THE MORTGAGE BROTHERS SHOW
What you need to know about buying a home with a VA mortgage
This week, we discuss “What you need to know about buying a home with a VA Mortgage”. We have a great discussion about how we help Veterans go through the VA Home loan process. The VA home loan is hands down the best loan in the market.
If you’re an active duty service member or a military veteran looking for a great deal on a home loan, you owe it to yourself to look into today’s VA loan.
With incredibly low rates and minimum credit score requirement of 580, VA loans are one of the best loan programs in the mortgage market. And with recent expansion to more veterans than ever, you might be surprised how easy it is to qualify and be approved for your home loan.
*The following transcript has been edited for clarity.
Eddie Knoell — On the program today, Tom, we’re going to highlight today the VA loan for home purchases.
Tom Knoell — VA loans for our vets. So, we want to thank them number one for their service, all those past, and all those who will serve in the future. So, thank you for what you do for our country.
Eddie — That’s right. In fact, I just heard a story. It was a friend of ours. The obituary came out today and one of the things he always used to say… He was an immigrant and whenever someone would thank him for his service, he used to say, “I was just thankful I could serve.”
Tom — Wow.
Eddie — The guy was thankful that he could serve, which is awesome. So, thank you to all the veterans.
Tom — Yeah. Awesome.
Eddie — And so let’s just talk about how you get approved. I’m going to go through… I think the idea is when I have a customer, a veteran, who calls me and is looking to get approved, what do we need? How does that conversation go? How do we go through that loan process and the loan application process?
Tom — I actually had a borrower yesterday call me, because you and I were talking about what podcasts we’re going to do and we talked about the VA loan and literally within two hours we got a call from a VA borrower, a first-time home buyer. I don’t know exactly what service he has. We’re still digging up his certificate of eligibility. But his big question was:
- “How does it work?”
- “What do I do?”
- “What’s next?”
Tom — So maybe we can kind of approach it as if we’re talking to, let’s just call him Tim. As if we’re talking to Tim. So, what does Tim need to do?
Eddie — Yeah. Okay, so Tim wants to find out if he has… Well, the question will be, “Have you actually accessed your certificate of eligibility?” You have to go on to the VA site and there’s a portal that you go onto. And of course, if you’re a veteran, you’re probably used to this portal, the access, seeing any of your benefits or anything like that. But basically, if you just Google “certificate of eligibility VA”, you’ll find it.
Tom — Now, some of our borrowers, we work with them, young, medium, old generations, and sometimes people can’t find it. So, we can help. We typically ask for what they call a DD 214 and a couple other small little bits of information. So, if you can’t find it or you’re even like, “What is a certificate of eligibility?” Don’t worry, we can help you with that.
Eddie — That’s right.
Tom — But that’s one of the first things we’ll probably ask for.
Eddie — So the certificate of eligibility, will have these, they’re called entitlement, there’s an entitlement number in there. It is confusing. I would say for in veterans, don’t worry about figuring out what that certificate of eligibility says so far. Those numbers won’t make a lot of sense to you. Just forward that on to us or your lender because we’re going to look at it.
Eddie — What we’re really looking for on that certificate of eligibility is whether or not you have an exemption from the funding fee. We can go into that in a little bit. Well, we can segue into that right now. A funding fee is very similar to upfront mortgage insurance, but the veteran’s department just calls it a funding fee.
Eddie — If you’re not disabled according to the VA department, you will pay a funding fee and then that funding fee will vary. And so, I’ll explain to the borrower, or I’ll ask him, “Are you disabled?” And he’ll say yes or no. Most veterans will know if they’re exempt from the funding fee. I would say 90% of them know that. Others don’t. So especially the first-time homeowners for veterans, they might not know. But, if they’ve already gone through the paperwork with the VA for disability, most of these guys know.
Tom — Okay. So, with Tim in the example we’re using, he does not know. So that is going to be part of the process. He is partially disabled, but we don’t know if the VA is going to recognize that he is disabled enough to be exempt from that funding fee. So yeah, the funding fee is going to be a big part of that certificate of eligibility. Also, if you’ve used a VA loan before, just talking through and figuring out if there have been any charge-offs will be a part of it as well. Have you used any of your entitlement that’s not recoverable?
If you have, that still might not be a problem. You just may not have full entitlement. The typical person probably doesn’t need full entitlement to buy their homes, particularly if that person is a first-time homebuyer. It obviously helps, but we look at the certificate of eligibility. There are two things. There’s the funding fee, Ed, as you talked about, but also has it been used, has there been a charge-off, has there been a foreclosure? So that’s the certificate.
Eddie — That’s right. And then on our website, so azmortgagebrothers.com, under loan programs everyone can actually find the page called VA Loans. It’s a really good webpage that highlights the program details. It also shows the funding fee schedule, so we’ll probably put that in the YouTube description if we can. But for example, the funding fee purchase schedule for first time use, is going to be 2.15% if you’re putting less than 5% down.
Okay. And again, so most veterans who buy a home are actually going to go with zero down. Most of them do. Because the interest rate’s the same. There’re no extra costs. It’s great. The VA loan is the best loan. I would say there are only very few instances when it’s not the right option. But on our website, it has the whole schedule of the funding fees. So, you can go learn about those and what those percentages are.
Tom — And I just want to throw this out there. The reason for the funding fee is basically that the funding fee gets pulled with other veteran’s funding fees. That acts as an insurance bank that, when a loan has 0% down, if one of the loans does default, the VA can be made whole again. So, one of the primary purposes of that funding fee, Ed, correct me if you think there’s another purpose, but one of the big ones is to help insure these loans so that veterans don’t have to come out of pocket for a down payment.
Eddie — Yeah. That’s absolutely right. The VA actually has a guarantee to the bank. The bank funds the mortgage, and the VA guarantees that that veteran, whether they pay that mortgage or not, the bank will be made whole. So that funding fee, it goes into a pool to pay for that. So, it’s insurance.
Tom — Okay. So, Tim called, we’ve talked about the certificate of eligibility. We’ve talked about the funding fee. We figured out if he’s used it or not. And there are lots of little nuances we won’t get into, but what’s next? How about purchase price? Is he limited?
Eddie — Yeah. So, I’ll tell a veteran, in Maricopa County today, you can go zero down, up to 484,350.
Tom — Loan.
Eddie — Loan. Okay. So, if you wanted to buy a $600,000 house, you can, but there’s a down payment required. You can’t go zero down once you start going above 484. Okay, so ask them, “Well, what’s your price range?” If it’s below 484, “Well, you can go up to zero, in most cases, zero down. That’s according to the entitlement that’s on the certificate of eligibility. But the point is we’ll discuss that.”
Eddie — But it’s very similar to a normal application. I’m asking the borrower for their names, socials, date of birth, where they’ve lived and worked for the last two years. I need two-year history, who they currently bank with, etc. Now for assets like where they bank, veterans do not need reserves, very little reserves are needed, and sometimes no reserves are needed.
I’ll ask them if the borrower, the veteran has very little funds in the bank. Literally, let’s just say $500, it’s possible to do that mortgage because they can have the seller kick in 4% of the sales price towards closing costs and prepaids, which will basically cover all of their closing costs and prepaids at 4% in most cases, and put zero down.
So, someone with just $500, a veteran can purchase a home. So, when I’m going through the application, unlike a conventional loan or an FHA, I am not too concerned if a borrower has little money saved.
Tom — And to go one step further, if we run an underwrite, the borrower, and there are a couple of debts that need to be paid off, one of the unique things about the VA loan is you can actually use the seller credit to pay off a small credit card. Which is unlike FHA and unlike conventional.
Eddie — Yeah, that’s really cool.
Tom — So, it’s unbelievable, actually. We’ve gotten a couple of borrowers approved that way. Their DTI’s just a little over. But because the seller credit that can be issued that can help pay out that debt. It’s very rare and can be very useful. All right. How about mortgage insurance? Is there mortgage insurance like FHA?
Eddie — There’s no mortgage insurance. That’s the best part. One of the best parts.
There’s no mortgage insurance and the interest rates on VA are fantastic. They’re about half a percent lower than conventional financing. And another thing about VA loans is if you have 660 credit score, that’s okay. Your rate is going to be a lot better than someone with an 800 credit score getting a conventional loan with 25% down, the rate will be better.
Tom — How about, is it bad to think about joining the military just to get a VA loan? I thought about that, I’m like, “I wonder how long I’d have to serve.”
Eddie — Right.
Tom — But anyway, how about 1%? What are you going to say?
Eddie — You know what? On the website, it does actually show a whole schedule of what it takes to be eligible for a VA loan. So the fact that you’ve mentioned that’s funny because on that page, it’ll tell you for veterans whether you’re… how if you were active duty, if you were in reserves, like if you’re in the National Guard and reserves, you need to have been in the reserves or National Guard for six years to be eligible for the VA loan.
Eddie — But if you have active duty, wartime versus non-wartime, all that matters. And there’s a whole schedule on that page under azmortgagebrothers.com under loan programs for the VA loan.
Tom — Yeah. Good. Okay. So, one of the things that we get calls about is what is the veteran allowed to pay for, not allowed to pay for? What does the seller have to pay for? How can we kind of boil that that down simply for the borrowers?
Eddie — There were a lot of old rules that said the veteran couldn’t pay for some fees. But today, veteran’s basically can pay for really everything. The one thing, now this is important, the lender cannot be charging more than one point. Okay one point, if there’s one point in origination charges, then, there are certain things that the veteran cannot pay for.
Eddie — And for example, let’s take a $200,000 loan. If I’m a lender and I’m charging $2000 in origination charges, then the veteran basically cannot pay the escrow fee, cannot pay the lender fee. Okay? All of a sudden that just kicks in.
Tom — So basically to put it in other terms, lender fees can’t be more than 1%. We talk about it being points. We rarely charge points on any loan ever, so it’s when you look at the underwriting fee, the escrow fee, and you add up some of the other lender fees that aren’t points, but they’re just fees to the loan, that will always be capped at 1% for the borrower.
Eddie — Right. It had to get capped.
Tom — Okay good. How about termites? Do they need a termite report, or can they skip on that?
Eddie — When you’re buying a home with on a VA loan, you have to get a termite report.
Tom — Termites are not allowed in a VA home.
Eddie — Right. So you need a termite report and the buyer can pay for it in Arizona.
Tom — Yeah. Good. All right. What else?
Eddie — I would just say that the VA loan there are… The VA appraisal, once we actually start the loan, it’s a very normal process. One of the unique things is the appraisal. Appraisal’s ordered through the VA department.
There’s a different pool of appraisers that go out there. And I believe all the appraisers are veterans, unless… I believe that’s one of the requirements. But VA’s had a bad rap for years, for being really tough, having tough appraisers who are difficult. They go into a property and they’ll kind of rip it apart a little bit.
Tom — Pick it apart.
Eddie — Pick it apart, yeah.
Tom — “What’s that ceiling stain? What’s that chipping paint for? Fix this, fix that.”
Eddie —Yeah. It’s very rare to have issues today. The appraisals being done today are very similar to a FHA and conventional and they’re just looking for health and safety issues, okay, for the most part. So, I don’t want people worried about the VA loan. It’s a good loan. We can close these loans and really 30 days is not an issue. That’ very standard.
I want sellers comfortable with the VA borrowers who are making applications or offering contracts on their properties. It’s a good loan. It’s really not difficult and has a ton of flexibility and allows high debt ratios. So, the point is, once we start the loan, we can finish these things in 30 days. It’s really not a problem.
Tom — So, I’ve been thinking about this, why would a veteran not use a VA loan if he’s eligible for it? And I think it can be boiled down into this, that basically if you’re going to be in the home for less than three years, less than two years and you’ve got a great credit score, the conventional loan might compete with the VA loan.
But it’d be only under that exception, that you’re in the home for a short period of time. You might not want not to pay that funding fee. You might move over to a conventional loan which would still have a great interest rate cause you’ve got to get a credit score. But other than that, the VA loan is an awesome loan. Hard to beat.
Eddie — Definitely. So, if anyone has questions on the VA loan is interested or needs anything, let us know. And everyone, if you’re watching from YouTube be sure to subscribe. We’d love that. And if you are listening on your podcast player, be sure to like and subscribe on there as well. And if you’re reading, thank you as well.
Tom — Sweet.
Eddie — I think we’re done.
Tom — I think we’re done.
Eddie — Time to going to go home.
Tom — All right, let’s call it a day.
Eddie — See everyone.
Tom — Thanks folks.
Eddie — Hey guys, thanks for listening to the Mortgage Brothers Show. Please let us know if you have any questions you’d like us to answer on this podcast. You can email your questions to firstname.lastname@example.org, or yours truly at email@example.com. And be sure to ask us for a free quote on your next mortgage. Tom and I will personally work with you and help you through the whole process.
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