If you’re not already familiar with what VA loans are, who can utilize them and how they can help your business, read on — we’ve got a lesson for you.
VA loans are home loans available to veterans from every branch of the United States armed forces. They are guaranteed by the United States Department of Veterans Affairs (VA), which is where the acronym comes from.
People eligible for VA loans do not have to be on active duty — they just need to be able to provide proof that they served at some time.
They have helped roughly 21 million veterans afford homes since the end of World War II, which is when they first became available.
The Department of Veterans Affairs doesn’t make the home loans directly, it works with participating lenders. Knowing about VA loans can help you better serve veterans.
“VA Mortgage loans are for qualified veterans and active duty,” Sherrie Dean Stephenson, real estate lending manager for Fort Bragg Federal Credit Union said.
“VA loans are more flexible than traditional mortgages because they allow higher debt ratios and are able to factor in the borrower’s disposable income. They are also more competitive with their interest rates and are typically slightly lower than traditional conventional mortgage loans,” she said.
Perhaps most importantly to agents, knowing about VA loans can help you sell more houses.
It’s a good idea, always, to ask potential clients if they have ever served in the military. VA loans have many financial advantages that can make homes more affordable for veterans than conventional loans do.
Although some veterans know of VA loans and their advantages, some may not. Help them understand the benefits! Here are six things you — and your clients — should know about VA loans.
1. No down payment necessary (usually)
One of the chief ways that VA loans can help you sell more houses is that they are more financially advantageous than conventional loans.
Veterans and their families who may not be able to come up with the standard 20 percent down payment, for example, may be able to obtain a VA loan through a participating lender with no money down because 90 percent of VA loans don’t require a down payment.
2. Interest rates are often lower
VA loans often carry lower interest rates than conventional loans. It can really be helpful here to crunch the numbers by showing veterans how much they can save over the life of the loan.
Even a $25 or $50 savings per month can save them $9,000 to $18,000 out of their pocket over a 30-year mortgage.
Figures like this make it crystal clear how much benefit veterans and their families gain from a VA loan.
3. Credit standards are more flexible
It’s important for prospective homebuyers to know their credit score. Often, it’s difficult to obtain a mortgage from a conventional lender if their credit score is less-than-excellent or very good.
Some lenders charge a higher mortgage interest rate for credit scores outside this range.
VA loans, however, are often granted to people with credit scores starting at roughly 620. This is below the very good and excellent range and is often characterized as fair or even poor.
It can be very helpful to veterans to realize that the dream of homeownership is not out of their grasp if they have just an average credit score.
4. No mortgage insurance required
VA loans also don’t require private mortgage insurance (PMI) payments, which can add up to 1 percent of the purchase price of loan payments.
Like a lower interest rate, this can lower payments substantially over the life of the loan. If a veteran is buying a home worth $200,000, for example, PMI can cost $2,000 with a conventional mortgage. A VA loan puts that money back in the veteran’s pocket.
These are four very positive benefits of VA loans. There are also some potential drawbacks; however, you can likely increase your sales if you advise veterans candidly on these and recommend some solutions.
5. Appraisals may take longer
Appraisals and other paperwork may take longer to complete with VA loans than with conventional loans.
“VA appraisals are more demanding, for instance, the home needs to be move-in ready,” Stephenson said. “If the appraisal and the inspection show that work needs to be addressed, those issues need to be completed before the loan closes.”
VA loans also have very specific requirements with regard to things like septic tanks, private wells, acceptable condition of the homes and so on.
Some areas have a good record of completion time, roughly comparable to conventional loan appraisals.
But in other areas, VA loan appraisal times lag — be prepared. It may be a good idea to make a higher offer on the home so that sellers will be more inclined to hold it for your buyers.
6. Sellers have misconceptions
Fees associated with closing on a house are limited to 1 percent of the home’s cost with a VA loan.
In areas where fees are higher than that, sellers may be leery of selling to a buyer with a VA loan because the sellers may believe they need to pick up any cost over 1 percent, which is something they wouldn’t have to do with a conventional loan holder.
“The VA funding fee can generally be added into the loan,” Stephenson said, “and if you are a disabled veteran, you are exempt from this cost.”
VA loans are a very good financial deal for current and former members of the armed services.
And they can also, potentially, help you sell more homes if you familiarize yourself with the advantages and learn to advise your clients candidly regarding their financial standing.