Understanding VA Loans
Since 1944, the United States Department of Veterans Affairs (VA) has been assisting veterans in the pursuit of homeownership under the original GI bill. However, some real estate agents shy away from clients who are using VA Loans. AAR interviewed both sides of the transaction, lenders and REALTORS®, to find out what the key to a successful VA Loan transaction involves. In the end, it just takes a little preparation and a team that knows what they are doing. Here are five things to know about VA Loans:
The Condition of the Home is Important.
“Making sure the home is in buyable condition is important,” said Tom Wright, mortgage loan originator from Arizona Bank and Trust. “A home that needs a great deal of repair or might be in disarray may have some repairs that need to be done before the lender can issue final approval.” The VA wants to make sure that service members purchase move-in ready homes that are stable and in good condition. Because of this, VA loans require that an appraiser use the VA’s minimum property requirement guidelines to determine if a home is safe, structurally sound and sanitary.
Timelines for VA Loans are Typically Longer – But Not By Much.
Bill Salvatore, a REALTOR® with Realty Executives East Valley, is a vet himself and works with many of his fellow veterans as they search for homes. He says, “VA appraisals have a reputation of taking longer, but if you’re working with a knowledgeable lender, they’ll be right on top of it.” Salvatore suggests ordering the appraisal about 10 days earlier than you would with a traditional loan. A VA appraiser has 10-business days to file the appraisal, from start to finish.
“There are some extra VA forms that we need [to process the loan],” said Senior Loan Officer at Nova Home Loans Anne Kanelopoulos. “You can close in 40 days or less.”
The key to a successful closing is choosing a good lender who understands the process for VA loans.
The Costs for Both the Seller and the Buyer Differ.
“I think REALTORS® see a VA offer and automatically think it will cost their seller a lot of money,” said Kanelopoulos. Wright offered up the same sentiment, adding “the loans are simply a different product that, with some education on the loan officer’s part, can be nice and easy. [VA loans] do require the seller to pay a little more that the buyer is not allowed to pay, but it is a small amount in the big scheme of things.”
VA loans offer 100 percent financing, and with seller contributions towards closing costs, veterans can oftentimes buy a home with little to no out-of-pocket costs.
VA Loans are Not Guaranteed for All Service Members and Families
The eligibility requirements for veterans to receive the VA loans are pretty clear and must include a Certificate of Eligibility. To find out if your client is eligible, this is a great place to start.
VA Loans are Good Business
“VA loans are awesome!” said Kanelopoulos. “It helps a veteran who is well-deserving of the benefit and the loan has a lot of underwriting flexibility.” For instance, she says, “if the seller refuses to pay for VA non-allowables, a lender can help pay for costs through lender credits and the veteran can pay up to one percent of the non-allowables.” The best way to see if your client may qualify for additional credits is to talk with the lender.
“I would hope to see more vets utilizing their benefits,” said Wright. “As this is one of the best loans in the marketplace right now. And, might I add, one of the better performing loans out there too!”
Bill Salvatore summed up why he works with vets with the following story: “A couple years ago I had the pleasure of meeting and helping a newly-married couple. He had just gotten back from Afghanistan, never owned a home before. I was able to get them into a house in the Copper Basin community in San Tan Valley. [It was a] beautiful starter home. Their total, out-of-pocket expenses were less than $500 and their mortgage payment was much less than the cost of renting at that time. Today they still live in the home, and have about $70,000 in equity. It’s so satisfying to know I could help them out.”
Quick Guide to VA Loan Requirements
|Max Loan Amount||$417,000(Have to put 25% down for over $417,000)|
|Minimum Credit Score||620|
|Occupancy Type||Primary Only(Must have VA eligibility)|
|Max Seller Contribution||4%|
|Mortgage Insurance||2.15% first time, 3.3% subsequent use0% VA disability|
|90-Day Flip Rule||VA does not have a Flip Rule. This is underwriter discretion.|
|Gift Allowance, Down Payment/ Closing Costs||Yes|
|Non- Occupying Co-Borrower||Not Allowed|
|Disclaiming Spouse||Yes, must include spouses debts in debt-to-income ratio (DTI)|
*Data compliments of the Morrow Team/CNN Mortgage
Additional resources for REALTORS®
VA Loan toolkit from NAR
Resources for REALTORS: