September means Back to Basics here at Inman. As real estate navigates the post-settlement era with new commission rules, real estate professionals from across the country will share what’s working for them, how they’ve evolved their systems and tools, and where they’re investing personally.
A Veterans Affairs (VA) home loan offers exceptional value to eligible veterans in a variety of ways, such as low or no down payment, lower interest rates than a conventional loan, no private mortgage insurance (PMI), and relaxed credit and income requirements. With all these benefits, it’s not surprising that so many veterans take advantage of the program.
But getting a VA loan isn’t as simple as many veterans assume. Not all lenders issue VA loans, and for those who do, there are very specific eligibility requirements.
Meanwhile, the approval process can be long and complex compared to a conventional mortgage. Read on as we examine the most common pain points for VA mortgage applicants and how agents can help ease their progress through the VA loan process.
Recent commission changes may not be a problem
A recent settlement in a lawsuit against the National Association of Realtors (NAR) over how commission is paid has made huge changes to the U.S. commission system.
One of the main changes is that sellers are no longer required to pay both agent commissions; therefore, buyers are now expected to handle compensation for their own agents.
While 67 percent of Americans support these changes, according to Clever Real Estate data, VA mortgages explicitly forbid borrowers from paying buyer agent commissions. Fortunately, the VA updated its policy.
VA buyers are now allowed to pay buyer’s agent commissions to stay competitive in the homebuying marketplace. Start by ensuring your clients know the old rules no longer hold them back.
Lead them to a qualified, approved lender
Only lenders who’ve been screened and approved by the Department of Veterans Affairs can originate a VA mortgage, meaning a lender who doesn’t have VA approval is a no-go.
In addition, some lenders have the ability to originate the loans but don’t specialize in them. Agents and buyers should be aware they might not have as much experience with the paperwork requirements and differing timelines of VA loans.
Ideally, steer your client toward a lender that specializes in loans for veterans or has significant experience doing so. These companies can use their program-specific knowledge to help the process move as quickly and efficiently as possible.
Make sure buyers double-check their eligibility
Most veterans are eligible for a VA mortgage, but not all are. There are minimum service requirements that applicants have to meet, so some veterans may not qualify.
There are other exclusions to consider, too; some property types, like vacant land, aren’t eligible for VA mortgages. You can save your client a lot of potential disappointment by encouraging them to double-check their eligibility before embarking on the loan approval process.
VA loans do come with some conventional loan requirements
Although most veterans are eligible to apply for a VA loan, approval isn’t a foregone conclusion. VA mortgage applicants still have to meet income and credit requirements to receive their loan.
Although these requirements tend to be more relaxed than for a conventional loan, applicants still must ensure they clear these bars. However, specific requirements can vary between lenders, so your clients can shop around if they’re having trouble getting approved.
Remind them to get an official Certificate of Eligibility
Once clients have determined that they meet the requirements, their next step should be to get an official Certificate of Eligibility (COE).
This is a document issued by the Department of Veterans Affairs that tells the lender that your client meets all eligibility requirements for the loan and specifies the amount that the VA will guarantee.
Your client can acquire a Certificate of Eligibility online through the VA website or the lender’s online portal. If your client is the spouse of a veteran, they may have to apply for their certificate through the mail.
Acquiring a COE is one example of a paperwork requirement a VA-focused lender can handle easily that a conventional lender might struggle with.
Clarify the funding fee
While a VA mortgage may not require any down payment at all, most of them do require the payment of a funding fee. This one-time payment is a percentage of the loan amount, and it’s capped at 3.3 percent. This is basically an administrative fee that is paid directly to the VA to help sustain the program.
The exact amount of the funding fee is determined by the type of VA loan you’re applying for, the amount of the down payment, and whether this is the applicant’s first use of the program. The latest funding fee charts from the VA can be seen here.
Clients who put at least 5 percent down can reduce their funding fee, and clients who do pay the funding fee can roll it into their loan and finance it.
Some veterans are exempt from the funding fee. For example, any veteran who’s received the Purple Heart or who is receiving compensation for a service-connected disability can have their funding fee waived.
Prepare for a long appraisal
Once your client signs their purchase agreement on a home, they’ll have to get an officially certified VA appraiser to look at the house to make sure it meets program requirements.
The VA appraiser has two main tasks. First, they’ll perform the duties of a traditional appraiser, checking out the property to ensure it’s worth the amount being loaned. In addition, they’ll be making sure that the property meets the VA’s unique property requirements, called minimum property requirements (MPRs).
These minimum property requirements are very similar to what a conventional home appraiser would look for, but are a little more specific; MPRs touch on basic aspects of habitability, like adequate space, heat, water and ventilation.
Although the VA requires appraisers in many markets to complete their appraisals in as few as 7 to 10 days, the process can take longer in some high-demand counties where there is a shortage of certified VA appraisers. VA appraisers have up to 20 business days to complete their work in several high-demand counties in Alaska, for example, and are permitted to charge $1,200 – almost twice the allowable fee in Utah.
Luke Babich is the CEO of Clever Real Estate in St. Louis. Connect with him on Facebook or Twitter.
