We've all heard from self-appointed experts on a variety of subjects certain things to be wary of that we are considering. And oftentimes, those experts have been proven wrong. But like economists and weathermen, they are not held accountable. Which is why you should be working with real experts when it comes to the area of finance. And your home mortgage is first and foremost in this category. If you have ever been in the service, you are likely eligible for a VA mortgage. Maybe one of your friends at work has just purchased a home using the benefit. Or perhaps you are in the National Guard. An expert is what you need so that you are not told wrong information.
"I have a certificate so I am already approved." Well, not quite. You are eligible. And there is a difference. You still must credit qualify and income qualify for the loan. And the $36,000 on the certificate? That is an entitlement or basic guaranty for VA loans up to $144,000. No matter the rank, one entitlement amount appears on the certificate. A supplemental entitlement is available for purchase transactions of up to $417,000, but there again, credit and income qualification is required.
"The seller has to pay points." This one comes often from a Realtor who did one VA transaction in 1986 or knew someone who did. The truth is, that after October 1st, 1992, no point mortgages came into the VA world. [A point is simply 1% of the loan amount paid upfront to get a lower note rate.] Prior to that, VA set the rates and they were artificially low. So, lenders had to charge points in order to make and sell the loans. And since the veteran could only pay one point, the sellers had to pay all the rest. But, in reality, the sale price was inflated to cover the expense. However, when there were 6 seller points required, the property values just wouldn't sustain the contract price. And as a result, many sellers refused offers with VA financing. The program ground to a halt. So, the rates were set free to float with the market and the zero point VA mortgage was born. And it remains the most popular option. Of the 4 VA loans I have closed for home purchases since September, none of them had points. In fact, I can't even remember the last time a buyer paid any points.
"VA loans take 6 months to process." Chances are that this myth has the same source as the previous myth. VA loans really don't take any more time than any other type of mortgage to process. Most loan officers who try to steer you away are either afraid of them because they have never done one, their company does not do them, they are not looking to learn anything new, or they have their own interest ahead of the veteran's. The same is true with Realtors, by the way, so you want to ask for the VA expert in the real estate office just like you want to ask for the VA expert at the lending institution. Because there are Realtors who know what to expect and can help guide the VA transaction smoothly from their end as well. If you want to use your benefit, then seek out the experts.
"The property has to be in mint condition for a VA loan." The Veterans Administration is concerned mostly with safety items. Is there peeling paint that could pose a lead problem? Are saftey handrails in place on all interior and exterior stairways? Are there multiple broken windows or rotted porch steps? Are electrical outlets near water GFI protected? A home inspection will generally give you the best look at these items, but no house is perfect and the VA is not expecting yours to break the pattern. A run down fixer-upper is not the best candidate for a VA loan, but it is not the best candidate for most other types of loans, either. [HUD's FHA 203k rehab loan is an exception, but that is a subject for another day.] Some minor repairs might be required prior to closing, but don't shy away from looking at a home you really like because of this myth.
"You can only use the benefit once." At one time, this was true. And some vets held on to the benefit unused because some day they might really need it. Multiple uses of the benefit are common. The VA Guaranty Fee is higher in those cases, but that should not prevent its use. The zero down payment feature and the ability for the seller to contribute up to 6% of the sale price toward closing costs are features that can help veterans use the benefit that was earned. These loans are assumable, too, which could be a selling point down the road.
Well, those are some of the most common myths surrounding VA loans. If you are a loan officer reading this, you may want to look into making VA loans a niche. There are many VA eligible homebuyers and more coming home every day. If you are a Realtor, you may want to become an expert yourself and market yourself that way. www.va.gov is the quickest source of information. And if you are a veteran, I would be happy to hear from you with any questions you may have. And thank you for your service.