Buying a home has also been the wiser financial option for a lot of military members and families who would rather pay themselves than give away money by renting and paying someone else’s mortgage.
For those who are seeking to build their own wealth, purchasing instead of renting a home in Guam, utilizing a VA loan, is a favorable choice. With the presence of three U.S. bases—Naval Base in Santa Rita, Anderson Air Force Base in Yigo, and Camp Blaz Marine base in Dededo—as well as the Guam Army National Guard, there are many active and retired veterans who are able to take advantage of this amazing resource.
There are, however, certain details that become important to be aware of before and during the application process. If you're considering renting vs buying a home in Guam or are ready to take the plunge into the island’s fantastic selection of real estate, take a look at what you should know about VA loans.
What is a VA Loan?
When purchasing a home, a VA loan is a mortgage loan offered to veterans and active service members of the United States Military. It’s insured by the U.S. Department of Veterans Affairs, which also provides services such as educational benefits and disability compensation. It's not uncommon in a place like Guam for VA loans to be the preferred type of loan for homebuyers, with plenty of military homes and personnel, current and retired, residing in the area.
Below we will look at 9 things to know about VA loans:
1. There are Eligibility Requirements
In order to be deemed eligible for a VA loan, applicants must meet the minimum service requirement, which is one of the following:
- Active-duty service members: at least 90 days of continuous active duty
- Veterans, National Guard, and Reserve members: met the active duty requirements during your time in service
- Surviving spouses: your spouse is considered missing in action or who has died while in service or from a service-related disability.
- While the threshold for eligibility in terms of time served is rather lower, it's important to make sure that you meet all the other requirements as well.
2. There is No Down Payment Required
One of the best aspects of a VA loan is arguably the fact that no downpayment is required for qualified applicants. This makes it possible for those who cannot afford a large down payment to still own their own home. That being said, you will have to demonstrate that you can pay for a mortgage. You can do so by having a good credit score, steady employment history, and sufficient income.
That being said, there is an upfront fee associated with VA loans. This fee goes to the Department of Veterans Affairs and is used to cover the cost of managing the loan program, keeping military homes in Guam functional and abundant.
3. No Private Mortgage Insurance Necessary
In addition to not being required to provide a downpayment, VA loan recipients are also not required to pay private mortgage insurance (PMI). PMI is typically required when buyers take out a loan greater than 80% of their purchase price, but VA loans eliminate this requirement. Now there is a VA funding fee, but this is generally much lower than a PMI and it's only paid once rather than year after year.
4. VA Loan Amounts are Limited
VA loans have a maximum loan amount that they can offer to borrowers, which varies based on the location of the property and other factors. And it’s good to note that Guam has one of the highest amounts at $1,089,300. These limits are based on VA entitlement, the amount that the Department of Veterans Affairs will guarantee on your home loan, which is determined by the time served and the type of service. The amount that you can afford to pay is also taken into consideration when determining your VA loan limit. Your Guam lender will examine your income and debts, the same as if you were applying for any other type of mortgage.
5. The Interest Rate is Competitive
VA loans often offer very competitive interest rates as lenders have the luxury of setting low rates since the federal government is backing this type of loan. This makes them ideal for those who are looking to save money over the course of their loan and eligible veterans and service members can typically have better luck with a VA home loan than a conventional mortgage.
Rates vary based on things such as credit score and other factors, so it's important to shop around for the best deal. Additionally, VA loans have no prepayment penalty, so if you pay off your loan early, you will not be charged an additional fee.
Here's an example of rates based on a 720+ credit score:
*Keep in mind that these rates change constantly based on market conditions
30-Year Fixed VA Purchase
- Interest Rate: 5.990%
- APR: 6.456%
- Points: 1.7500 ($5,162.50)
30-Year Streamline (IRRRL)
- Interest Rate: 7.125%
- APR: 7.287%
- Points: 0.1250 ($368.75)
30-Year VA Cash-Out
- Interest Rate: 7.125%
- APR: 7.465%
- Points: 0.1250 (368.75)
6. Buying a Home is Not Free - Closing Costs
Although purchasing a Guam home with your VA benefit costs ZERO for a down payment. There are closing fees that need to be considered. Closing costs cannot be added to the VA loan and needs to be paid at the time of closing to pay for the services of the lender and the escrow/title company. On Guam, closing costs can be between 4-5% of the purchase price.
In a Buyer’s Market when there are more homes for sale than there are Buyers buying, Buyers can ask for a Seller’s Credit. This is when the Seller helps pay for a portion or all of the Buyer’s closing cost.
The maximum credit a Seller can give can be no more than 4% of the total home loan. The Seller is also responsible for the real estate agent's commissions on both sides, the brokerage fee, and if needed, 100% of the escrow fee and the termite inspection. The Buyer pays for the VA funding fee, the loan origination fee, the loan discount points, the VA appraisal fee, and the title insurance to begin with.
There are several key differences between VA closing costs and the traditional method of buying a home:
- Non-Allowable Fees - This includes prepayment penalties, settlement charges, and attorney fees from the lender.
- Limited Origination Fee - Lenders are not permitted to charge more than 1% of the total loan amount for origination fees (underwriting and processing the loan).
- VA Funding Fee - A one-time fee with the sole purpose of supporting the VA loan program.
- VA Appraisal Fee - Typically between $700-1200 for a standard appraisal.
- Discount Points - Buying discount points means you'll need to cover the costs at the closing date.
7. VA Loans Are Reusable
Perhaps one of the best benefits of taking out a VA loan is that it can be reused multiple times. As long as you pay off your existing VA loan, you can access the full amount of your entitlement again and use it for another home purchase or refinance. This makes it much easier to qualify for a new loan, even when your credit score or employment history has changed. You don't need to worry about reapplying for the VA loan program each time you decide to buy a new home.
On top of that, there's no limit on how many times you can use the VA entitlement so long as your total loan amounts do not exceed the maximum guarantee set by the Department of Veteran Affairs. This means you can use the VA loan for multiple properties, as long as you are in good standing with your lender and still meet their eligibility requirements.
8. Certain Homes Are Not Eligible
VA loans are not available for certain types of homes, including those that do not meet minimum local building code standards or have been deemed unsafe to live in. Farms, fixer-uppers, and commercial properties are all ineligible for VA loans. Additionally, homes that are part of a unit-ownership complex, such as condominiums or townhomes, must also meet certain criteria set by the Department of Veteran Affairs to be eligible for a VA loan.
When buying a home in Guam, it's important to understand the market and the area's specific requirements for VA loans. That way, you can make sure that your home of choice is eligible and explore all available options to help you secure a loan at the best rate possible.
9. Only Guam Approved VA Lenders Can Do VA Mortgages On Guam
If you have Bank of America, Navy Federal Credit Union, or any other stateside-based banks, know that they most likely cannot do VA loans on Guam. There are only a handful of VA lenders on Guam:
Bank of Hawaii, Pentagon Federal Credit Union, Total Mortgage are 3 of the preferred lenders that Living On Guam Realty VA buyers use.
Overall Pros & Cons of VA Home Loans
Pros
- Lower closing costs
- No down payment required
- Easier qualification standards
- Lower interest rates
- Reusable
Cons
- Maximum loan amount limits
- Limited to certain homes
- One-time VA funding fees may be costly
- Ineligible for certain homes
When it comes to renting vs buying in Guam, the VA home loan program can be the deciding factor for many military personnel and veterans. With VA loans, you’ll have access to low interest rates, no down payment requirements, and a reusable loan program. While there are some cons to consider such as limited maximum loan amounts and certain homes that may not be eligible, the overall pros of taking out a VA home loan make it a popular option for those looking to purchase in Guam. Military homes in Guam are now more accessible than ever before, thanks to VA home loan programs.
By taking advantage of this distinguished and reliable program, veterans can get access to competitive interest rates, low closing costs, and flexible repayment terms. With the right real estate agent and a good understanding of the program, veterans can begin their home-buying process with less stress and higher confidence.