Should you take on a VA loan to mortgage a house? With a VA loan, you don’t have to put any money down. It’s attractive, of course, to people who have not saved enough money to pay the 20% required for a conventional loan but feel they must have a house NOW.
It was apparently attractive to the couple who bought the house we used to live in after we’d moved from the Dallas, Texas area to rural southeast Oklahoma, because they purchased our former home with a VA loan.
And now I regret – just a little bit – accepting their offer.
First, you have to understand that Texas somehow escaped the housing bubble that occurred in the late 1990s and early 2000s. By the time we sold our house in late winter of 2014, the Dallas area had become a seller’s market. A friend of mine, whose mother is a Realtor, told me that some of her mother’s deals were going down like this: she was representing Buyer A. Buyer A was really interested in House B, which had just come onto the market. Buyer A made an offer, offering to pay the whole asking price as well as all closing costs.
The Realtor submitted the offer. A few hours later, the seller’s Realtor called her and said, “We can’t accept your offer because someone else offered us $10,000 above the asking price.”
While the houses in our neighborhood weren’t exactly being snapped up like that, they did go quickly, and usually for the asking price. So it’s not like we HAD to accept the first offer that came our way.
Second, we had already moved out of our house and were eager to get the money from its sale – we would get all of it, since we had paid off the mortgage – to put into the investments we are living on. So when we got our first offer within 24 hours of putting it on the market – yes, you read that right; and that is normal for the Dallas area right now – and the couple had written us a nice note saying that they loved our house and practically begged us to accept their offer, we did. As usual, they were asking full price and not asking us to cover any of the closing costs.
Then I found out they were going to purchase our house using a VA loan. In the meantime, a second offer – exactly the same – came in the next day. These people were going to take out a conventional mortgage with 20% down. But we had already accepted the first offer.
What’s wrong with a VA loan?
The problem with a VA loan is that it allows people to purchase homes that they can’t really afford. If you don’t have $40,000 to put down on a $200,000 house, you either
- Have not been responsible with your money, or
- Don’t make enough money to save for a house.
In either case, taking on a VA loan is dangerous. Since you’re not putting anything down – or, if you do, it will be only a tiny fraction of the cost – your monthly payments are going to be larger that if you’d paid 20% down. Not only that, but going the financially-free route of choosing a fifteen-year mortgage probably isn’t even an option for you. There’s no way you could afford the monthly payment for a fifteen-year mortgage when you haven’t put anything down.
This all translates to much greater financial risk for you. You would be much better off staying in an apartment, or looking at smaller houses in more modestly-priced neighborhoods where you might be able to cough up a 20% down payment.
Finally, my public apology.
For these reasons, I want to apologize to the couple who bought our suburban home. I want to apologize for letting y’all buy it. Because my husband and I were in a hurry, we allowed you to make a choice that wasn’t the best for you. And so I feel like our accepting your offer bordered on unethical.
Somebody will say, “But if you had rejected their offer, they would have found a similarly-priced home and made an offer on it, still taking out a VA loan.”
I don’t doubt that is true. But I’m not responsible for what other people do. I’m responsible for what I do. And when we rejected their offer, we would have told them exactly why and encouraged them to look for a less expensive house.
Should you take out a VA loan to buy a house? Only if you want to continue even longer as a slave.
Get out of debt slavery even faster by kicking “The Money Monster” out of the house. Sign up in the right sidebar to get your free copy and find out what this “monster” is and how it is eating away at your personal freedom.
To your success!