.
By contrast, USDA loans have income limits, while VA loans have no income limits whatsoever. VA loans are designed to provide financing for between one and four family properties. That includes both purchases and refinances.
USDA loans are restricted to single-family homes only, since properties are not permitted to produce income.
Acceptable use of funds includes building, repairs, renovation and home relocation, or the purchase and preparation of home sites, including water and sewage setup. (These are property related activities that would not be uncommon in a rural location.)
However, neither program makes financing available for either vacation homes for investment properties.
Maximum Loan Amounts
VA Maximum Loan Amounts
The maximum VA loan total is $484,350 in most locations. However, that number can be increased to $726,525 in places determined to be high-cost housing markets.
Loan amounts are decided at the county level, so you’ll need to check the loan limits for any county you suspect to be in a high-cost area.
The maximum loan amounts are higher for two-to-four unit properties, and are as follows:
Two units: $620,200 (up to $930,300)
Three units: $749,650 (up to $1,124,475 )
Two units: $931,600 (up to $1,397,400)
But once again, be sure to check county level loan limits in high cost areas.
VA Jumbo Loans
It’s possible to use a VA loan to purchase a high price property, even if the loan amount necessary exceeds the published VA loan limits listed above. But that ability does come with certain requirements.
You’ll need to provide a down payment that’s 25% of the difference at which the loan amount exceeds maximum limits.
If you were to buy a single-family home at $584,350, your downpayment should be $25,000. This reflects 25% of $100,000, the portion of the purchase price in excess of the general VA loan maximum of $484,350.
This of course eliminates the 100% financing benefit VA loans are so well known for.
But it does give eligible veterans and active duty military personnel the ability to purchase higher-priced properties with smaller down payments than would be the case with conventional mortgages.
USDA Maximum Loan Amounts
Unlike VA loans, USDA loans have no nationwide maximum loan amounts. Instead, the maximum varies not only by state, but by individual counties within each state.
The loan limits can vary considerably. For example, the maximum in Perry County, Alabama is $155,400. But in Napa County, California, the limit is $706,910.
In most counties, however, you will find USDA maximum loan amounts are lower than those available for VA loans. This is particularly true in high-cost areas.
There’s another important distinction between USDA loans and VA loans. USDA restricts certain property types from loan eligibility. Eligible properties must meet the following requirements:
Generally be 2,000 square feet or less.
Not have a market value over the area’s loan limit (as described above).
Have no inground pools.
Not built with the intention of producing income.
Interest Rates and Loan Fees
Interest rates and fees on VA loans are similar to conventional and FHA loans. Loans can be either fixed rate or adjustable rate and can range in terms from 15 years to 30 years.
Interest rates will vary based on market factors, but you can generally expect closing costs to range between 2% and 5% of the purchase price of the property.
Interest rates on USDA loans are structured as followed:
Fixed interest dependent upon current market rates at the lower of the time of approval or loan closing.
Interest rate as low as 1% with modified payment assistance
There is a payback period of up to 33 years, or 38 years for applicants with low incomes who can’t afford the payments on a 33-year loan. However, you can select a shorter loan term.
Similar to VA loans, closing costs can range between 2% and 5% of the purchase price of the property. But here again, there is an important departure between the two loan types. With VA loans, closing costs must be paid either by the borrower, the seller, or the lender.
In the case of USDA loans, borrowers can include their closing costs in the loan amount.
This will result in a loan amount greater than 100% of the purchase price of the property. However, sellers can pay up to 6% of closing costs for buyers, avoiding the need to add those costs to the loan amount.
USDA loans are the only mortgage types that allow closing costs to be added to the loan amount.
Down Payment Requirements
Generally speaking, the biggest single benefit of VA loans is 100% financing. That means a veteran can purchase a home with no down payment.
That’s a major advantage for active duty military personnel, or those recently discharged, who may not have time to accumulate a down payment.
But USDA loans come with the same benefit. Once again, 100% financing means no down payment requirement.
And as discussed above, it’s the only mortgage type that permits you to add your closing costs to the loan amount.
Eligible veterans and active duty military personnel should consider USDA loans if they are unable to qualify for a VA loan based on income requirements.
Loan Program Eligibility
VA loans are available to any eligible veteran or active-duty military personnel. Loans are available across the US, and there are no income restrictions.
USDA loans, however, have very specific requirements.
You must qualify as a low- or moderate-income household based on income limits in your county of residence.
The subject property must be occupied as a primary residence.
As described earlier, the property must be located in an eligible county.
The borrower must be a US citizen, a noncitizen national, or a qualified alien.
There are significant differences between the two programs where credit is concerned.
Depending on your county of residence, the limits for a household with up to four members is between $75,650 and $153,400 (in higher cost counties).
Unlike VA loans, USDA loans use two DTI calculations. The first is for your proposed housing payment.
Including mortgage principal and interest, real estate taxes, homeowner’s insurance, mortgage insurance, and any homeowner’s association fees due, it’s generally limited to 29% of your stable monthly income.
But your total DTI – which is your new house payment, plus recurring debts like auto loans and credit cards – is limited to 41%.
This is the same as the DTI for VA loans. But just as in the case with VA loans, the acceptable DTI on USDA loans can exceed the guidelines with strong compensating factors.
Mortgage Insurance Requirements
VA Mortgage Insurance
This is referred to as the VA funding fee. It’s an upfront charge that’s added to the loan amount. However, there is no monthly mortgage insurance premium on VA loans.
The amount of the fee varies based on what type of loan it is, and the kind of veteran.
USDA Loan Mortgage Insurance
Like VA loans, USDA loans have an upfront mortgage insurance premium that’s added to your loan amount. The fee is 1% of your base loan amount.
There is also an annual premium of 0.3% of your loan amount.
For example, if your base loan amount is $200,000, the annual premium will be $600. That will be added to your monthly premium at $50 per month.
Renovations and Repairs
Both VA loans and USDA loans offer renovation and repair capabilities.
VA Rehab Loans
The VA has a specific mortgage program for making renovations and repairs to a home. They can be used for either a purchase or a refinance.
For example, you can purchase a property that’s in substandard conditions, and a VA rehab loan will provide funds for both the property purchase and renovation.
Under the program, your loan amount will be the lower of either the as-completed value of the property – which is its market value upon completion – and the purchase price and actual cost of the renovations. (The latter is referred to as the “acquisition cost”.)
A home’s acquisition cost equates to the purchase price, along with an estimate of renovation costs, plus a contingency for up to 15% of the renovation costs, and f permit, inspection, and title update costs.
The veteran will be able to borrow 100% of the lower of the as-completed value or the acquisition cost. VA rehab loans can also be taken for the refinance of your current home.
USDA Housing Repair Loans and Grants
Similar to the VA, the USDA provides loans to repair, renovate, or upgrade your home. As is the case with USDA loans in general, they’re intended for low- to moderate-income borrowers.
You can receive a loan of up to $20,000, but there are also grants available for up to $7,500.
If you qualify for the grant, it can be added to your loan amount, giving you a total of $27,500. (Eligibility for grants requires a minimum age of 62.)
Renovations and repairs can include installing energy efficient upgrades, removing safety and health hazards for very low elderly homeowners, and many other improvements.
However, there are stiff requirements to be eligible for the program.
For example, you must earn less than 50% of the median income in your county of residence. You must also be unable to qualify for a loan from an alternative source.
Final Thoughts on VA Loan vs. USDA Loan
The primary advantage of both VA loans and USDA loans is that both offer 100% financing. That can enable you to purchase a home, and even make improvements, with no upfront cash outlay.
If you’re an eligible veteran, a VA loan will generally be the better option, since it provides more generous loan amounts and imposes no income restrictions.
But if you qualify as low- to moderate-income and can’t qualify for VA loan, a USDA loan is definitely the way to go.
One last point – never assume your county of residence is ineligible for USDA loan because it isn’t rural.
USDA loans are available in the vast majority of counties in all 50 states. This includes not only traditionally rural counties, but also the majority of suburban counties.
USDA loans give veterans an additional zero down payment option to purchase a home.
They have relatively limited use, given the income restrictions. But if you qualify, they may prove to be an even better choice than a VA loan.
Nearly any mortgage lender will tell you a VA loan is one of the very best deals in the industry. Some would even say it’s the best.
But despite all its benefits – no down payment, relaxed credit guidelines, and less restrictive income requirements – there are disadvantages of a VA loan.
There are only a few, but they’re well worth being aware of before applying for a loan. In some cases, you may even need to apply for a different type of financing.
What are the disadvantages of a VA loan?
1. You’ll Have Zero Equity in Your Home
This one is somewhat ironic, because it’s perhaps the biggest advantage of a VA loan, but it can also be a disadvantage.
100% financing means a zero down payment. That’s a sweet deal at the time of purchase.
After all, you won’t need to come up with any money out-of-pocket to make the buy. And if the seller or the lender will pay the closing costs and escrows, you can buy a home with no cash outlay whatsoever. So far so good.
But once you move into the home, you’ll own a property that’s 100% financed. In fact, when the VA funding fee (see section #4 below) is added to the loan amount, you’ll actually be in a negative equity position from the very beginning.
If the property you’re purchasing is in a rising market, that’s little more than a temporary problem. As the value of your home increases, and you begin paying down your mortgage balance, you’ll gradually build equity.
But if the market is either flat or declining, it can become a major problem.
For example, if you need to sell the home and you have no equity, you may be forced to write a check at the closing table to cover any closing costs associated with the sale. If the value of the home falls significantly, the check will have to be even bigger.
In a real way, VA loans hold the possibility of needing to make a down payment equivalent on the sale. That’s not a common outcome, but it is a potential disadvantage to be aware of.
2. VA Loans Cannot be Used to Purchase Vacation Homes or Investment Property
One of the primary limits of VA loans is that they can only be used to purchase or refinance owner-occupied properties.
If you want to purchase a vacation home or investment property, you’ll need to use conventional financing. That isn’t to say you can’t use a VA loan to purchase a home that provides rental income.
You can purchase a property that has up to four units, in which you occupy one, and rent out the other three.
But if you were to purchase the same property, planning to rent out all four units, it won’t be eligible for VA financing.
For that matter, you won’t be able to use an FHA mortgage either. But conventional mortgages can accommodate both second homes and investment properties.
However, understand the guidelines are more restrictive.
You’ll have to make a larger down payment and have a better credit profile and a lower debt-to-income ratio to qualify.
VA loans are an excellent choice for your primary residence, but they can’t help you finance other types of properties.
3. Seller Resistance to VA Financing
In truth, VA loans are only slightly more complicated than conventional mortgages, if they’re even more complicated at all.
But many sellers think back to a time, just a couple of decades ago, when VA loans were more restrictive. This was particularly true with the condition of the property.
But the VA has largely streamlined the process, making it very close to that for conventional mortgages. Unfortunately, not all sellers are fully aware of that.
But there still are some VA loan factors that might make a seller uncomfortable:
VA appraisals. VA appraisers do impose minimum property requirements (MPRs), requiring a home to meet agency guidelines for safety and livability. However, this is largely true of all mortgages, including conventional loans, so it’s something of a myth.
Seller paid closing costs. These are common in some markets, but they’re extremely typical with VA loans. A veteran who is purchasing a property with a 0% down payment, will be highly likely to seek seller paid closing costs as well. If the seller is reluctant to pay these, he or she may frown on accepting an offer with a VA loan attached to it.
Delays due to paperwork. Because VA loans involve dealing with a government agency, delays due to paperwork can extend the closing process. This is particularly true if the veteran is either slow to obtain a VA Certificate of Eligibility, or if there’s a problem with the certificate.
In reality, none of these perceived obstacles are as significant as many sellers believe them to be.
But perception can be hard to overcome, and some sellers may definitely need to be persuaded by a good real estate agent to accept an offer that includes a VA loan.
4. The Funding Fee is Higher for Subsequent Use
VA loans come with an upfront charge, known as the VA funding fee. This is a fee collected by the Veterans Administration to insure loans made under the program.
For example, if a VA borrower defaults on their mortgage, the VA will reimburse the lender for a certain percentage of the loan if the foreclosure sale of the property is insufficient to pay off the entire balance.
This is basically private mortgage insurance for VA loans. Conventional and FHA loans also have mortgage insurance, and both collect it on a monthly basis (FHA also has an upfront charge).
One of the major benefits of a VA mortgage is the absence of monthly mortgage insurance.
But one of the disadvantages with the VA funding fee is that it’s higher for subsequent use.
The increased fee looks like this:
Regular military: 2.15% for the first use, 3.3% for subsequent use.
Reserves and National Guard: 2.4% for the first use, 3.3% for subsequent use.
To translate those percentages into dollar figures, a first-time use of the VA loan for $200,000 will result in a VA funding fee of $4,300. A subsequent use on the same loan amount will be $6,600.
In most cases, the funding fee is added to the loan amount. On the first use, the loan amount including the funding fee will be $204,300. But upon subsequent use, the loan amount will be $206,600.
If you’re paying a 4% interest rate on your mortgage, the monthly payment on a first use loan amount of $204,300 will be $975.
A 4% rate on your mortgage for a subsequent use loan amount of $206,600 will be $986. That’s only $11 more per month, but it adds up to $3,960 over the 30-year term of the loan.
5. Not All Lenders Offer – or Understand – VA Loans
There are hundreds of mortgage lenders across the country, but not all offer VA loans. This is often true of banks, but also of many online lenders as well. The relatively limited number of VA lenders has the potential to narrow your options for funding sources.
Some lenders do offer VA loans but provide them only infrequently. This type of lender makes a major contribution to the negative perceptions sellers have of VA loans.
Because of their lack of experience, the loan process takes longer, and mistakes along the way that can make the closing process uncomfortable for both the buyer and the seller.
In extreme circumstances, a seller may revoke the contract. This can often be done automatically because real estate contracts typically include language requiring the buyer to obtain financing by a specified date.
If the veteran is unable to do so by the cutoff, the seller can simply refuse to extend the deadline.
This is why it’s so very important to work only with lenders that do a substantial amount of VA loan business. They should have specialists on staff who work primarily or exclusively with VA loans.
That type of concentration streamlines the process and can make VA loans no more complicated than conventional mortgages.
If you’re going to apply for a VA loan, do some serious research on the lender. Get referrals from other veterans who obtained VA loans from local lenders.
If they had a good experience with those lenders, they should be high on your list of financing sources.
Final Thoughts on the Disadvantages of VA Loans
The purpose of this list isn’t to discourage you from applying for a VA loan if you’re a veteran. Rather, it’s to help you to be a more informed consumer.
To do that, you’ll need to be aware of the disadvantages as well as the benefits.
A big part of the “mission” at The Military Wallet is to equip you with all the information you’ll need to successfully purchase a home with a VA loan.
That requires knowing all sides of the VA loan process, including those that might not be entirely pleasant.
But armed with this information, you should be able to successfully work around disadvantages of VA loans, and purchase the home of your choice.
If you’re a veteran or active-duty military, VA home loans are one of the best mortgage financing deals available.
But did you know the VA also offers rehab loans, enabling you to purchase a “handyman special” at a lower price and convert it into the property of your dreams?
The addition of VA rehab loans makes the whole VA home loan program even more attractive. VA rehab loans aren’t a separate loan program.
Since they add an additional dimension to regular VA home loans, let’s start by discussing the basics of VA home loans, then delve into rehab loans.
Regular VA Home Loans
Regular VA home loans provide eligible active-duty military personnel and veterans with the advantage of 100% financing.
Loans are available for one-to-four, family owner-occupied properties, and not for vacation homes or investment properties.
VA Funding Fee
Another major advantage is in the area of private mortgage insurance. Both conventional and FHA mortgages require monthly premiums for this coverage, and it can be particularly steep on conventional loans with low credit scores.
But VA loans don’t require monthly mortgage insurance. Instead, they require a VA funding fee, which is added to the loan amount, and financed over the term of the mortgage.
Regular Military: 2.15% of the loan amount for a first-time use, 3.3% for subsequent uses.
Reserves/National Guard: 2.4% for first-time use, 3.3% for subsequent uses.
Cash-out refinances, regardless of equity:
Regular Military: 2.15% for a first-time use, 3.3% for subsequent uses.
Reserves/National Guard: 2.4% for first-time use, 3.3% for subsequent uses.
Interest rate reduction refinance loans (IRRRLs):
.50%, regardless of equity
VA Loan Limits
You can borrow up to $484,350 for a single-family residence for 2019. But that amount increases to as much as $726,525 in areas considered to be high-cost housing areas. The higher loan amounts are based on the county where the property is located.
Limits for 2-4 family properties are as follows:
Two units, $620,200 (up to $930,300 in high cost areas)
Three units, $749,650 (up to $1,124,475 in high cost areas)
Two units, $931,600 (up to $1,397,400 in high cost areas)
You can also exceed those loan limits through VA jumbo loans. You’ll need to qualify for the higher loan amounts based on your income, and you should expect to make a down payment.
The down payment is 25% of the amount of the loan that exceeds the loan limits listed above.
For example, if you purchase a single-family home for $884,350, you’ll need to make a down payment of $100,000, which is 25% of the $400,000 by which the purchase price exceeds the single-family loan limit of $484,350 in a non-high cost housing market.
Credit. VA loans don’t have a minimum credit score requirement, but you do need to have clean credit for at least the past 12 months.
This applies especially to either your rent or current mortgage payment. However, individual lenders can impose their own credit score minimums.
Where this is the case, the minimum is sometimes as low as 580, but more typically 620.
If you had a chapter 7 bankruptcy or a foreclosure, you must have at least two years of clean credit to be eligible for a VA home loan. But if the foreclosure involved another VA loan, the waiting period is three years.
Income qualifications. All lenders determine income eligibility based on what’s known as a debt-to-income ratio (DTI). This is the proposed house payment on the new mortgage, plus any recurring monthly debts.
For example, if you have a stable monthly income of $5,000, a new monthly house payment of $1,500, and other recurring monthly debts of $500, your DTI will be 40% ($2,000 divided by $5,000).
But unlike conventional and FHA mortgages, VA loans also make use of a second income qualification, referred to as the residual income method.
It works by taking your stable monthly income, then subtracting your new house payment, recurring debt payments, and typical living expenses, like utilities, income taxes, and insurance.
The amount left over – or residual balance – should be sufficient to cover an allowance based on your household family size. But generally, if you meet the DTI ratio, you’ll also meet the residual income requirement.
VA Rehab Loans
All the above requirements and guidelines that apply to regular VA home loans also apply to VA rehab loans. The main difference is that VA rehab loans enable you to purchase a property, while providing the financing necessary to make any required renovations.
While regular VA home loans are for the purchase of properties that are ready to move into, VA rehab loans are designed with the fixer-upper in mind.
This can be an important advantage in high-priced markets, where “turnkey” properties are priced out of reach, even for veterans with 100% financing available.
Buying a house that needs some elbow grease can enable veterans to buy a property that’s much more affordable.
Using a VA rehab loan, the veteran can not only get the needed funds to purchase the property, but also to make necessary improvements.
In more typical cases involving property renovations, buyers will have to pay all cash for the purchase, then either come up with additional funds for the repairs, or secure another source of financing.
The Basics of VA Rehab Loans
VA rehab loans are available for both eligible VA purchases and refinances.
In the case of purchases, a house must normally meet the VA’s minimum property requirements for safety and livability. But with a rehab loan, you can use the proceeds of the loan to bring the property up to those minimum standards.
Completing required renovations. One of the complications of a rehab loan is that you have to work with a VA registered contractor or builder to complete the repairs. That is, you won’t be able to buy a property using a VA rehab loan and perform the repairs yourself.
The lender will act as the overseer of the project. They’ll monitor the progress of the renovation work to make sure it’s consistent with the rehab plans.
The lender will ensure that the project is completed according to the plans, specifications and contract documents.
Funds are disbursed as progress is verified and approved by the veteran. Disbursement of funds for rehab costs will be paid out of a draw account established by the lender.
Applying for VA Rehab Loans
Once you select a property, it’s time to apply for a VA loan. You must work with a lender that participates in the VA rehab loan program – not all do. Also be aware that even if a lender participates, they may have a maximum dollar amount on the renovations.
For example, a particular lender may have a limit of $75,000 for total repair and renovation costs. If the property selected will need $95,000 in repairs, you’ll need look for another lender.
The VA doesn’t impose a maximum renovation amount, so this can vary from one lender to another.
When applying for a VA rehab loan, you’ll actually be applying for two separate loans. The first will be for the purchase price of the home, based on the price specified in the contract.
The second will be for the cost of the renovations. Once the renovations are completed, the two loans will be rolled into a single mortgage with one monthly payment.
For that reason, you’ll have to have a plan – including projected costs – for the renovations to the property. This will need to be prepared by the VA approved contractor or builder.
Types of Rehab Loans
Types of repairs and renovations permitted include:
Replacement of the furnace, air conditioning, or other major home components
Roof repair or replacement
Floor repairs or replacement
Repairs to the foundation of the home
Repair or replacement of plumbing or electrical systems
Costs for the actual VA rehab loan are similar to those for a regular VA loan. However, while lenders typically charged a 1% origination fee on mortgage loans, they can charge up to 2% in addition as a construction fee.
This compensates the lender for the fact that it essentially manages the renovation project from the initial purchase of the property through completion of all repairs.
VA Rehab Loan Appraisals
Most mortgage lenders will require an appraisal to be performed on a property for just about any type of mortgage, including VA loans. But the appraisals required for VA rehab loans are more specialized.
The lender will order an appraisal on the property, to be performed by a VA appraiser.
The appraiser will provide a notice of valuation (NOV), that will estimate both the acquisition cost of the property, and the as-completed value. We’ll go into the as-completed value in the next section, but concentrate on acquisition cost here.
The acquisition cost is the actual final price you’ll pay for the property, once all costs are factored in. Those costs include:
The purchase price of the property,
The total cost of anticipated renovations,
A contingency reserve up to 15% of the renovation costs, and
Fees for permits, inspections, and title updates.
The property will be considered 100% complete when a final inspection is provided by a VA appraiser.
The appraiser certifies all VA minimum property requirements have been met, and the house has been fully improved consistent with the original plans, specifications, approved change orders, and the as-completed value of the appraisal has been maintained.
Determining the Loan Value for VA Rehab Loans
The value the lender will use for loan purposes will be the lower of acquisition cost or the as-completed value. We just discussed how acquisition cost is calculated. But as-completed value will represent the market value of the property after completion.
For example, let’s say the total acquisition cost of the property is $225,000, but the as-completed value – the price at which the property would likely sell – is $215,000.
The lender will base the value on the as-completed value, since it’s the lower of the two. Your maximum base loan amount then will be $215,000.
Turning the situation around, if the acquisition cost of the property is $235,000, but the as-completed value is $250,000, the base loan amount will be $235,000.
However, you’ll then be in the enviable position of owning a property worth $250,000, that cost you only $235,000 to buy and finance.
NOTE: If the acquisition cost is higher than the completed value, you’ll have to provide the additional funds at closing.
In the example given above, of an acquisition cost of $225,000 in a completed value of $215,000, you would need to come out of pocket with $10,000 to cover the difference.
This makes an important case for not over-improving the property, which is spending more on renovations than the final market value of the property can justify.
VA Rehab Loans for Refinances
If you want to make renovations to a property you already own, the process is similar to a purchase. However, the acquisition cost is calculated by adding the existing loan amount to the renovation costs, contingency reserve, and fees.
When the renovations are completed, the original mortgage is replaced by a new loan, that includes renovation costs.
But just as is the case with a purchase, the lender must use the lower of the acquisition cost or the as-completed value. So if the total acquisition cost is $150,000, but the as-completed value is $140,000, the maximum base loan amount will be $140,000. The remaining $10,000 in renovation costs will come out of your pocket.
Probably the major factor separating VA home loans from VA rehab loans is the loan process itself.
It’s more complicated, due to the fact that steps need to be taken to improve the property after the closing. Naturally, the more renovation work that’s required, the longer that process will be.
With a regular VA loan, you’ll close on the property, move in, and get on with your life. With VA rehab loans, you’ll close on the property, wait several weeks or months while renovations are being completed, then move into the home.
It’s a more formal process than what you will see on the typical property rehab programs on TV, where the buyers are doing their own repair work.
But since you’ll be using a builder or contractor to do the work, under the supervision of the lender, the renovation process should go more quickly.
If you’re a veteran, use a regular VA home loan for property that’s move-in ready. But if you want to save some money on the purchase price, buy a property that needs some TLC, and use a VA rehab loan to get the job done.
Most military service personnel already know about VA loans. Backed by the federal Department of Veterans Affairs, these loans help vets and current military members buy safe and affordable houses.
But VA loans aren’t the only way Uncle Sam can help you buy a house of your own.
The Federal Housing Administration subsidizes loans for civilians who need help buying into the real estate market.
A vet may have both options — an FHA or a VA loan. Or a vet may choose neither option and apply for a conventional loan. As always, you should get the loan that best suits your specific needs.
How VA Loans Work
Almost all vets and current military members meet the military service requirements of a VA mortgage loan:
Having served 90 or more consecutive days of active duty in a time of war.
Having served 181 or more consecutive days of active duty during peacetime.
Having served six years or more in the Reserves or the National Guard.
Being the spouse of someone who died because of a service-related disability or while performing in the line of duty.
If you meet one or more of these military requirements, you can be considered for a VA loan of up to about $484,000 in most markets.
To obtain a VA loan, you’ll also need to consider these financial requirements:
Credit Score: Typically you’ll need a median credit score of at least 620, though some lenders may make exceptions if your score is close to 620.
Debt-to-Income Ratio: The VA’s benchmark for debt-to-income ratio is 41 percent. Again, your lender has the freedom to make its own decisions. This benchmark is more of a guideline.
And, finally, the VA will want to know more about the home you’re buying before backing your loan:
Safety: The VA defines Minimum Property Requirements and will inspect your new home to make sure it complies with regulations. Expect an inspection of the house’s plumbing, HVAC system, and roof along with other key systems.
Suitability: Minimum Property Requirements also include the home’s suitability for you and your family. A 2-bedroom, 1-bathroom house may not be suitable if you have five children, for example.
Planned Use: The VA won’t back a loan unless you’re buying a home you’ll use for your primary residence. You can’t borrow to buy a second home or rental property. One potential exception: if you’re buying a duplex or an apartment building, assuming you plan to live in one of the units.
Benefits of a VA Loan
It may seem like a VA loan requires a lot, but the criteria have a common goal: to help vets access the real estate market by buying a safe and suitable home.
No Down Payment: This may be the most valuable benefit in any subsidized loan program. Conventional and even FHA loans require money down. Even a 3.5 percent down payment on a $200,000 house would equal $7,000.
Relaxed Requirements: Compared to a conventional loan, a VA loan’s credit requirements, which we discussed above, let more applicants through the door.
No PMI: Most loans, including FHA loans, require borrowers to pay private mortgage insurance which protects the lender if you default. With VA backing, a borrower doesn’t need to pay PMI premiums.
Flexible Payback: Unlike most mortgages, a VA loan allows the borrower to pay back the loan in a variety of ways including a graduated structure which has lower payments at the beginning of the term.
Lower Interest Rates: With so many variables we can’t quote reliable interest rates here, but VA loans typically offer rates lower than conventional loans and FHA loans. A lower rate can save you thousands of dollars over the life of a 30-year fixed rate mortgage.
FHA Loans and How They Compare
Subsidized loans through the Federal Housing Authority help lower-income borrowers buy homes. FHA loans work a lot like VA loans. We’ll focus on the differences:
Credit Score: While a VA loan requires a median of 620, FHA borrowers could get into a home even with a median credit score as low as 500.
Down Payments: An FHA loan requires a down payment. The payment varies from 3.5 percent to 10 percent depending on creditworthiness. More qualified borrowers can pay less down.
Debt-to-Income Ratio: FHA loans benchmark debt-to-income ratio at 43 percent which is a little higher than the VA’s 41 percent benchmark.
Private Mortgage Insurance: An FHA loan will require the borrower to buy and maintain mortgage insurance in case of default.
Interest Rates: As we said above, you can likely access better interest rates through a VA loan, though each case can be different.
Suitability Inspections: As with a VA loan, FHA loan underwriters will want to make sure the home they’re backing meets certain safety requirements. The presence of lead paint in homes built before 1978 often trips up FHA loans during closing, for example.
Which Is Better? An FHA or VA Loan?
We’ve gone over the differences, so which program is better? It depends, of course, on your specific needs:
Why Would You Get an FHA Loan?
If you have a score in the 500s, you probably won’t qualify for a VA loan. An FHA loan may be your only option.
Other reasons to consider an FHA loan first include:
Assumability: In some cases, an FHA loan can be transferred to someone else who qualifies as a borrower. This could make selling the home easier and cheaper. Ask your loan officer for more details if this could help you.
Renovations: If you’re buying a property you’d like to update in the near future, the FHA’s 203K program can provide flexible financing in the future without requiring a new loan.
Why Would You Get a VA Loan Instead?
A VA loan can typically outperform an FHA loan on interest rates, and you can avoid PMI and a down payment.
Other reasons to go with a VA loan:
You’ve Earned It: As a veteran or active duty service member, you’ve earned the support of your country on your mortgage loan.
Flexible Repayment: As mentioned above, you can find a variety of ways to repay your VA loan. Check with your loan officer to see which plan meets your needs.
How Conventional Loans Fit In
You can probably qualify for a VA and an FHA loan, but what if you also qualify for a conventional loan?
With a conventional loan, you’ll have to lean more on your creditworthiness because the federal government does not back your application.
You can also expect to pay 10 percent down for a conventional loan. If you can afford to pay 20 percent down, you can avoid private mortgage insurance altogether, which can save hundreds of dollars a year.
Advantages of a Conventional Loan
Because you’re working directly with your lender, a conventional loan can be easier to secure. You won’t have to worry as much about cutting through red tape.
Other advantages include:
No Use Restrictions: You can borrow to buy a vacation home or a rental property.
No Extra Inspections: You still need a home inspection for your protection and an appraisal to satisfy the lender, but the federal government won’t be inspecting your new home.
A Faster Start: If you can afford a sizeable down payment, you’ll be well on your way to owning the home outright. You’ll have equity from day one, especially if you can afford 15 or 20 percent down.
More Flexibility: You’re more likely to find an adjustable-rate mortgage with a conventional loan. Though not for everyone, these loans can help some buyers.
Higher Borrowing Limits: Conventional loans typically allow you to borrow more than an FHA or VA loan, both of which have reasonable limits which vary from market to market.
Finding a VA Lender
Most lenders have the authority to issue mortgages backed by the VA or the FHA. In fact, you could probably walk into any bank in your town and apply for one of these loans.
But not all lenders offer the same kind of service. We recommend working with the following lenders for VA loans:
Veterans United: This lender was established specifically for the purpose of connecting veterans with VA loans.
loanDepot:This platform pairs borrowers with suitable lenders for VA, FHA and more loans for home-buying and refinancing.
Quicken Loans: The top civilian-based option on our list, Quicken Loans’ Rocket Mortgage has revolutionized the process of getting a mortgage online. The lender offers VA and FHA options.
JG Wentworth: Expect top-quality customer service with this lender which offers FHA and VA loans.
Other Things to Know about House Buying
No matter what kind of house you’re buying or what kind of loan you’re getting, some truths about home buying will be universal:
Consider a Realtor: Some people balk at the sales commission realtors get, but they earn the money in most cases. Plus, unless you’re buying a For Sale By Owner, you’ll be paying a commission to the seller’s agent. When you also have an agent, both agents split the same commission.
Get a Quality Inspection: A good home inspector can save you a lot of time and trouble. Expect some minor issues if you’re buying an older home. But if your inspection uncovers something major like structural instability or an ancient electrical system, consider finding another home.
Buy Good Homeowners Insurance: In case of a fire, storm, or other damage to your home, your homeowners insurance policy can protect you from losing part or all of your investment.
Bottom Line: The Right Loan is the Right Start
For many people, buying a home becomes the first step toward financial independence. Not only can you stop paying rent, but the money you spend on your home can unlock a more stable financial future.
Your mortgage loan is simply a stepping stone to get you there. Whether conventional, VA, FHA, or some other program like USDA, the right loan will be the loan that best meets your needs as a borrower.
As you explore options, consider how each loan’s requirements and benefits match your specific needs.
In most cases, veterans will find the VA uniquely situated to provide the support they need.
But you have the right to branch out if another loan program works better for you.