Your VA home loan benefit — the latest changes and tips to make the most of it

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When Bryan Bergjans and his wife bought their first house in the early 2000s, he didn’t use his VA home loan benefit, because he didn’t know about it.

And no one involved in the purchase — including his realtor, his builder or his lender — suggested that he use the benefit. He even showed up to some meetings in uniform.

“You don’t know what you don’t know,” he said.

The VA home loan program, which is more than 75 years old, can be used, in general, to buy, build or refinance a home. It’s available to nearly every service member and veteran. And it can save you tens of thousands of dollars.

Bergjans, a Navy reservist, is now senior vice president and national director of military lending for Caliber Home Loans, which does business in all 50 states. The company ranked 13th in volume of VA loans in fiscal 2019, with 7,795 loans.

When he looks back at his own experience buying a home, there weren’t any malicious reasons behind the fact that he wasn’t offered the VA loan benefit, Bergjans said. It simply wasn’t on their list of options. “I had a straight lack of knowledge, no understanding.”

But he’s used his benefit since then. And that experience is part of the passion behind his effort to educate realtors. He speaks to thousands of realtors around the country every year, working to dispel some of their myths about VA loans.

Caliber Home Loans also partners with the MilHousing Network, an organization founded by two military spouses who are realtor estate agents, Lindsey Litton and Karina Gafford. MilHousing Network matches military families around the country with their network of about 1,500 military-friendly agents to help them find their new homes.

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They also conduct military buyer training for real estate agents. Among the most important points: All agents should ask every buyer if they’ve ever served in the military, Litton said.

And according to everyone — real estate agents, lenders, VA officials in charge of the home loan program — the most important thing active-duty members and veterans can do when buying a home is to ask questions of their potential agent and lender about their experience with VA loans.

“If they’re going with a lender or a real estate agent who has done one or two VA loans in a year, that’s probably not who I would choose to go with,” said John Bell, deputy director of the VA Loan Guaranty Service.

“I would gravitate toward those people who know how to provide the benefit. I would ask those questions. How many VA loans have you done? How much training do you have for VA loans? What kind of advocacy are you doing for VA lending? I would ask those questions of not only my lender, but my real estate agent.”

The VA has made a concerted effort working with the Realtor community, such as providing training about the benefit, in order to combat some misconceptions, he said. There are myths that have been around for 20 or 30 years, he said, “and tackling those and really tearing down those perceptions have been the biggest struggle” for VA employees every day.

Bergjans warns veterans that it may be a challenge in some areas to use their VA home loan benefit, because real estate agents and lenders who don’t understand the benefit guide their customers to other, possibly more expensive, loan programs. “There’s a national epidemic with this,” he said.

Having that real estate agent who understands the military lifestyle is important for other reasons, said Karina Gafford, a real estate agent in San Antonio. For example, that agent should be very familiar with the area where an active duty service member is looking to buy a home, considering questions such as the likelihood of being able to sell or rent the home in two or three years. Borrowers need to evaluate their own situation to determine whether it makes good financial sense to buy a home.

In conversations with these service members, she said, “We ask them if they are prepared to be a landlord. You’re still subject to the whims of Uncle Sam. If Uncle Sam says ‘Jump!’ in six months, it doesn’t matter if you prepared and bought the perfect house that could easily be resold in three years’ time. If you have to move in six months, how quickly can you get your house rented, and how much can you rent it for?”

Bigger benefit now

One of the biggest advantages of using the VA home loan benefits has always been not having to make a down payment when purchasing a home, up to certain loan limits. That advantage just got bigger, with a new law that went into effect Jan. 1 that took away those loan limits, for veterans who have the full VA loan entitlement.

As a result, more veterans will be able to buy homes in high-cost areas.

New in 2020: New VA home loan caps

Existing county limits for those eligible for full VA loan entitlement purchases will go away in the new year, meaning that more veterans can purchase homes without shelling out a downpayment.

The Blue Water Navy Vietnam Veterans Act of 2019 took away the loan limit maximums previously required in certain areas of the country. Qualifying VA borrowers could get higher loan amounts, but because of the restrictions on the loan amount the VA could back, borrowers had to make a 25 percent down payment on that part of the loan that was the difference between the sales price of the house and the loan limit.

Using an example provided by the VA, the VA loan limit was $690,00 in San Diego last year. A borrower buying an $879,000 house — $189,000 over the loan limit — had to pay a $47,250 down payment under the 25 percent requirement.

“We view it as a very positive thing for veterans, their ability to make those decisions to get into homes without using a lot of their money that they have saved up,” said the VA’s Bell. “We’d rather they would use their savings to buy things once they get into a home, instead of running up additional credit that could hurt them in the future.”

“I expect it to make a very big impact to our service members and veterans,” said Kevin Hall, assistant vice president of mortgage loan operations for Navy Federal Credit Union. “We’re in the early going, but we’re already seeing good results. This will allow service members and veterans to maximize their budget and their benefit.

“Before, just because you happened to be stationed in San Diego, or one of those other [higher cost] areas, you had to put money down, when others didn’t. Now that problem has been alleviated.” About 50 percent of Navy Federal’s mortgage loans are VA loans, and the credit union was the fourth largest lender in terms of VA loan volume in fiscal 2019, with nearly 30,000 VA loans.

The funding fee

Bell said VA officials are monitoring another change in law which took effect Jan. 1 — the increase in the VA funding fee due at closing. For active duty members and veterans who are first time buyers, it increases by 0.15 percent, now at 2.3 percent of the loan.

For those VA borrowers on their second or subsequent use of the benefit, the funding fee is higher, and the increase is larger. The funding fee has gone from 3.3 percent to 3.6 percent. So that’s $3,600 on every $100,000 borrowed.

As always, the funding fee can be rolled into the mortgage. But you’re still paying it.

That funding fee is reduced for VA borrowers who make at least a 5 percent down payment. Every borrower’s situation is different, and it pays to look at different scenarios with the lender.

Certain veterans, including veterans who receive any VA compensation for a service-connected disability, don’t have to pay the funding fee.

And under the new law, active duty service members who have received a Purple Heart don’t have to pay a funding fee if they close on the home while still serving on active duty.

Some tips and things to know about the VA home loan benefit:

* The interest rate on VA loans is generally lower than traditional private mortgages.

* You don’t have to buy private mortgage insurance, even without a down payment, which can save a couple of hundred dollars a month. Typically on other loans, if you don’t make a down payment of 20 percent, you have to pay monthly PMI premiums.

* You don’t have to have perfect credit. Generally with a VA loan, you’re going to get an “awesome” interest rate with a credit score of 680, 700, 720, Bergjans said. But even so, the average credit score of VA borrowers is well over 700, surpassing that of the average civilian borrower, he said.

* The number of VA loans used to buy homes has been increasing. About one third of VA borrowers are the youngest millennials leaving the military after their first tour and buying a home, Bell said.

* Understand what a loan guaranty is,” said NFCU’s Hall. “It doesn’t mean you’re guaranteed to receive a loan. You still have to meet qualifications.” The VA doesn’t make the loans; it provides the guaranty to lenders to back the loans.

* VA’s requirements are designed to help ensure that veterans have the financial ability to make their payments and stay in their homes. Lenders may have their own extra requirements.

* The VA has staff trained in helping VA borrowers who find themselves in financial trouble. “For us, it’s more important for the veteran to stay in the home than it ever is to get into one,” the VA’s Bell said. Veterans can call 1-877-827-3702 to reach a loan service representative. The foreclosure rate on VA-backed loans remains at less than 1 percent, Bell said.

* Be aware that 100 percent financing doesn’t mean it’s a free loan, Bergjans said. Be prepared to put down “earnest money” with your offer to buy a house, especially in more competitive markets. And besides the VA funding fee, there may be other costs at closing.

* Realtors and lenders who are experienced with VA loans are also helpful to those who are making a PCS move and don’t have much time for the process, including negotiating. These professionals know the nuances of VA loans, know how to work with a seller’s real estate agent who may be resistant to a VA loan. Gafford notes it’s a good idea when shopping for a lender to ask if the loan officer is available on weekends. If not, you may lose negotiating power.

* The first step in applying for a VA home loan is getting a certificate of eligibility. You can apply for that certificate online at va.gov/housing-assistance/home-loans/how-to-apply, or by mail. In some cases your lender can help you get the certificate.

* Active-duty members as well as other veterans can use the VA loan benefit. Those on active duty now, and who have been on active duty for at least 90 continuous days, generally qualify for a VA loan. For other veterans, there are variety of scenarios, depending on the time when you served. Visit va.gov/housing-assistance/home-loans/eligibility/.

* You can use the benefit multiple times, and it doesn’t expire.

* Don’t fall for it when misinformed Realtors tell you that VA appraisals are bad, said Bergjans. “The VA appraisal is the best in the business, and is designed to protect the veteran.” The VA has minimum property requirements related to ensure veterans are moving into properties that are safe, sound and sanitary, Bell said. Officials also always advise every veteran to get a home inspection.

* Another misperception is that VA loans take longer to close, Bell said. The VA program’s average length of time to closing is “neck and neck with FHA” and within a few days of conventional loan programs, he said, with an average of about 54 days. Some lenders are faster.

* Call the VA loan center if you have questions about anything involved in the process, Bell said.

* If you have concerns about your lender, shop around for another VA lender.

* That said, those applying for a VA loan should do what their financial institution tells them to do, NFCU’s Hall said. These lenders do have underwriting requirements, and providing needed information and documentation in a timely manner is important for a smooth process.

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