VA LOAN MYTHS & TRUTHS: 10 KEY FACTS TO HELP YOU BUY WITH CONFIDENCE

Transcript

[Michelle Rene]
Well, hello there. This is Michelle Rene and I’ve got Jacqueline Scotch from Evergreen Home Loans. We are going to, hi, Jackie.

Hello. So I’m with Windermere Coeur d’Alene Realty and we’re doing a call today to discuss some topics on VA myths and truths for VA home loans, I should say. So I have an expert here.

She’s done a lot of VA loans, Jackie has, and this obviously is something that I’m just, we’re trying to put some information out to the world to be helpful and just benefit anyone that could utilize the VA loans. So Jackie, I’m gonna ask you to introduce yourself in terms of your background and how did you even get involved with kind of becoming an expert or niche into this VA market?

[Jaclyn Scotch]
Yes, well, hello everyone. Thank you so much for having me, Michelle. So I became very passionate about VA when we actually used it to buy our first home.

And so my husband is a veteran and first responder. So a lot of our friends are in that realm as well. And I’m very passionate about helping my community.

And so through my first home buying experience, it drove me to become more passionate about spreading awareness. The only reason I knew that a VA loan existed was because my real estate agent knew about it. My husband got out of the military and had all sorts of things going on.

And the VA loan was at the very bottom of the list of priorities and I had no idea it even existed. And so having an agent that knew that it existed and just a couple main pieces to figure out if it was even possible for us was huge. And I thank him all the time because it allowed us to buy our first home and now we’re on to home number four and without that first home purchase, it changed everything.

So with that, I got into lending in 2017 and just through experience, I started with a bank and a credit union and learned a little bit on VA loans. But what really drove it home, I joined a Facebook group for mortgage lending and just started seeing all of these things about VA loans that I had no idea about because a lot of times you don’t actually get training. You kind of just fail forward learning all of the weird ins and outs.

And as I started seeing these really neat guidelines and things being done, I started to question my own knowledge. So I joined the veteran mortgage advisor group which were about 200 strong throughout the US now. But we talk every day, we go over guideline changes and really funky scenarios to make sure we’re taking care of veterans.

And once I joined that group and really started understanding the ins and the outs was where I started finding a weakness in our own community and the knowledge within our own community. And so it kind of became my job to start advocating really hard for the VA loan and making sure that all of these myths that are out there that I can bust them and start getting our veterans offers accepted and really allowing them the opportunity to use the benefit that they earned.

[Michelle Rene]
That’s awesome. And so your background being a lender, you’ve been doing it for how long now?

[Jaclyn Scotch]
So I started on the home loan side of lending in 2017. So about, yeah, about eight years.

[Michelle Rene]
So we just started around the same time. Yeah, yeah, it was a good time. Yeah, yeah, yeah, I know.

We’ve been through some ups and downs and so we’re not like the OG people but I feel like there’s obviously enough time to have experience. And I know we both are top producers. So, and congrats by the way, on your recent awards.

[Jaclyn Scotch]
So, yeah. Thank you. Yeah, and back to you.

[Michelle Rene]
Let me, so I have a number of questions and we’re just gonna jump right into it. So one thing that I know is top of mind for people looking at doing a VA loan is the down payment. So talk to me about, is there a down payment?

Is it really zero down? And what are the loan limits? I know that’s kind of a myth out there as well.

So speak to that please.

[Jaclyn Scotch]
Absolutely. So one of the greatest benefits about the VA loan is that there is no down payment. It truly is a 100% financing loan.

So you’re not required to bring in a down payment. And a lot of times when it comes to making the offer, you can ask the sellers to pay closing costs if they’re able to. And so that really can make it a $0 out of pocket loan, which is phenomenal.

And that’s a huge benefit. And one of the biggest things I hear is that no down payment makes them a weak buyer. And to that, I will say serving our country is their down payment.

I mean, they sacrifice so much. Their families sacrifice so much. So that is their down payment.

And VA borrowers are typically much stronger than any other loan program borrower out there. So just because there’s no down payment doesn’t necessarily make them any weaker of a buyer. It’s just that it’s a benefit that we get to give back to them after they have served us.

So there’s no down payment required.

[Michelle Rene]
Okay. And just I’ll interject a little bit. Back a few years ago when it was hard to get offers accepted and you were just so competitive out there for buyers.

Obviously the market’s different right now, not nearly as difficult as it used to be. But I do remember being an agent, a listing agent and talking to my clients about, okay, well, which of these many offers would you like to accept? And it wasn’t uncommon if there was a VA one in the mix for them to consider that, just kind of give it a little bit of a bump amongst all the other competition, even if the price was a little bit less with the offer.

So I think there is value in people, you know, at the end of the day, the seller is gonna make a decision. It’s a financial decision, but it does weigh into the, they do factor that in, I think some people.

[Jaclyn Scotch]
Yes, absolutely. And it really comes down to the advocacy. So if you’ve got a lender such as myself, I will always call the listing agent and talk to them about what that borrower’s strengths are and truly talk through the process because the lender on the side of it, whether it’s VA, conventional FHA also matters.

And so that’s gonna be the biggest part of it is making sure, yes, they have zero down, but having an advocacy team behind them and making sure that they’re set up right beforehand. And so that’s a big part of it. And with that, one of the pieces I wanted to dig into this as well, one of the myths is that there’s a loan limit with VA.

So there’s actually no loan limit with VA loans. So you can do a $1.5 million purchase at 0% down and you don’t have to pay jumbo rates. You don’t have to worry about any weird jumbo guidelines.

It’s all going to follow VA and that’s phenomenal. And so I’ve had to make a lot of calls to listing agents on behalf of those buyers because they’re like, wait a minute, this is way higher than the conventional loan limit. And VA doesn’t have a limit on that.

[Michelle Rene]
Yeah. And I’m just curious, I know this is anecdotal, but just in your experience, do the VA buyers generally utilize the zero down or do they sometimes come in with a down so that their payment is less?

[Jaclyn Scotch]
It depends. From borrower to borrower, a lot of people prefer to have their cash on hand for emergencies or they prefer to invest elsewhere. And so it’s a little hit and miss.

Some people will do a significant down payment with their VA loan and others will keep it maybe to do renovations or things like that down the road. So it changes from buyer to buyer, but yeah.

[Michelle Rene]
Okay. All right. So the next question is, do VA loans require private mortgage insurance, PMI?

[Jaclyn Scotch]
They do not. So that is one of the, outside of the zero down piece, the fact that there’s no mortgage insurance is huge. That saves you hundreds of dollars a month.

And so along with getting fantastic rate options, not having mortgage insurance, that can really increase a veteran’s buying power.

[Michelle Rene]
Nice. Okay. And what is the VA funding fee and how do I have to pay it?

Well, I, the buyer. How does the buyer?

[Jaclyn Scotch]
Yes. So this is a great question. And so the way that VA loans work is that the VA guarantees 25% of the buyer’s purchase loan.

So for example, just to make the numbers really easy, if it’s $100,000 loan, the VA is guaranteeing if something ever happened to that buyer, they couldn’t make their payments and it had to go back to the bank or something of that nature, the VA is going to pay the lender $25,000 so that they don’t have as much of a loss. The way that they do that is they do have to raise funds to be able to have that money to secure these VA loans. And the way that they do that outside of mortgage insurance or anything like that is they have the VA funding fee.

So the VA funding fee is a fee. It’s a percentage of the loan amount that’s added to the loan. So you don’t have to pay it out of pocket.

It’s added to the loan and the loan payments respectively. And it depends on the type of loan and it depends on if it’s your first purchase, second purchase, there’s different percentages. The caveat to the funding fee being if you are, if you receive at least 10% of a disability rating with the VA, you don’t actually pay a funding fee at all.

So it’s a really awesome way to be able to take advantage of the VA loan, but also understanding there does have to be a little funding for them to have that pool of funds to take care of the veterans. So there is a funding fee. It’s rolled into the loan amount.

And so it makes the payment, you really don’t see the payment increase very much. And it’s only a one-time fee on the purchase. Each time you do a VA loan, there is a funding fee that’s added to it if you’re not exempt.

[Michelle Rene]
If you’re not exempt, okay. Yeah. Okay.

Okay, and what about credit score and DTI, debt to income?

[Jaclyn Scotch]
Yes, so with VA loans, this is where they get a little more complicated. VA loans are very gray, whereas you have conventional FHA, USDA, they have very black and white guidelines. There’s not a whole lot of gray.

The VA is all gray with very little black and white. And the reason behind that is there is actually a specific verbiage within VA guidelines that they are working to get the veteran the loan. So they’re going to work to find any certain way to make a loan work to get a veteran into housing.

So with that being said, there is not a credit score or debt to income ratio requirement. If you Google them or use ChatGPT, it will give you some numbers, but there really isn’t one. It comes down to a multitude of factors.

So it adds in all of your credit, your income and your assets. So all of the savings that you have, including retirement, and it looks at it in a full picture to really determine if we’re putting the veterans in a positive position for them financially. So it doesn’t necessarily come down to being 40% or lower with your debt to income ratio or having a credit score higher than 620.

That being said, the VA does not have any guidelines on those, but lenders do. So there are some lenders that have what are called overlays. And so you’ll see a lot of banks and credit unions that have more overlays than independent mortgage banks because they are not willing to necessarily take as much risk.

And so you’ll see them have a limit at debt to income ratio of 45%. Whereas with an independent mortgage bank or somebody that just does mortgages will be able to do a debt to income ratio much higher if there’s compensating factors for that veteran. So we do a different calculation with VA.

It’s not straight debt to income ratio. We do a residual income calculation. So we take what your gross amount of income is that you receive monthly, remove out what your taxes are, utilities, any childcare costs.

And then the VA gives us a guideline as to how much should be left after all that’s taken out. And typically, as long as you have that or more, then we can move forward and do the loan. So it’s very gray.

[Michelle Rene]
Well, so obviously, I mean, people, anyone looking at doing this, they need to contact their lender or you to get the details. But this is meant to be kind of a springboard and just let people know what the options are. So, okay.

So that’s great. So the next question is, can someone use a VA loan to buy a vacation home or a rental property?

[Jaclyn Scotch]
Okay. So no, you have to use VA to buy a primary residence. The caveat with that is that you can buy multi-unit residences.

So you can buy a two, three or four unit residence as long as you’re occupying one of them. So, and there aren’t any requirements.

[Michelle Rene]
Yeah.

[Jaclyn Scotch]
So you can absolutely do that. And there is, we want you to stay in the home for 12 months, but after the 12 months, if you decide that you want to buy elsewhere or turn that home into an investment property and buy something else, you absolutely can.

[Michelle Rene]
So theoretically, someone could buy their, say a fourplex with a VA loan, live in it for a year or more and get another, use their VA for the next purchase. Could they do that? They could.

Okay. Yeah.

[Jaclyn Scotch]
And we’ll dig into that, I think down the way a little bit. Yeah.

[Michelle Rene]
Okay, cool. All right. But no rental property, just pure investment or second home.

[Jaclyn Scotch]
Yep. Exactly. Yep.

You’ve got to occupy for 12 months.

[Michelle Rene]
Okay. So does the home itself need to meet specific requirements?

[Jaclyn Scotch]
Yes. So the VA loan, one of the biggest, I would say hurdles that I have to talk through a lot of times is the minimum property requirements. A lot of people will look at VA and FHA with the same mindset as far as minimum property requirements, but they are very different.

So the VA does have minimum property requirements. They want to make sure the home is safe, sound and sanitary. So, you know, peeling paint, which I know is always kind of the- That always comes up.

You know?

[Michelle Rene]
But they want to make sure that there’s- Of all the things in a house, like why does that one come up every single time?

[Jaclyn Scotch]
I know. Now that being said, the VA is a lot more common sense driven than let’s say FHA, because FHA, the borrowers are inherently, they are a little bit weaker with, you know, no reserves, no, you know, little down payment most of the time, whereas VA is very different. So the VA actually allows the veteran to ask for a minimum property requirement waiver if they feel it’s something that they can manage on their own.

And a lot of people don’t know that. So if there ever is a hurdle, there are ways to work through it, but the VA, they don’t have the same requirements that FHA does, but they do want to make sure the home is going to be safe, sound, and sanitary. But cosmetic things typically aren’t going to be called out like sometimes they do in FHA.

Okay.

[Michelle Rene]
Okay, that’s good to know. What’s the difference between a VA appraisal and a home inspection? Great question.

[Jaclyn Scotch]
So the VA appraisal is going to determine the value of the home as well as basic safety. So the VA appraiser, unlike the home inspector, will not be climbing into the attic or necessarily, you know, going deep into crawl spaces, but they’re going to look for basic safety items, you know, broken windows, anything like that. The home inspection is going to dive a lot deeper into the home, look for water damage, broken pipes, you know, missing insulation, things of that nature, where a VA appraiser is not necessarily going to do that.

They’re looking for the surface level, basic safety and sanitation.

[Michelle Rene]
Okay. Okay, this is an interesting, this next topic is an interesting topic, and it’s come up more and more because interest rates are, you know, higher than people are comfortable with right now. But can someone transfer their VA loan to someone else?

[Jaclyn Scotch]
Yes. So this is something we’re seeing a lot more of, like you said, is these assumable VA loans. And VA loans are assumable.

So that basically means when, let’s say I buy a home using my husband’s VA benefits and we decide to move and we’ve got a fantastic 3% interest rate, then a buyer can come in and actually assume our current loan. You do not have to be a veteran to assume a VA loan. You actually can be an LLC and assume a VA loan.

You don’t have to occupy the residence. So it’s a really great opportunity for people to be able to still take advantage of those lower interest rates. It’s, you end up working with the current servicer of whomever is holding the loan.

That is who is going to decide on the buyer’s approval on taking over the existing loan. The caveat to this, and something that’s really important, is if a veteran takes over a veteran’s loan, then their entitlement will just switch to the new veteran. And then the veteran that’s selling can go and use their full entitlement elsewhere.

If an LLC or somebody that’s a non-veteran comes in to assume the loan, the seller’s entitlement will stay with the home until that loan is paid off. So that’s a really in-depth conversation that I like to have about these to make sure that the veteran that is leaving understands that they are also going to be leaving their entitlement potentially wrapped into the home.

[Michelle Rene]
Okay, so that sort of lingers out there. And so the veteran that sold, if it was to a non-veteran, could not reuse that benefits on another home, right? Yeah.

Is there any risk for that veteran in any other way? Like what if the new buyer ends up not paying or something weird happens with the loan? Are they, is the veteran that sold at risk at all?

[Jaclyn Scotch]
No, so they are, the current servicer is going to transfer all of the documentation over to the new buyer. So the veteran is no longer legally responsible for that property.

[Michelle Rene]
Okay, but as long as that loan is in place, the selling veteran can’t use because the limit, that’s our next question, right? Like, is there a limit? There is, right?

How did, and so I guess if you can just speak to how that works.

[Jaclyn Scotch]
Yes, so this is a great question and it’s a little bit confusing. So I’ll try to keep it as surface level as possible. When you have full entitlement on your VA loan, so you haven’t used your VA loan, you’re not keeping any homes that have a VA loan attached to them, there is no loan limit at all.

So like I said, you could go by $1.5 million at 0% down. Once you utilize that, so talking about the example of buying a fourplex, when we pull what’s called your certificate of eligibility, it’s going to tell us how much of your entitlement has been used for that purchase. Then we move into what’s called bonus entitlement.

So this comes out of the myth of having two VA loans at once. So we can actually calculate how much entitlement you have left. And every year it increases because it’s based off of the conventional loan limit.

It’s the only time that VA ever cares about the conventional loan limit. So we calculate how much entitlement is left. And as long as there’s $1 left of entitlement, you can still use the VA benefit on another home purchase.

That being said, depending on the amount that you have left will determine if it’s zero down or if you need to come in with a little bit of down payment. So for example, if you’ve got enough entitlement to be able to buy a $400,000 purchase at zero down, but you’re looking at 500,000, then you’re going to have to come in with a little bit of a down payment. It’s not 100,000, it’s actually an even more complicated calculation, but you’ll have to bring in a little bit of a down payment for that next purchase.

So you can have more than one VA loan at a time. Okay, awesome.

[Michelle Rene]
Okay, is there anything else that we didn’t address that we should talk about related to the VA buyer and them pursuing this purchase?

[Jaclyn Scotch]
Yes, so there’s actually two. So going over, can we use the VA benefit more than once? So you can have multiple at a time, but you can also use it every time you buy a home and sell a home.

So for example, my husband and I have bought and sold four homes using the VA loan, and it’s just like a conventional purchase where when you close on the home, the VA will restore your entitlement and you can buy your next home with 100% entitlement. So you can continue to use your VA benefit for a lifetime. It’s a lifetime benefit.

So that is a fantastic benefit. And then the other one that is one of my favorites, and a little bit confusing right now with rates being as high as they have been lately, the seller paying closing costs. This is a fun one because the closing costs are, you can use the VA concessions in very different ways.

So as far as the amount, you can actually, the seller can pay 4% of the purchase price and concessions above and beyond your typical and standard closing costs. So you can actually get more than 4% in concessions on a VA loan. And those concessions can be used in a multitude of ways.

So outside of your regular closing costs and discount points to buy your rate down, they can also be used to pay debt off, which is really neat. And there’s a couple other things, but we won’t dig too much. But where that becomes really beneficial, for example, I had a client that had this loan that just kept following him and the payment just kept increasing.

It was almost $500 a month. And so for him, it made far more sense to use the concessions to pay off that debt and reduce his monthly cashflow by $500 than to buy his rate down a little bit or anything like that. So you can really use concessions to benefit the veteran in a lot of ways.

That’s awesome.

[Michelle Rene]
Okay, awesome. Yeah. Something you said in there.

Oh, so if you’re taking the entitlement from this, let’s say the veteran is the seller, but they want to at the same time buy another place, is that, I know in a conventional loan, it’s pretty typical. Someone would sell their house, buy the next one, maybe not typical, but it’s not uncommon for them to do that, like a same day closing. So is that possible with the VA as well?

[Jaclyn Scotch]
Yep.

[Michelle Rene]
Okay.

[Jaclyn Scotch]
Yeah, it absolutely is. And when you’re working with a lender that’s very familiar with VA, they know how to make that process work. So it’s very smooth.

But yeah, you can absolutely do a same day close with a VA loan.

[Michelle Rene]
And one thing that’s not so much of an issue, I think maybe as it used to be, but one of the downsides, I think the perception from the sellers was that there’s so much red tape with a VA, we don’t want to take a VA offer because it’s just going to increase the time to close. What’s, is that a myth or what’s the scoop with that?

[Jaclyn Scotch]
It is a myth. I actually would prefer to do a VA loan over a conventional loan. There used to be a ton of red tape.

So there is a lot of perception from the old, the old VA loans that were offered, but now they are so much more for the veteran. And also the VA understands that the seller is a big part of that. So there really isn’t nearly as much red tape.

We can close a VA loan in the same amount of time that we can close a conventional loan in as long as we can get the appraisal done. I actually had a VA offer accepted over cash last year and we had to close in the same amount of time as a cash transaction. They were asking, I think it was 15 days and we were able to get that done.

[Michelle Rene]
Three to four weeks is not a problem. No. Yeah, that’s, I mean, what I’ve experienced, that’s a typical timeframe.

[Jaclyn Scotch]
Yeah, yeah, it’s typical, but you can definitely get them done sooner.

[Michelle Rene]
Okay, so I don’t know if that’s gonna happen in the recording, but I didn’t hear that. Can you say that again?

[Jaclyn Scotch]
Yeah, so the three to four weeks is very typical, but it’s not a requirement as far as getting the VA loan done, especially if you go through underwriting and get all that out of the way from the very get-go, then all you’re doing is waiting on the appraisal.

[Michelle Rene]
And I think the expectation, you know, four weeks, I think most people are fine with when they’re looking at buying or selling. So, okay. All right, cool.

Did we miss anything?

[Jaclyn Scotch]
I’m trying to think of if there’s anything that…

[Michelle Rene]
I think we covered most everything. Yeah, I think we, yeah.

[Jaclyn Scotch]
We covered a lot of the main potatoes.

[Michelle Rene]
So, I mean, I know, like, when people are calling you and asking you questions, maybe 1 question. I think if I was in that boat. I would want to know besides the down payment.

You know, is there any reason a VA buyer might go with a different loan versus the VA? Like, are there other benefits with a conventional or some other option or is a VA usually going to be the best option?

[Jaclyn Scotch]
The VA loan is definitely going to be the best option 99% of the time because it’s got the better rates than conventional. No mortgage insurance and then the underwriting guidelines are just a lot more flexible than any other program out there. So, most of the time, even if they’re putting 50% down, utilizing that VA benefit is very much in their best interest.

[Michelle Rene]
Okay, awesome. Yay. Well, Jackie, thank you so much.

How can people get in touch with you if they want to reach out?

[Jaclyn Scotch]
Fantastic. So, I operate from my cell phone, so you can call, text, or find me on Facebook because I do have a public social media. And so you can reach out anytime if you’ve got questions, comments, concerns, I’m always happy to help.

But it’s Jacqueline Scotch on both Instagram and Facebook. Okay.

[Michelle Rene]
Yeah, Evergreen Home Loans. Okay, awesome. And I’ll put links to your page or whatever, wherever you want me to send them in wherever this is being posted.

So, whether it’s Facebook or YouTube or on my website or whatever. So, I really appreciate your expertise. I love how smart you are when it comes to, you know, loans in general, but also specifically VA loans.

And I love your heart, you know, that you have to help people. So, in that, I feel like akin to you. And, you know, one of the things that I love doing is just, I mean, you know, all the socials, they’re fun and it’s like, oh, what did I have for lunch today or whatever.

But really the heart of it for me is education-based marketing. So, when I market, I’m trying to think of what are my people, you know, what are the questions, what are the problems and how can I help address some of that. So, I think we did some of that today for the VA buyers and I look forward to our next talk.

[Jaclyn Scotch]
Yes, me too. Thank you so much for taking your time out of your day to go through this. And I hope it was valuable for you as well.

[Michelle Rene]
Yeah, yeah. All right. My contact is Michelle Renee at Windermere.

You could actually the easiest is destinationliving.co. All of my information is there on the website and you can link over to resources like this and some of the other. I’ve got what I call the Everything Guide to Coeur d’Alene. So, if you’re interested in the Coeur d’Alene area, buying or selling, I’ve got some awesome resources there on the website.

But again, thanks, everyone. Thank you, Jacqueline. Really appreciate your expertise and until next time.

Okay, great. Bye.

Get In Touch With Jaclyn Scotch