Review of all things Real Estate: Veterans Day and the VA loan

Bob Hillery

CR Properties

By the time this article is published, Veterans Day will have passed a week ago but it's never too late to thank veterans for their service to our great nation. Whether a veteran served 3 years or 30+ years, all gave some and some gave all; our great nation owes a debt of gratitude for all veterans’ contributions.

That said, it’s a great segue to a discussion about the Veterans Administration loan for military active duty, reserves and veterans who served honorably and were discharged with an administrative discharge. Even if a person has used their VA loan eligibility in the past, the program is continually being modified so I’d invite everyone to read this short article to get updated; some of the changes may surprise you.

The VA program was created to level the playing field to help get military members and veterans into homes because it can be difficult for those who serve to meet the requirements for other mortgage products. The biggest single benefit of this program is that qualified borrowers can purchase a home without having to put money down, and that's a tremendous financial advantage!

One of the biggest changes is that there are no longer loan limits for the program, there are now “guidelines.” Previously each state and county had separate limits, but now it’s whatever a mortgage loan officer can approve considering income, debt, assets; all the normal items taken into account when qualifying loan applicants.

Veterans with their full entitlement can borrow as much as a lender is willing to lend them, all without putting money down. Loan limit “guidelines” can be confusing and, as there is contradictory information on the internet, my strongest recommendation is to contact a local VA loan officer for which I have several great ones to recommend.

VA loans are for primary residence purchase only and the VA borrower cannot pay for the termite inspection. The VA will send out a VA Inspector/Appraiser who will identify certain repairs that must be accomplished prior to closing the transaction, but those repairs are negotiable between seller and buyer.

Other features are favorable interest rates compared to conventional financing; up to ¼ point better, because the federal government is guaranteeing the VA loan as a benefit to veterans and to protect the lenders. Because of the Federal Loan Guarantee there is zero Private Mortgage Insurance which saves the borrower a lot of money over the life of the loan.

The VA loan is generally defined as a zero down payment program, and the current market conditions can be conducive for a VA-No-No scenario. This means no down payment and no closing costs if it can be negotiated with the seller to provide closing costs credit in escrow. Since houses for sale are starting to experience longer market times as prices and mortgage interest rates remain high, sellers have become more amenable to providing buyers with purchase incentives.

A VA loan can be reutilized once the current loan is paid off, but unless there is a service-connected disability, the reutilization rates can be quite expensive (sometimes beyond 3.3% of the loan amount). For this reason, my VA expert loan officer will sometimes recommend a conventional loan if the VA buyer has at least some cash to put toward the purchase. The VA loan can be also assumed by non-VA qualified buyers but beware, the VA qualified borrower who made the original loan remains responsible for the loan. From personal experience I would not recommend this course of action.

IRRRL: Interest Rate Reduction Refinance Loan is a streamlined refinance of an existing VA loan with very little documentation required which, when rates become more favorable, will become a highly sought-after product. Unlike the expensive reutilization rates for using the VA loan for subsequent purchases, the IRRRL only costs around ½ point.

Lastly, for the purposes of this article, surviving spouses may qualify to use the VA loan if the VA qualified borrower passed away or is severely disabled due to a service-connected cause. See http://www.VA.gov/housing-assistance/home loans for an initial look to determine qualification, then get in touch with a local expert VA loan officer.

The purpose of this article is to identify some of the wavetops of the benefits of the VA loan. It is not, however, meant to be totally inclusive of this subject because, while I have assisted multiple buyers to purchase their homes with VA loans, I am not a subject matter expert on VA loans. For that level of expertise, I urgently recommend interested parties contact a local VA mortgage loan expert. Feel free to contact me for recommendations.