Last week’s article reminded veterans, military members, and their surviving spouses to take advantage of the excellent VA home loan and grant benefits they earned with selfless service, sweat, tears, blood, and sacrifice.
It also explained where to go to find detailed information (https://www.va.gov/housing-assistance/ and https://www.youtube.com/user/DeptVetAffairs) on the ins and outs of the VA Housing Assistance programs.
This week’s article will continue explaining the VA Housing Assistance Programs.
Veterans should use their VA Home Loan benefit
If you have served your country with honor, a VA home loan can be a terrific financial tool to help a military member, veteran, or surviving spouse purchase a home. The VA loan’s unique benefits can help eligible veterans and survivors buy a home they may not be able to otherwise. But veterans and survivors still need to shop around for the best price and make sure they can afford the monthly payments.
Some lenders do not know enough about the VA Home Loan benefit
If you are a veteran and your lender does not recommend that you use your VA loan benefit, you are probably getting bad advice at best, and may be getting duped at worst. Some lenders and some real estate agents do not like using the VA loan option because they do not have enough knowledge, training, and experience with VA Loans. If they recommend against using a VA loan, find another lender.
Veterans and surviving spouses do need some money to buy a home
Veterans can make a home loan down payment but they do not have to. With a 100% financed VA home loan, veterans do not have to make a down payment. However, that does not mean the veteran does not have costs before and during the closing. It is very important for veterans and surviving spouses to read about fees and closing costs at https://bit.ly/3Miauqq.
The veteran or surviving spouse needs to put down a deposit (ESCROW) to convince the seller to take the home off the market while the veteran gets his loan approved and closes on the home. There is also a VA funding fee. The VA Funding fee is waived for veterans who are service-connected disabled and for the veteran’s surviving spouse whose veteran spouse died in service or from a service-connected disability or who was totally disabled, and the spouse is receiving Dependency and Indemnity Compensation (DIC). Read the details on VA funding fees at https://bit.ly/3Mo2V1y.
The veteran or surviving spouse (buyer) or the seller can negotiate who will pay other closing costs such as the: VA funding fee, Loan origination fee, Loan discount points or funds for temporary “buydowns,” credit report, and payment of any credit balances or judgments, VA appraisal (assessment) fee, hazard insurance, real estate taxes, state and local taxes, title insurance, and recording fee.
The VA requires that a seller cannot pay more than 4% of the total home loan in the seller’s concessions. But this rule only covers some closing costs, including the VA funding fee. The rule doesn’t cover loan discount points.
The seller must pay these closing costs (sometimes called “seller’s concessions”) commission for real estate professionals, brokerage fee, buyer broker fee, and termite report (unless the veteran or surviving spouse is using a refinancing loan).
Home lender determinations
The veteran’s or surviving spouse’s home loan lender (also called mortgage company and underwriter) will determine the Interest rate, and the discount points (fees you may pay to your lender at closing to get a lower interest rate on your loan), and other closing costs. These rates may vary from lender to lender.
Veterans should know that adding the VA funding fee and other loan costs to the loan amount could lead to the buyer (the veteran or surviving spouse) owing more money than the fair market value of the home. This could reduce the benefit of refinancing since the veteran’s or survivor’s payment wouldn’t be as low as they may want it to be. It could also make it harder for the veteran or surviving spouse to get enough money out of the future sale of the home to pay off your loan balance.
VA home loan programs for surviving spouses
According to the VA’s Home Loan Programs for Surviving Spouses information at https://bit.ly/3FTrIrL, to get a VA-backed home loan as the surviving spouse of a Veteran, the spouse will need a Certificate of Eligibility (COE) to show the lender that he or she qualifies for this benefit. Keep in mind that you will also need to meet your lender’s credit and income requirements to get a loan. Spouses should carefully review the information at this site.
How to Apply for a VA home loan
Ask peers, brothers, sisters, and coworkers who handled their VA home loan and do they recommend the lender they used. Stay off of the internet. Beware that some companies advertise as if they are the VA. Many sites on the internet sell their leads to lenders. If you contact one of those companies through the internet, you will be bombarded with phone calls.
Veterans should tell the lender, “I am a veteran and want to use my VA loan benefit.” If the lender tries to convince the veteran to use another type of conventional loan, the veteran should stop right there and leave because that lender representative is not an expert in VA loans.
Interview the lender by asking him or her, How many VA loans have you done? How does your company do VA loans? Does your company service their loans (or sell them to another lender)? How long have you, the mortgage lender representative, been in the business? It is nice to have the mortgage representative who processes your loan also be the point of contact for questions and servicing the loan after closing.
Sometimes, veterans have problems with tax, insurance, and escrows when a lender sells the loan to another lender. Also, ask the lender what fees, costs, and timelines will be. Ask can I use my own attorney or do I have to use the lender’s attorney.
What must the veteran give to the lender (underwriter) during the application?
The VA home loan process is the easiest process available to the lender. The VA is very flexible in approving a VA guarantee for a home loan. Typically, the lender will need a copy of the veteran’s complete W2 Forms for the past two years, the most recent 30 days of pay stubs (if an active-duty member – a copy of the Leave and Earnings Statement – LES), the most recent one-month complete bank statement, DD214 (discharge paper), and unexpired driver’s license. If the veteran is self-employed or a business owner the lender will need Tax forms 1120 (Shareholder of S Corporation), 1065 (US Return of Partnership Income), etc.
VA loans for active military duty persons are easier for lenders to approve and loans for military persons on Permanent Change of Station (PCS) are the easiest VA loans for lenders to approve. By the way, non-VA loans require two months of bank statements.
Eligibility requirements for a VA home loan
There are a large number of requirements categories spelled out at the VA’s site – https://bit.ly/3NfIFz6. There are different eligibility service requirements for veterans and service members on active duty, National Guard members, and members of the Reserves. Veterans may be eligible for a COE if the veteran did not receive a dishonorable discharge and he or she meets the minimum active-duty service requirements shown at https://bit.ly/3FSWTDN.
The eligibility requirements are based on when the veteran or service member served and days of service and were the days of service continuous or not. There is no room in this short article to spell out each of the eligibility requirements in this column. However, they are generous and easy to understand.
How long does it take to close on VA home loan approval?
If the lender is qualified, skilled, and experienced in processing VA home loans and if the veteran provides the lender’s need information quickly and completely, it will take about 30 days (sometimes as fast as 15 days). The process includes the veteran finding a dream home, making an offer on the home, the buyer accepting the offer, and the lender processing the loan.
During this time frame, the veteran needs to get an appraisal, and the property must have minimal property repair requirements and problems. In today’s high-volume real estate market, appraisals might take up to 15 days to get back to the buyer and the lender.
There are no VA home loans for fixer-uppers (homes requiring extensive work). The property you buy does not have to be in turn-key condition but issues like peeling paint, missing handrails, interior paint needed, holes in walls, outdoor shed damage, fence disrepair, sills damaged, and porches need repair must be completed before you can get a VA home loan.
Lenders generally set limits on what renovations they will allow. VA home loans are not for building an additional room or floor but it may be possible to get a kitchen renovation approved. However, most lenders limit renovations to about $25,000 and the renovation has to be included in the appraisal.
So, if a veteran is buying a $300,000 home that needs $30,000 work done to it, the home has to appraise for the sale price plus the renovation cost or in this case $320,000. There is a VA Renovation Loan program that was suspended during the pandemic.
Next week’s Island News article on veterans’ benefits will conclude this series on VA home loans.
Larry Dandridge is a Vietnam War wounded warrior, disabled veteran, ex-Enlisted Infantryman, ex-Warrant Officer Pilot, and retired Lt. Colonel. He is a past Veterans Service Officer, a Patient Adviser at the RHJ VA Hospital, the Fisher House Charleston Good Will Ambassador, and the VP for Veteran Affairs for the local Army Association Chapter. Larry is the author of the award-winning book Blades of Thunder and a contributing free-lance writer with the Island News. Contact him at LDandridge@earthlink.net or 843-276-7164.