VA credits Their popularity has skyrocketed in recent years, but many borrowers, home sellers and real estate agents remain skeptical about mortgages supported by the Department of Veterans Affairs.
Hits on VA loans include long closing times, a string of red tape, and strict rules regarding home checks. While the Department of Veterans Affairs has largely addressed these bottlenecks, the reputation remains.
“There are many stereotypes and misconceptions about VA loans, some of which are rooted in truth,” said Chris Birk, director of education at the company. United Veterans Housing Loans, a brokerage company specializing in VA lending.
VA loans have indeed suffered from delays for decades. However, VA has boosted its game in recent years – and as a result, VA loans have skyrocketed in popularity.
“VA has invested a lot in technology and automation over the past 15 to 20 years to keep this benefit program keeping up with other mortgage products,” says Birk. “Last year was the largest year in the history of this 80-year benefit program.”
The volume of VA mortgages for the first time in 2020 exceeded 1 million loans, and in 2021 the program is approaching a new record. Once upon a time, VA loans accounted for only 2 percent of all mortgages. Now they account for 10 percent of the volume of mortgages.
Pros and cons of VA loans
For military personnel and veterans of the military, VA loans have a number of advantages – the mortgage does not require a down payment and has strict credit rating requirements, allowing veterans to expedite their home buying schedule.
As a huge boon to borrowers, VA loans often come with very tempting rates. On 30 year loans to borrowers with star credit, Federal Credit Union of the Navy this week the quotes for common loans were 2.875 percent, while VA loans were just 2.25 percent.
“The VA loan rates are lower because they are subsidized by the government,” says Kevin Parker, vice president of the credit union.
Savings are even more attractive to VA borrowers with poor credit ratings. This is because VA loan rates are the same regardless of the borrower’s credit history.
What’s more, VA loans do not require mortgage insurance. However, there are costs: VA loans provide a 2.3% upfront financing fee for first-time borrowers and 3.6% for subsequent VA loans.
The most devastating flaw in today’s super-hot real estate market is that home sellers are still wary of VA loans. Sellers accepting multiple applications often turn down VA buyers due to the long standing reputation of the loan program.
“Many sellers will not accept VA offers. They will only look for cash or regular ones, ”says Birk. “The seller thinks it will take forever to close the VA loan or they will have to pay all the buyer’s costs to close the deal. There are just a lot of myths. “
Here are five myths that still make it difficult to accept VA loans.
Myth 1. Getting certified for a VA loan is a pain.
The VA borrower must begin the process by formally confirming that the veteran meets the essential requirements. Generally, a soldier is eligible for a VA loan after serving 90 consecutive days of active duty in wartime, 181 days of active duty in peacetime, or six years of service in the National Guard or in the reserves.
According to Birk, this process is no longer as cumbersome as it used to be. Previously, verification required sending a paper letter to VA and then waiting for a paper response. Lenders can now verify a borrower’s compliance electronically and almost instantly.
Myth 2: VA inspections and grading take too long.
Proponents of VA loans admit that VA once performed inspections and assessments as enjoyable as cleaning barracks latrines. However, in recent years, VA has streamlined and modernized these processes.
In fact, VA purchase loans closed on average within 55 days in June 2021 – just a day longer than FHA loans and six days later than the 49 days it took for regular purchase loans to close, according to the processing company mortgage loans. Ellie May…
“This is not a gaping abyss,” says Birk.
And 55 days is just an average. In some cases, VA loans can close faster.
However, there are reasons why VA loans take longer. One is the smaller pool of appraisers who are allowed to process VA loans. With fewer appraisers, it may take a while to simply wait for a vacancy.
“The number of VA certified appraisers is less than the number of regular appraisers,” says Parker.
Myth 3: Only cash or conventional loans make a competitive offer in today’s market.
Yes, in today’s intense seller market, money is king. But Birk says sellers have no reason to shy away from trading using VA loans.
“Getting an offer from a VA approved borrower is almost the safest loan you can get,” he says.
Birk invites borrowers to get pre-approval not only for a VA loan, but also for a regular loan, just to show sellers that you are creditworthy and serious.
Birk also advises working with a real estate agent who is familiar with VA loans because that agent can handle any deal breakdown better than someone who doesn’t understand these mortgages.
Myth 4: The savings provided by VA loans are negligible in the long run.
“Au contraire,” says Parker. VA loans are usually half a point below normal rates. And there is no mortgage insurance.
The only catch is that most VA loans come with a so-called VA Funding Fee, which is a down payment that is sent directly to VA to support the program.
But other savings more than offset this funding fee. “Over the course of a 30-year loan, the savings will be exponential,” says Parker.
Myth 5: the likelihood of default is higher
Too good to be true, VA loan details raise the question: Is it really a good idea to give borrowers with poor credit ratings no-money mortgages? In fact, VA borrowers rarely default.
“The reality is that VA loans have had the lowest foreclosures in the market for much of the past 12 years,” says Birk.
Parker says this may be due to the fact that VA borrowers receive their salaries from the government. Borrowers on active duty have guaranteed jobs, while long-serving veterans retire with retirement benefits that are generous compared to the retirement benefits offered by the private sector.
One potential problem: Due to a financing fee of 2.3% and a lack of down payment, the loan-to-borrower value ratio can be over 102%. This is certainly cause for concern, but not yet a reason for foreclosure.