By taking advantage of the VA loan benefits, servicemembers can get on the path to building wealth with no savings and no down payment.
What is a VA Loan?
VA home loans are designed to make it easier for active and retired military and their spouses get access to home purchases. The VA home loan is a lifetime benefit, so service members can access it at any point.
The VA can help you buy, build, or repair a property you already own.
By providing guarantees for 25% of a loan value on primary residences, the VA loan makes it possible to:
- Obtain a loan with no down payment required
- Remove the requirement to pay Private Mortgage Insurance (aka PMI)
- Reduce closing costs
- Access low interest rates
VA loans have minimal requirements and make it easy for servicemembers to buy property.
Build Wealth with Property
When purchasing real estate, your aim should be for it to appreciate in value over time. For those who utilize a VA loan, that means that they can build equity in a property with no down payment.
By carefully researching areas, property buyers can find properties that are positioned for value growth. In today’s market, when property values are rising incredibly fast around the country, it doesn’t take long to see equity build in a property.
But how can you make this equity work for you to create a second source of income? By taking out a Home Equity Line of Credit (aka HELOC)
How does a HELOC work?
HELOC’s allow property owners to borrow money against the equity in their property. Essentially this loan acts as a credit card and the borrowed funds can be used at the borrower’s discretion.
Keep in mind, HELOCs typically have higher requirements than VA loans, so you’ll want to keep your other debts to a minimum, ensure that your credit score stays above 620, and have at least 15% home equity.
Let’s go over an example. If a servicemember uses their VA loan benefit for a primary residence for $200,000, then two years later that property is now worth $300,000, then you now have $100,000 in equity (plus any amount that they have paid off the loan principal). In just two years, the service member has in excess of 33% equity that can now be put to work to grow their property portfolio.
Using a HELOC, they can borrow against this equity, then use the borrowed funds to buy a second property and an income generating asset. With zero cash investment, but by getting creative with home loan structures, servicemembers have a pathway to property investment which can help them create not just one, but limitless income streams.
