This week was the third part in our series titled “Serving Those Who Serve,” dedicated to, and focused on, those who have served in the military and who are interested in learning what the VA loan program in general, and what I and my mortgage company in particular, can do for them. The first two parts of the series explored the basics of the VA loan—the facts and figures of the program. This week, we’re looking at what the VA loan looks like in practice, how to use it, and what to use it for.
I can say without reservation that the VA loan program is the best loan product on the market and is almost always the best option for those who are eligible to use it. It offers better rates than comparable conventional or even FHA products, and it does not have mortgage insurance regardless of the loan-to-value ratio. There is no minimum down payment, either, so oftentimes a veteran can close on a home with no money out-of-pocket.
You will notice that I said the VA loan program is almost always the best option for veterans. There are instances where the benefits of the VA loan program are lost on a borrower. For example, if the borrower is putting 20% or more down on a property, a conventional product will be better than the VA loan because the conventional loan will have neither a funding fee or mortgage insurance. There are circumstances where a veteran would be better off with a different mortgage product for a given property, or they may find a better use for the VA loan program a few years down the road.
It is important to use the VA loan prudently, as it is not a limitless product. Each veteran has a set level of eligibility that is used up when a home is purchased or refinanced using the VA loan program. The eligibility is restored when the loan is re-paid or the house is sold. But once eligibility is tied up in a property, the veteran can only use whatever eligibility is left over—if any—and must pay the difference between the loan amount and eligibility amount if there is a disparity between the two. (Note that this is not a dollar-for-dollar trade. Generally, a veteran will pay $1 for every $4 of the loan being guaranteed by the VA in excess of their eligibility amount.)
There are also certain quirks in the VA underwriting guidelines that can cause problems. For example, a veteran must have sufficient residual income to qualify. Residual income is the amount of income left over after all monthly liabilities, such as taxes, car, and credit card payments, have been deducted from the veteran’s pay. The VA has set amounts of necessary residual income depending on the size of the veteran’s household, and this standard must be met in order to qualify. The VA lending guidelines are also extremely strict as to the condition of the property, so certain minor deficiencies such as peeling paint of a wobbly handrail may make the property ineligible for a VA loan. Oftentimes the seller will fix these issues, but if they won’t the VA loan offers no recourse.
Although the VA loan is an exceptional loan product, problems may arise if the veteran does not do their homework. That’s why it is imperative to seek out qualified mortgage specialists with years of experience originating VA loans. A qualified loan originator can consider all aspects of the transaction—from the borrower to the property itself—and identify any potential issues. This is where Garvens Mortgage Group can help serve veterans the most.
5-2-15 Serving Those Who Serve Part III