South Bend Home Loan

Wednesday, January 30, 2013

VA Loans – The Flax Seed of Mortgage Lending

I’ve hit an age where I’m paying more attention to health-related issues than I used to.  I even bought a subscription to Prevention Magazines and find myself reading it cover to cover each month.  The articles often overwhelm me, though, and I end up doing nothing because I don’t know what steps to take.

Take flax seed, for example.  They say it’s some kind of wonder food that can fight heart disease, diabetes and cancer, but how am I supposed to actually use it?  Ground or un-ground?  Baked or stirred in?  Always with dairy, never with dairy?  It’s so easy to use a good thing wrong and, in the process, cancel out the benefit of that good thing.

When it comes to mortgage financing, I find that Realtors feel the same type anxiety about some very good things, like VA lending.  They know it’s probably great for their clients, but they don’t know enough about it to feel like they won’t mess it up.

To help take the fear away, let me put on my ‘Loan Doctor’ hat and explain the uses, benefits and, yes – potential side effects - of the VA Mortgage.

What is a VA Mortgage?

A VA mortgage is a loan made by a mortgage lender that is guaranteed by the Department of Veteran Affairs.  The borrower must be an eligible Veteran or the surviving spouse of an eligible Veteran, and they must qualify for the loan with an acceptable credit history, income and employment history, just like with other loan types.

Why is a VA Mortgage Good?

A  VA mortgage is not just good – it’s GREAT.  It offers 100% financing and lets the seller pay all of the closing costs and prepaid items as long as they don’t exceed 4% of the price of the home.  This lets most Veterans purchase a home with no personal investment needed.
VA mortgages normally have great interest rates (lower than conventional rates currently) and there is no monthly mortgage insurance charged on the loan.  This piece alone is HUGE and can save the Veteran a ton of money over time.  VA does charge a funding fee that is rolled into the loan, but if the Veteran has at least 10% VA disability, that fee can be waived. 

What are the potential ‘Side Effects’?

The problems that occur with VA financing can typically be avoided with some upfront education.  For example, VA requires that the home meet some minimum property requirements.  Much like with FHA financing, these requirements are there to protect the buyer.  Full detail on VA’s requirements can be found here:  VA Minimum Property Requirements.  In a nutshell, if a Realtor looks at a home from the standpoint of ‘is it safe, structurally sound and sanitary?’ they will likely be able to rule most homes in or out without studying VA’s full code.  

VA also has some unique rules on which costs it will allow the buyer to pay.  VA will not allow the buyer to pay the title company’s settlement/closing fees.  A pest inspection is also required with all VA loan and the buyer can’t pay for it.  The Realtor should write it into the purchase agreement upfront that these items will be paid by the seller.  Realtor office administration fees also can’t be charged on VA loans, so the Realtor should make sure their broker is aware of this.

The Veteran’s Administration is also going to be very exact on the paperwork, and they typically require all documentation related to the purchase to match the Veteran’s Certificate of Release or Discharge from Active Duty, known as the DD214.  This form is used by the lender to confirm that the buyer is eligible for VA Financing.  It’s wise for the Realtor to ask the buyer how his/her name appears on the DD214 before writing the purchase agreement and then use that full DD214 name on all paperwork.

So, summarizing, the Realtor should 1) look the property over carefully, to make sure it would be safe, sound and sanitary for the buyer; 2) get the full name from the Veteran’s DD214 to use on the purchase agreement; and 3) write that the seller will pay for the title company’s closing fees and pest inspection as a part of the initial offer.  Doing this will avoid the most common ‘side effects’ of VA financing. 

Time to Try the Flax

Definitely, there are some unique features of VA financing.  A little education goes a long way, though, and those unique items don’t need to be a problem for you or your buyer. 

Print out this post and keep it where you can find it when a VA buyer comes calling.  Better yet, put my name and number in your phone (Lori Hiscock, 574-707-0196) and call me when buyers mention their military service.  I can walk you and your clients through the process step by step so that they can benefit from all of the great features offered by the VA mortgage.

Speaking of benefiting from great features…it’s time to take some action on my part too.  I’m off to my local health food store to get some flax seed.  Wish me luck!


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