Making the Most of a VA Loan

Buying a home for one’s family has long been one of the American dream’s defining moments.

Purchasing your family’s home with the well-earned loan benefits offered by the Veteran’s Administration (the “VA”) is often a gratifying financial experience. Since the end of WWII (with the passage of the GI Bill of Rights in 1944), VA loans have opened many doors to homeownership for service members and veterans who may not have had any other pathways to homeownership.

VA loans are federally backed mortgage instruments that are designed to provide financing options to eligible veterans/service members by providing more flexible (and often, more forgiving) loan guidelines.

Over the past ten or so years, the use of VA loans in homeownership has soared, with the use of VA loans to purchase real estate increasing nearly every year for the past decade.

However, not every borrower who may be eligible to secure a VA loan will ultimately be approved – due to credit score issues, occupancy requirements, or income deficiencies, among other reasons.

As such, having a fundamental understanding of the VA loan approval process (including lender nuances and requirements) can be quite valuable. In fact, it often makes all the difference if you are one of the many eligible service members or veterans in the market for the purchase of a home or in search of a worthwhile refinance deal.

During 2020, the year that will forever be earmarked as ‘the year of COVID-19,’ the Veterans Administration booked more than 1.2 million backed loans – which exceeded the number of VA backed loans for the two previous years – combined! Forbes has compiled some impressive VA loan statistics from 2020 that include –

• Nearly 30 cities had identified a rise in VA loans by more than 100%.
• Between 2019 and 2020, the use of VA loans for home purchases nationwide increased by more than 11%.
• Between 2019 and 2020, the use of VA loans for home refinancing nationwide increased by more than 240%.

3 Significant VA Loan Benefits For Today’s Real Estate Market

The Option for 100% Financing With Rising Home Prices

2020 will also be the year that will be remembered when the housing market flexed its muscled and bucked conventional wisdom by thriving – almost laughing, in the face of a global pandemic. A year of historically low mortgage rates, and a strong (if unexpected) housing demand created low housing inventories, ultimately resulting in a significant upswing in prices.

With rising home prices, traditional mortgages require a larger down payment, which may effectively ‘box-out’ some buyers on this fact alone. Let’s put that in perspective –

If one is buying a $300,000 home (with a 10% down payment) and that house is now valued at $350,000, a borrower must now have an additional $5,000 to purchase the same home with the same 10% down payment. And for some military service or veteran borrowers, even saving enough for a 10% down payment is often beyond challenging.

However, homebuyers using a VA backed loan have the option of purchasing a home with $0 down. If a borrower has full entitlement, they are given the possibility of a no down payment loan, which allows homebuyers from avoiding their entire assets as home prices continue to rise.

Interest Rate Levels That Tend to Be Lower Than Conventional Mortgage, On Average

Mortgage rates have fallen since the beginning of 2019 for a number of reasons, which include two recent fed rate cuts by ¼ of one percentage point in July and September 2020, as well as what is to be professionally perceived as a slowing economy, among a host of other relevant aspects. Predictive economics can never be a perfect science, although mortgage rates do tend to reflect consumer sentiment, global trade tensions, and perhaps the economist’s favorite of all economic indicators – inflation.

It should not be a surprise to most consumers that mortgage rates reached modern-day lows – hit rock bottom in 2020. By the end of 2020, Freddie Mac discloses that the average mortgage rate for a 30-year fixed rated product was 2.67% (15-Yr-FRM was 2.17%) – two years prior, at the end of 2018, the 30-Yr-FRM was 4.55% – a 41% decline in interest rates!

And while historical low mortgage rates won’t/can’t last, it is essential to note that VA loans have offered the lowest rates, on average, for the past few years. Let’s put some perspective on the significance of the savings offered by a 1% reduction in the interest rate for a $400,000 mortgage.

In just the first year, a borrower will have saved $ 8,328.00.

Care to guess the savings over the life of the loan? $ 249,840. Yes, you read that right – one-quarter of one million dollars.

To be sure of your financial scenario’s specifics, it is prudent to speak with a VA loan specialist. However, overall, service members and veterans who are eligible for the VA loan benefit will have access to some of the best average rates in the mortgage business.

The Veterans Health Care & Benefits Improvement Act of 2020

In 2021, even more military members and veterans will have the opportunity to advantage of the VA’s loan benefit.

The Veterans Health Care & Benefits Improvement Act was developed for National Guard Troops who have served for a minimum of 90 days of qualifying Title 32 duty-active service (which includes a term of at least 30 consecutive days).

The reality is tens of thousands of National Guard personnel logged qualifying service time during the COVID-19 pandemic nationwide response. Essentially, the above-noted legislation will now make many thousands of National Guard personnel eligible for the benefits offered by the VA home loan.

And while it is not possible to know exactly how many National Guard members will now take advantage of this new benefit, the Congressional Budget Office (CBO) anticipates that upwards of 2,000 National Guard troops would obtain a VA loan over the next decade.

Who’s Eligible?

According to the above-noted legislation, the active-duty periods under the Title 32 service must include these sections of the federal law –

• Section 316
• Section 502
• Section 503
• Section 504
• Section 505, and at least one of these service periods must have lasted more than thirty days.

It is noted that most of the personnel of the National Guard response team for COVID-19 have been issued under Title 32 502(f) orders. As such, thousands upon thousands of National Guard troops now qualify as they have met the 90-day threshold and/or logging more than 31 days of appropriate service under Title 32.

Potential borrowers should be familiar with some of the relevant guidelines, as follows –

• Initial military training will not count under the new law. This provision remains the same as the previous version of the legislation.
• Specific training from other schools might count under the new law if the training order were issued in accordance with the applicable sections set forth by Title 32 orders.

Previously, prior to the new guides, National Guard members had two ways of becoming eligible to secure a VA loan, as follows –

• Meet tine for in-service guidelines on Title 10 orders.
• Service a total of six years.

The Take-Away

National Guard members who were previously ineligible for this valuable VA benefit will now become eligible to reach for homeownership using a well-deserved, hard-earned benefit.

Essential Tips to Get the Most of Your VA Loan Benefit

As you begin your quest for a VA home loan, follow these suggestions to keep things moving along at a speed that is comfortable for you, the mortgage applicant.

Start Without a COE

While paperwork can delay a process, it should never be a reason NOT to begin the process. One’s certificate of eligibility can be obtained during the lender’s preapproval process. For those who would feel more confident having it hand as you begin your home search process, consider checking out the VA’s eBenefits online portal.

Know the Contents of Your Credit Profile

While perfect credit is not needed to secure a VA home loan, it is helpful to know if any potential problems may prevent your mortgage from being approved. By law, consumers are entitled to receive a free credit report from each of the repositories each year. Be sure you review each of the reports – scouring for errors or erroneous data. It is estimated that about 25% of credit profiles contain errors that may impact a credit decision negatively.

Have the Ability to Verify Consistent and Stable Income

In addition to meeting the VA’s debt ratio limits (generally around 41% of total debt), borrowers must meet the VA’s residual guideline requirements, which vary by familial size and geography. Two years within the same job is considered the mortgage gold standard, but that is a generalized expectation, with many available exceptions.

Understand the VA’s Acceptable Uses of the Property

VA loans are designed to assist military service members, and veterans with the purchase or the refinance of a primary residence. A primary residence can be a new construction, a single-family condo, or even a multi-family dwelling (if the borrower lives in one unit). VA loans were not designed for investment properties or vacation properties (or any non-owner occupied dwelling); however, a borrower can convert what was a primary residence to a rental property after they have occupied the property for a predetermined time.

Understand the VA’s Occupancy Requirements

The VA requires all borrowers to occupy the subject property as a primary residence within 60 days of the loan closing. This can be challenging for deployed service members; however, exceptions exist to help overcome this requirement – most often, a spouse can meet the military member or veteran’s requirement.

It is essential to understand that lenders may view your particular employment situation differently than you may perceive, which is why it is imperative that you speak with a qualified lender to understand your various mortgage and financing options.

Loan Preapproval is a Must

In addition, to providing a homebuyer with the necessary confidence, a preapproval is the documentation that gives each borrower (and potential sellers and their agents) the evidence they need with regard to the borrower’s purchasing power. Some sellers in heated markets are advised to reject offers that are not submitted and accompanied with a legitimate pre-approval letter.

When Approved – Be Vigilant and Keep Your Credit Clean

Borrowers should understand that lenders monitor an applicant’s credit more than once during the loan approval process. There are many documents (bank statements/Verification of Deposits, etc.) and techniques lenders and underwriters use during the loan process that 1) ensures the borrower meets the credit guidelines and 2) confirms the borrower’s financial scenario has not changed since application. After loan approval –

• Don’t inquire about new credit.
• Don’t open new credit lines or loans.
• Don’t transfer larges amounts of money without a paper trail or the ability to source the funds.

Are you ready to begin?

If you would like additional information, a free loan quote, or are ready to get started, the first step is to talk to our mortgage specialists. They can be reached at 866-696-7578 or online, using Landmark Mortgage Capital’s contact form.