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   ARTICLE   |   From Scotsman Guide Residential Edition   |   July 2017

Open the Door to Veterans

Dispel myths about the VA loan program to win new clients

Open the Door to Veterans

It’s an all too frequent occurrence: Veterans with a Federal Housing Administration or conventional loan, call looking to refinance to remove the private mortgage insurance from their loan. Perhaps years after their original home purchase, they are finally exploring their options with a U.S. Department of Veterans Affairs (VA) home loan.

When asked why they didn’t get a VA mortgage initially, the answer, all too often, is because their loan originator or Realtor never mentioned it as an option. Even worse, some veterans are discouraged from using their VA loan benefits because of less-than-legitimate reasons such as “VA loans take too long to close” or “VA appraisers undervalue homes.” Because of these pervasive myths, many veterans spend months or years making unnecessary mortgage insurance payments.

Making veterans aware of and educating them about the benefits of the VA home-loan program should be a priority for all mortgage originators. The simple question, “Are you a Veteran?” asked during initial screening and qualification processes will tell you if you should, at the very least, suggest that the borrowers look into a VA mortgage.

Of course, it will be even more impressive if you can articulate some of the VA loan benefits to them. This will go a long way toward building trust with these veteran borrowers, which not only will help you retain them as clients, but could even bring in referrals to other veterans looking for mortgages.

Educating disabled veterans about their benefits could save them thousands of dollars and help cement a lifetime relationship.

So, if you want to open the door to veteran borrowers, you should familiarize yourself with a few basic highlights of the VA loan program. At the very least, you can dispel some of the myths you may have heard about the program.

For one thing, technically, the VA guidelines do not have a minimum credit score requirement, which can make it easier to get your veteran borrowers approved for a loan. Most mortgage lenders likely will have a minimum credit-score requirement, however. These requirements vary from lender to lender, but the requirements are likely to be lower with a VA loan and have less, if any, impact on the loan pricing compared with a typical conventional loan.

Fees versus insurance premiums

One big benefit of VA loans is that they do not require monthly private mortgage-insurance payments, even though most VA loans do not require any downpayment. There is only an upfront VA funding fee that can be either financed into the loan or paid outside the loan.

The amount of the funding fee depends on a few factors, including military status, downpayment size and prior use of the VA loan benefit. A regular military veteran who makes no downpayment on a home purchase, for example, will pay 2.15 percent of the purchase price the first time the benefit is used, and 3.3 percent subsequently. If that same veteran makes a 5 percent downpayment, the fee is 1.5 percent of the purchase price no matter how many times the veteran has used the benefit.

In addition, veterans with a minimum disability rating of 10 percent or more are exempt from the funding fee. They don’t have to pay it at all, so it becomes a moot point, saving them thousands of dollars over just about any other loan program. For specifics about fee levels, check out the funding-fee table at the va.gov website, which can help you determine the funding fee based on your veteran borrower’s individual circumstances.

Downpayments and closing costs

As mentioned earlier, there is no downpayment required on a VA loan, most of the time. This benefit helps veteran borrowers get into a home earlier than they might with other loan programs because they don’t need to save up for the downpayment. It also allows some veterans to save money for closing costs or other expenses.

Veterans will need a “high balance” (or Jumbo VA Loan), if they want to finance amounts greater than the conventional loan limit for the county where they are purchasing a home. In that case, a downpayment would be required. Additionally, in circumstances where veterans only have partial entitlement to their VA loan benefits — perhaps because they have already accessed a portion of their benefits on another loan — a downpayment may be required. In both these circumstances, the downpayment will likely be less than required for a conventional loan.

When it comes to closing costs, in many cases, it is possible for a veteran homebuyer to close on a home with very little or even no funds out of pocket. The VA loan guidelines allow for sellers to pay for all of a veteran homebuyer’s loan-related closing costs.

Additionally, a seller can pay up to 4 percent of the loan amount in closing-cost concessions, which can go toward most items on a settlement statement, including the veteran’s homeowner’s insurance premium or escrow account for taxes and insurance. That being said, the net proceeds of the sale to the seller will be their bottom line, which probably needs to reflect the market value for the veteran’s offer to be accepted.

You and the Realtor should be savvy about positioning seller-paid closing costs when making an offer that will use VA loan financing. Positioning seller-paid closing costs as something the “seller has to pay” because the buyer is using VA financing isn’t likely to be successful. A better tactic might be to position it as veteran buyers using benefits they have earned by serving their country. Even then, be sure the offer reflects the seller’s net proceeds in the context of the current market.

Benefits for disabled veterans

In addition to the exemption from paying the funding fee available to veterans with a 10 percent or greater disability rating, disabled veterans also may be eligible to apply for Specially Adapted Housing (SAH) grants to make modifications to their residences. This benefit helps veterans with some  service-related disabilities to construct or adapt a home to help them accommodate their disability and live more independently. More information on SAH grants can be found on the va.gov website.

Disabled veterans also may be eligible for property tax exemptions from the state where their home is located. This benefit is, of course, dependent on state and county property tax laws. In some states, such as Texas and Florida, veterans with a 100 percent disability rating can be fully exempt from paying property taxes. In these cases, some lenders won’t even collect escrow for the property taxes, which results in significantly lower closing costs and monthly payments.

Veterans with less than a 100 percent disability rating may still be exempt from some portion of their property taxes. Your veteran borrowers will need to research their specific benefits, but the bottom line is educating disabled veterans about their benefits could save them thousands of dollars and help cement a lifetime relationship with those borrowers.

• • •

Having a little basic knowledge about VA loans can go a long way in helping your veteran clients utilize their benefits when buying a home. This will subsequently save them a lot of money at closing and on their ongoing mortgage payments.

We didn’t cover all of the myths about VA loans here, so you may need to do a little research or consult a VA loan expert if a loan question arises about a specific veteran borrower’s circumstance. Working with veterans, helping them utilize their benefits to the fullest extent to buy a home, allows you to give back to those who have sacrificed for our country, while at the same time showing your value to a growing niche of borrowers.


 


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