But if you’ve done the math, you may think you can’t afford a home. The median home value in the United States is $217,600, and prices can go much higher depending on where you’re buying. Most mortgages will include a 20% downpayment, which would be more $43,000 for $217,600 home — a hefty amount of savings.

While you can still buy with a smaller downpayment, you’ll be stuck with another cost: private mortgage insurance. PMI protects the bank in case you default on your loan, and you’ll have to pay it until you earn 20% equity in your home. The cost of PMI varies depending on your downpayment and credit score, but it’s an extra expense that you may not want to pay.

Fortunately, veterans have a way to avoid the high costs of getting into a home with a Veteran Affairs loan.

Homeownership for Veterans

VA mortgages give veterans another option when they’re shopping for home loans. While these loans are provided by private lenders, they’re backed by the Department of Veterans Affairs. That backing means that lenders are happy to give you a mortgage with no downpayment, no PMI,and low credit requirements.

With a VA loan, you can get into a home quickly, without the extra costs a conventional loan might entail. You can use a VA mortgage to buy, build, refinance or remodel a primary residence, so most homebuyers can take advantage of them.

Whether you’re a first-time homebuyer or you’re looking for a new home with room to grow, a VA mortgage can help.

Which Veterans Are Eligible for VA Loans?

Many, but not all, veterans are eligible to get a VA mortgage. Typically, you’re eligible if you meet one of the following criteria:

• You served 90 days during wartime
• You served 181 days during peacetime
• You served 6 years in the National Guard or Reserves
• You left the service due to a service-connected disability
• You’re the surviving spouse of a veteran who died while in service or due to a service-connected disability

These are good rules of thumb to see if you might be eligible, but you should review the full eligibility requirements to be sure you qualify.

If you do qualify, you’ll need to apply for a Certificate of Eligibility from the VA before you can get a loan. You can apply on the VA website or through your lender, though going through your lender is usually quicker. You’ll need to provide documentation of your service, though the exact paperwork varies depending on type of service.

Be aware, however, that getting your Certificate of Eligibility doesn’t necessarily mean you’ll be approved for a loan — a COE says you’re eligible to apply for a VA loan, but the lender still has to offer you the loan. While VA mortgages typically have more lenient requirements than other types of mortgage, your lender will have its own financial requirements.

What Are the Benefits of a VA Loan?

When you’re shopping for loans, you have lots of different options — but if you qualify, a VA loan can be one of the best. Let’s run down all of the benefits that come with a VA loan.

VA loans are easier to qualify for

Because these are loans backed by the VA, lenders tend to have more lenient credit and income requirements. Even if you don’t have perfect credit, you can usually get a VA loan (expect to need a credit score of around 620). If you’ve gone through bankruptcy or foreclosure, you’ll likely have to wait two years — but that’s still usually better than the requirements for other types of loans.

VA loans have lower costs

Unlike conventional and FHA loans, VA loans require no down-payment which can help you get into a home without spending months — or years —saving up a downpayment. And even without the downpayment, there’s no private mortgage insurance, which helps keep your monthly payments low.

But that’s not the only way VA mortgages help to keep your costs low. Your closing costs — a variety of fees required to complete your home purchase —are also limited by the VA. If you decide to pay your loan off early, there’s no prepayment penalty.

Most importantly, these loans tend to have lower interest rates than conventional mortgages. That means you’ll pay less month to month and less over the life of the loan.

The VA will help if you have trouble making payments

If you have trouble paying a conventional mortgage, you’re on your own for figuring out how to make things right. But with a VA mortgage, you can get help negotiating payment plans and loan modifications that can help you avoid foreclosure.

You’re eligible for life

There’s no time limit to get a VA mortgage: if you’re eligible, you’ll always be eligible. You can also get VA loans again and again — though you have to have paid off the previous loan before you can get another. Whether you’re buying your very first home or you’re looking for a place to retire, a VA loan can help.

VA Loan Restrictions

Though VA mortgages have many advantages over types of mortgage, they also have restrictions other mortgages lack. Before applying for a VA loan, you should know exactly how VA loans work.

You can only get a VA loan for your primary residence

While you can purchase many types of homes, they must be your primary residence. That means you can’t use a VA loan to buy a vacation home or investment property.

You also typically have to occupy the property within 60 days of closing, though that can be extended in certain cases. For active duty service members, spouses can typically fill occupancy requirements. But whenever your move-in date is, you must intend to use the home as your primary residence.

You can only borrow so much

There are limits on how much you can borrow, based on where you’re buying. In most parts of the country, VA loans can go up to $484,350, but in more expensive areas you can borrow up to $726,525. Be sure to check the maximum loan amount in the area you’re trying to buy. If you want a more expensive property than the VA will lend you, you’ll need to make up the difference with a downpayment.

Homes also need to be appraised by the VA before you can buy them, and you can’t get a loan for higher than the appraisal. In this case, you can negotiate with the seller for a lower price, ask the VA to reconsider the appraisal, or make up the difference in cash.

There’s no downpayment, but there is a funding fee

While you don’t have to make the typical downpayment of 5-20%, the VA does have a fee for granting you the loan. You’ll pay more if you served in the Reserves or National Guard, if you aren’t making a downpayment, and if you’ve gotten a VA loan in the past. The funding fee ranges from 1.25% to 3.3% of the purchase price, and can be rolled into the loan amount instead of paying it out of pocket.

However, some veterans are exempt from the funding fee: typically, disabled vets and surviving spouses don’t have to pay the funding fee to get a VA loan.

You still have closing costs

Though VA mortgages limit the amount of closing costs, there are still closing costs —and they can’t be rolled into your loan for a refinance if enough equity is available. While you may be able to negotiate with the seller to pay closing costs, you should be prepared to pay closing costs out of pocket.

No downpayment + funding fee could leave you underwater on your mortgage (you owe more than the property is worth) if property values drop.

VA Loan Downpayments

The lack of a downpayment is one of the biggest benefits of a VA loan, because you can get into a home even without the savings for a large downpayment. But even though VA loans don’t require a downpayment, you should consider making at least a low downpayment.

Putting down more than 5% or more than 10% will lower your funding fee. The lowest funding fees — 1.25% of the total mortgage amount — are for regular military who put down 10% or more. If the same veteran made no downpayment, the funding fee would be 2.15% if it’s their first VA loan or 3.3% if it’s their second VA loan. However, if you’re a disabled vet or a surviving spouse, you may be exempt from the funding fee requirement, in which case you don’t have to worry as much about the downpayment.

However, a downpayment will still save you money over time, because it will cut down on the interest you have to pay. It’s usually worth making a downpayment — even a low downpayment — if you can afford one.

VA Loan Rates

The interest rate you’ll pay on a VA loan is set by the lender, and varies based on current interest rates. Interest rates can change constantly, so if you’re serious about buying, you’ll want to talk to your lender about locking in an interest rate. This lets you lock in the interest you’ll pay at the current rate while you complete your home purchase, so you’re protected from sudden increases.

Many lenders will offer a free 30-day rate lock, but some will charge a fee for a rate lock, or charge a fee for a longer rate lock. You can lock your rate as long as you have a loan application on file and a specific property in mind. From there, you can either keep an eye on current rates and lock when they’re low, or wait until you have a contract on a house, so you have time to close without having to worry about fluctuating interest rates.

15-Year Mortgage vs. 30-Year Mortgage

The duration of your mortgage has a big impact on how much you’ll pay. Typically, your options are a 15-year mortgage — meaning you’ll pay off the loan over 15 years — or a 30-year mortgage — meaning you’ll pay off the loan over 30 years. The right choice depends on your financial situation.

A 15-year mortgage will cost you less in interest, because you have the loan for a shorter period of time. That means the total amount you pay will be less — but it also means you’ll have higher monthly payments. If you can handle the higher payments, this will save you money.

But a 30-year mortgage lets you have lower monthly payments, which can make homeownership more affordable. However, because you’ll have the loan for longer, you’ll pay more in interest, making the house more expensive over time. Still, this is often the best way to make homeownership affordable.

A mortgage is a long-term commitment, so take the time to consider what you’ll be able to afford your mortgage before you buy.

VA Loans from PenFed

If you’re considering a VA mortgage, consider getting it from PenFed. We offer competitive rates and great benefits on 15-year fixed and 30-year fixed VA loans.

All loans offer a free 45-day rate lock, letting you lock in a low interest rate while you’re shopping, no fees required. You can also use PenFed Real Estate Rewards to save even more: by using our network of real estate agents and title providers, you can save up to 0.5% of your loan (up to $20,000). That can take a big chunk out of your funding fee, making a new home even more affordable.

So, what are you waiting for? With a VA loan you can get into a home almost immediately, whether you have a downpayment or not. Start house hunting today!

To receive any advertised product, you must become a member of PenFed Credit Union. Federally Insured by NCUA. ©2019 PenFed Credit Union

Whether you’re a first-time homebuyer, a renter looking to make a purchase, or a happy homeowner, you’ll want to familiarize yourself with how your mortgage will affect your finances. So, before you take out a mortgage or equity loan, refinance your home, sell your home, or file your taxes, be sure you’re aware of these tax implications.

How Does the Tax Cuts And Jobs Act (TCJA) Affect My Tax Bill?

Starting in 2019, homeowners will see the impact of the TCJA on their federal taxes. While most of those changes limit or completely remove items you used to deduct, not everyone will see a difference on their returns. But if you have an expensive home, particularly in an area with higher property taxes, you could find yourself with a bigger tax bill.

These are the changes that are most likely to affect homeowners.

The standard deduction is higher

The standard deduction has nearly doubled, so it may be more appealing to skip itemizing deductions and simply take the standardized deduction instead. While that isn’t necessarily a bad thing (it’s possible it could lower your tax burden), it would mean you couldn’t take any of the deductions related to being a homeowner.

These are the new standard deduction amounts by filing status:

• Single: $12,000
• Married, filing jointly: $24,000
• Married, filing separately: $12,000
• Head of household: $18,000

Mortgage interest deductions are capped

For homes purchased after 12/15/17, you can only deduct mortgage interest on debt up to $750,000 (or $375,000 if you’re married filing separately). If you purchased your home before that date, the earlier rules still apply and you can deduct interest on debt up to $1 million (or $500,000 if you’re married filing separately). However, these new limits don’t affect refinances, as long as the new loan principal isn’t higher than your original loan.

But if you don’t have a large mortgage, this change won’t affect you at all.

Property tax deductions are capped

Previously, you could deduct all of your state and local taxes — including property taxes — from your federal tax return. For filing taxes from 2018, you’re limited to deducting just $10,000 (or $5,000 if married filing separately).

While this change affects many filers, homeowners are most likely to see it in their property tax deductions.

You can’t always deduct moving expenses

You used to be able to deduct expenses for moving if you had to move for a job, but the deduction has been removed except for active-duty military members. Also bear in mind that if you move and are reimbursed for expenses by your employer, that reimbursement will be considered taxable income — again, with exceptions for military members.

You can’t always deduct interest on home equity loans

Home equity loans and home equity lines of credit have long been an excellent way to get cash by tapping into the equity on your home. These loans were especially appealing because you could deduct the interest you paid, which meant you could take a vacation, pay your child’s college tuition, or fund a dream wedding at a very low cost.

But starting in 2019 you can only deduct interest on a home equity loan if it’s used to pay for home improvement. Home equity loans and lines of credit are still good ways to borrow — they typically have lower interest rates than other loans — but they won’t include a tax break unless you’re putting the money back in the home.

You can’t deduct private mortgage insurance

If you didn’t make a down payment of at least 20%, most types of mortgages — excluding VA loans — require you to pay private mortgage insurance (PMI). Costs vary, but you can expect PMI to run from 0.5% to 1% of the original loan amount annually, which can add up.

Previously, you could deduct this expense from your taxes. While this wasn’t specifically cut by the TCJA, the PMI insurance deduction expired at the end of 2017 and was not renewed by the new tax bill. It’s a loss that’s most likely to hit first-time homebuyers, who may find it difficult to save up 20%. If you’re thinking of buying, this is a good reason to save up your 20% first, or get a VA loan which doesn’t require PMI.

What About the First-Time Homebuyer Tax Credit?

The first-time homebuyer credit was available in 2008, 2009, and 2010, offering qualified first-time buyers tax credits of up to $8,000. However, this wasn’t just free money: it needs to be repaid over 15 years by filing Form 5405.

The credit has now expired, but if you did purchase your first home in 2008, 2009, or 2010 you may still be able to claim it. Requirements vary depending on when exactly you purchased your home, so if you think you qualify, it’s best to contact a tax professional.

How to Claim the Home Mortgage Interest Deduction

You can deduct mortgage interest paid on qualified home for loans up to $1 million (or $500,000 if married filing separately) for loans taken out before 2018, or up to $750,000 (or $375,000 if married filing separately) for loans taken out in 2018 and beyond. You can also deduct interest for a home equity loan or home equity line of credit if you used the money to improve your home. If the combined amount of your mortgage and equity loan exceeds those amounts, you can deduct part, but not all, of your interest payments.

To make these interest deductions, you’ll need to itemize deductions on Form 1040, Schedule A. Your lender should have sent you a mortgage interest statement (Form 1098) with the information on what you paid to help you get the correct amount. If not, contact your lender to find out how much interest you paid.

If you itemize deductions, you’ll be able to take advantage of this and other homeowner tax deductions — like property taxes — but you won’t be able to take the standard deduction. Because the standard deduction has been increased this year, you may want to do the math to see whether taking advantage of the home mortgage interest deduction is better than taking the standard deduction.

What Other Home Deductions Can Be Claimed?

While these deductions aren’t usually as large as those we’ve already mentioned, there are a few more deductions you may be able to claim:

• Mortgage points. If you paid for points to lower the interest rate on your mortgage, you can deduct the cost from your taxes on the year of your loan or deduct it over the life of your loan.
• Property taxes. You property taxes can also be deducted, though you may not be able to deduct all of them anymore. You can currently deduct state and local taxes up to $10,000, so if your property taxes combined with your state taxes are higher than that, you won’t be able to deduct everything.
• Renewable energy improvement. If you’ve installed solar panels, wind turbines, geothermal heat pumps, or fuel cells to power your home, you may be eligible to deduct up to 30% of the cost (including installation) off your taxes.
• Home offices. You can deduct the cost of a dedicated home office space as long as you aren’t an employee of a company. This is a change from previous years that makes the deduction applicable only to self-employed individuals and independent contractors.
• Business expenses for rentals. If your home is a rental property, you can deduct some of the costs involved with renting it out. This can include maintenance costs, management fees, legal fees, taxes, mortgage interest, and more. However, these must be claimed on Form 1040 Schedule E rather than Schedule A, where you report mortgage interest for your residence.

You should be aware that one popular deduction is gone, however. Starting in the 2018 tax year, you can no longer deduct the cost of private mortgage insurance. However, this could change because Congress is currently considering a bill — H.R.284— that would extend the deduction. It hasn’t passed yet, but if it does become law, you may be able to claim this deduction retroactively.

What Tax Forms and Documents Will I Need?

In addition to the standard tax paperwork, homeowners will also need:

• Form 1098 mortgage interest statement for your home, second home, construction loan, home equity loan, or home equity line of credit. This should also include information on any points you purchased.
• Property Tax receipt. If this is paid by your lender via an escrow account, they may send this along with you 1098.
• Receipts for renewable energy improvements if you’ve made any
• Receipts for home improvement projects funded by a home equity loan or line of credit if you’ve made any.
• Home office details if you’re claiming the home office deduction.
• Receipts for business expenses and income related to a rental home if you have one.
• Form 1099-S if you’ve sold your home. While you won’t have to usually don’t pay capital gains taxes on the sale of a primary residence, you will have to report the sale.

You’ll want to keep all of this paperwork to prove your deductions are legitimate in case you’re audited. The IRS may audit a return for up to three years afterwards, and up to six years afterwards in case of a large discrepancy (25% or more of gross income). Thus, you should keep all federal tax paperwork for at least six years.

While these documents may not be needed for this tax year, you should also keep these:

• Deed to the house for as long as you own the property.
• Home closing documents for three years after you’ve sold the property.
• Receipts for capital improvements for three years after you’ve sold the property.
• Mortgage payoff statement should be kept forever, in case your lender decides you still owe money for your home.

What Is a Property Tax Assessment and How Can I Appeal It?

Once a year, your local tax assessor will appraise the value of your home to determine your property taxes. If the appraised value is higher than the previous year, you’ll pay more in property taxes. While you used to be able to deduct property taxes off your federal taxes, now you can only deduct state and local taxes — which includes property taxes — up to $10,000 (or $5,000 for married filing separately).

Though this change may not impact your federal tax return, if your home’s appraised value has gone up by a significant amount, you might consider appealing it. Get started by comparing your home’s assessed value to the sales price of similar homes in your area. To research pricing, you can search online real estate search sites, contact a local real estate agent (though they may not be willing to do it for free), or contact your local tax assessor’s office.

While the details for every area are different — check with your local tax assessor to find out exactly what you need to do — the broad strokes are the same. You’ll file your appeal and the local assessor will either approve it or deny it.

What Tax Items Should Think About When Selling My Home?

When you sell your home, you can take all typical homeowner tax deductions for the period of the year you owned the house, as well as deducting some of the expenses of selling the home. As long as the home is a principal residence and you’ve lived in it for two of the five years preceding the sale, you can deduct or exclude costs such as:

• Legal fees
• Escrow fees
• Advertising costs
• Real estate commissions
• Repair costs, such as fixing a leaking roof
• Home improvement costs, such as adding a desk, as long as they were made within 90 days of closing

Capital gains taxes on sale profit are another concern, but many sellers won’t have to pay these. As long as sellers don’t make a profit of over $250,000 (or $500,000 for a married couple filing jointly) and they’ve lived in the home for two out of the past five years, they should be excluded from capital gains tax.

Consult a tax professional before filing

While we’ve presented the basics, every tax situation is different. Please consult a tax adviser for further information regarding the deductibility of interest and charges

VA mortgage loans have certain eligibility criteria that must be met along with program specific forms to complete prior to applying for a VA mortgage. So that you can confidently prepare yourself for the process ahead and decide if a VA mortgage is right for you, let’s walk through several of the most commonly asked questions and facts you might not know about the program.

1. WHAT IS A VA MORTGAGE LOAN?

The U.S. Department of Veterans Affairs (VA) makes it easier for veterans and current members of the military to afford a home. Requiring no down payment and no private mortgage insurance, these loans can cut both your up-front costs and monthly payment costs.

2. HOW IS A VA MORTGAGE LOAN DIFFERENT FROM A TRADITIONAL MORTGAGE?

Most traditional mortgages want you to put down a hefty 20 percent down payment. If you cannot afford the down payment, you’ll have to pay private mortgage insurance (PMI) on top of your monthly mortgage payment—an extra fee to ensure your lender gets paid even if you cannot make your payments. But in the case of a VA mortgage loan, your loan is guaranteed by the U.S. government, which means lenders don’t require these standard fees. Additionally, a VA mortgage gives you the benefit of avoiding prepayment penalties.

3. WHO IS ELIGIBLE FOR A VA MORTGAGE LOAN?

Many current and former members of the military—including reservists and National Guard members—are eligible to apply for a VA mortgage loan. In certain conditions, surviving spouses may also be eligible. You will need to meet specific service requirements—ranging from 90 days to six years, depending on type of service. Check with the Department of Veterans Affairs for complete eligibility requirements.

If you’re eligible, you’ll need to get a Certificate of Eligibility (COE), which confirms your military service, to apply for a VA mortgage loan from a lender. You can apply online, through the mail, or potentially through your lender. If you’re applying through your lender, the electronic system could confirm eligibility within a few minutes—but if you’re applying by mail, be aware the process could take some time.

4. HOW DO YOU GET A VA MORTGAGE LOAN?

Other than the need to prove your military service with a COE, the process of applying for a VA mortgage loan is much like the process for applying for a traditional mortgage. Your financial institution will review your credit—looking to see if you have good credit and the ability to make monthly payments.

However, even if you qualify for a VA mortgage loan, a lender can still decide to turn you down due to poor credit. As with any major loan, it is always best to ensure your credit is in good shape before you apply.

5. ARE THERE ANY FEES ASSOCIATED WITH THE VA HOME LOAN PROGRAM?

Yes. Required by law, the VA Home Loan program does charge an up-front VA funding fee. The fee ranges from 1.25 percent to 3.3 percent depending upon the following conditions:

· Type of service (reservists and National Guard pay slightly higher rates)

· How much of a down payment you are able to make (down payments over 10 percent get the lowest rates)

· Whether this is the first time you’ve used your VA mortgage loan entitlement (subsequent uses pay higher rates)

The VA funding fee can be pretty steep, but it’s much less than you would need for a down payment, and it keeps your monthly payment low because you won’t pay for PMI. Disabled veterans and their surviving spouses are typically exempt from funding fees, making it even easier for them to get into a home. Check with the VA for full rate details.

6. ARE THERE ANY ADDITIONAL FEES?

Beyond the VA funding fee, you’ll still have the closing costs associated with a traditional mortgage. These fees could potentially include: appraisal, title insurance, credit report, taxes, and discount points.

Like any mortgage loan, you’ll pay an interest rate set by the lender, as well as home insurance and taxes—the latter of which may be rolled into your monthly payment and put into an escrow account. Without the need for a down payment, you’ll pay less up-front, but getting a VA mortgage loan isn’t completely free, even if you qualify to have the funding fee waived.

7. WHAT TYPES OF PROPERTIES ARE ELIGIBLE FOR FINANCING?

There are some restrictions to what you can buy with a VA mortgage loan, but for most homebuyers this should not be a problem. You can use your loan to buy a home (or multi-unit property), build a home, refinance your existing home loan (whether it’s a VA or non-VA loan), or buy a manufactured home.

Regardless of the type of home you’re buying, VA mortgage loans are only for your primary residence. You cannot use a VA mortgage loan to buy a vacation home, second home, or investment property. However, if you move into a new home, but intend to keep your VA mortgage loan-purchased property as a rental, you typically can—as long as you don’t do so immediately. Check with your lender to be sure.

8. CAN YOU GET MORE THAN ONE VA MORTGAGE LOAN?

Yes. However, you must fully pay off one mortgage loan before you can apply for another. Keep in mind that the VA funding fee for subsequent VA mortgage loans will be higher—but it’s still likely to be a good deal for buyers who cannot manage a 20 percent down payment.

9. IS A VA MORTGAGE LOAN A GOOD DEAL?

For many borrowers, yes. The combination of no down payment and no PMI makes a VA mortgage loan an appealing way to get into a home without big up-front costs. However, it’s not necessarily a good deal for everyone. If you have the savings to make a 20 percent down payment on a house, you wouldn’t need to pay PMI in the first place—and if that’s the case, the VA funding fee is an extra expense. In this case, a traditional mortgage is most likely to be a better buy.

Before rushing into make a final decision, run the numbers. Take the time to compare rates and the costs associated with more traditional mortgages versus a VA mortgage with your lender—like PenFed. Then decide which type of mortgage is best for you.

CONSIDER PENFED FOR YOUR FINANCING

The VA itself does not provide loan financing for mortgages. You will need to borrow directly from your bank or credit union. Check with your financial institution to see whether they offer VA mortgage loans.

PenFed, for example, offers both 15-year and 30-year VA Fixed Mortgages. With rates from 2.625% APR to 3.375% APR*, PenFed can help get you into a new home at a reasonable cost.

Disclosures:

*Rates and offers are in effect as of July 20, 2016 for new applications only, for a limited time, and subject to change without notice.