With so many loan products out there, it’s easy for homebuyers to get confused about their financing options. Figuring out which of those options makes the most sense for their specific personal and financial circumstances can be a challenge. Fortunately, Veterans and their families have access to a unique product: VA loans (government-insured mortgages backed by the U.S. Department of Veteran Affairs). Designed specifically for Veterans, VA loans come with a number of special advantages that other mortgage loans simply do not have.
However, only one in three Veterans are aware this program even exists, and just 13 percent of Veterans have ever taken advantage of their VA loan benefit!
Even more concerning is the way in which myths and misperceptions have arisen surrounding VA loans. Unfortunately, these myths have hardened into conventional wisdom, creating an atmosphere of misinformation that is counterproductive for buyers, sellers, agents and lenders alike.
Real estate professionals and veteran homebuyers would be wise to familiarize themselves with the benefits of the VA loan program, and arm themselves with the facts they need to push back against the pervasive myths and misperceptions that can prevent deserving Veterans from taking advantage of this important program.
Benefits of VA loans
VA loans are available to Veterans of the U.S. Armed Forces (including those who are on active duty or reserve), as well as widows or widowers of Veterans. Spouses of Veterans who meet certain eligibility standards can also apply for and receive a VA loan. For a full and detailed list of eligibility requirements, visit the U.S. Department of Veterans Affairs website. Eligible parties wishing to take advantage of the VA home loan program will need to obtain a Certificate of Eligibility (COE) as proof they are entitled to receive VA financing. Details on how to obtain a COE can also be found on the VA website.
The VA loan program features several benefits and special advantages for qualified Veterans. Those include flexible qualifying and credit requirements; zero down payment required, which significantly lowers the financial barriers to homeownership and drastically reduces the amount of money that must be collected at closing; no monthly private mortgage insurance (PMI), which can save homebuyers hundreds of dollars on their monthly mortgage payment; low interest rates (typically a half point lower than conventional loans); and lower fees.
In the State of Michigan, Veterans can also take advantage of a law that exempts disabled Veterans from paying property taxes, and a Specially Adapted Housing (SAH) Grant that allows disabled Veterans to use government funding to make any necessary modifications to their new home. Eligible Veterans may receive up to 50 percent of the total VA loan amount (not exceeding the maximum amount allowed by Congress) to use toward home modifications.
Another unique advantage to the VA loan program is that it is the only mortgage product in America that offers TWO options to work with appraisers to get an appraisal that accurately reflects the true value of the property. If the appraisal does not come back with the contract purchase price or the proposed value for a refinance, the veteran and agents together can submit their own suggested comps and property attributes through both a Tidewater and a Reconsideration of Value process.
Busting the myths and misconceptions around VA loans
One of the reasons why more Veterans don’t take advantage of the VA loan program is that myths about VA loans continue to persist. Using facts and hard data to push back against those misconceptions is critically important for ensuring Veterans are empowered and enabled to take advantage of their right to utilize this important program.
Myth #1: Zero Down = Weak Buyer
Among the most damaging of the falsehoods that gets perpetuated is the notion that Veterans who utilize the zero down benefit that come with VA loans are somehow inferior homebuyers or aren’t financially qualified. The reality is precisely the opposite: the median FICO® score of a VA borrower in 2017 was 741, with a median household income of $73,769 (versus $55,775 for civilians). The ability to put zero down is a right that Veterans have earned through their service and sacrifice, and is in no way a reflection of their financial circumstances.
Myth #2: VA Loans Are Harder to Get Through Underwriting
99% of VA loans are underwritten by Delegated Lenders and do not need to go directly to the VA. In 2017, VA loans actually had identical approval rates to conventional loans!
Myth #3: VA Loans Take Longer to Close
The average turn time from application to closing for VA loans in 2017 was 26 days—the same as conventional/FHA loans. The reality is that 99% of VA home loans are underwritten by lenders with automatic underwriting authority. The VA is a guarantee agent that gives lenders authority to make decisions, and very few loans go to the VA for approval.
Myth #4: The Seller Has to Pay for Veterans’ Fees
The perception that sellers have to pay Veterans’ fees exists because if a lender charges a 1% origination fee, the veteran is not permitted to pay these fees. That does not mean the seller must pay them! The lender, the title company or the seller can pay them. Veterans’ offers sometimes get rejected because the agent mistakenly thinks the seller is obligated to pay the fees.
Informed advocacy
Because VA loans are so often misunderstood, it is absolutely critical to have an experienced lender—ideally a certified VA loan specialist—in your court. An experienced lender will help make sure Veteran clients obtain a Certificate of Eligibility early in the process; help get their documentation in order, and serve as an advocate for their interests.
A knowledgeable lender will be better equipped to help guide both agents and Veterans through the VA loan process so offers get accepted and have a higher chance of making it to the closing table. In light of the sacrifices that so many Veterans and their families make on our behalf, the very least we can do is make sure they have full and fair access to this unique program and the freedom to take advantage of the benefits they are entitled to.
