Understanding VA Loans When to use your VA Eligibility and when NOT to.

The VA does NOT originate loans. They only back or guarantee a portion of those loans so that mortgage bankers and banks can provide those with eligibility a maximum of 100% financing on purchases. Veterans and those serving our country receive a Certificate of Eligibility which allows them to apply for a VA loan with no money down. What is important to know is that MOST MORTGAGE LENDERS originate VA loans, not just the ones you see on TV! Those TV lenders spend lots of money on commercials simply meant to entice veterans to apply with them, as they often depict themselves as specifically in business to help our VETS. HERE IS A FACT: Most EVERY lender offers the EXACT same VA loan programs, and many, including my company, offer these same programs at LOWER RATES than those TV AD lenders! Remember, these companies are spending a fortune on ads…and they are making a pretty penny on their loans to help subsidize those ads! Are they all really helping our Vets like they claim to?
PROS and CONS of a VA LOAN: There are more often PROS for those vets interested in using their eligibility. The beauty of the VA loan is that the veteran can apply for 100% financing and receive a loan that has zero mortgage insurance. VA loan rates are also generally lower than conventional loan rates! In Los Angeles County, a veteran can purchase up to $1.5 million with ZERO down payment! As well on a VA loan, there are no set debt to income ratios that the veteran must be limited to…to qualify. I have run many loans through the online program that all lenders use debt to income ratios as high as 68% pass through the system, meaning a veteran can obtain a higher loan than with a conventional loan, where the debt ratio must be lower than 50%.
On the flip side, the only major CON to a VA loan is something referred to as a VA FUNDING FEE. This fee is a one-time fee that can be financed into the loan or paid cash. Generally speaking, the ONLY way the veteran is exempt from paying this fee is if they receive some sort of disability pay from VA. Otherwise, for a first time VA purchaser, the VA FUNDING FEE is 2.3% of the base loan amount and added to that loan amount). For example, on a purchase price and base loan amount of $500K, the VA Funding Fee added to that base loan amount would be $11,500. For a 2nd time veteran usage who is not exempt, the FUNDING Fee is 3.6%, or $18,000. Should a non-exempt veteran want to do a refinance to lower their rate, there is a Interest Rate Reduction Refinance Loan program (IRRRL) which caps the Funding Fee at ½% and allows for a very easy streamline process without requalifying.
Finally, I have had clients referred to me because another lender had suggested to use a VA loan when it was not appropriate. In this case, the client was NOT exempt from the funding fee and wanted to do a refinance on a home he had a conventional loan on. With a lot of equity in the property, it was suggested that the vet use his VA eligibility. While the rate was just a bit lower than a conventional loan, the VA Funding Fee was going to be $8000! Why in the world would a loan officer suggest this route when the vet could easily qualify for another conventional loan with no mortgage insurance and no funding fee. The final outcome was that we gave him the right remedy, a conventional loan! You can still take care of your Vets by NOT giving them a VA LOAN when one is not warranted!
For answers to any questions regarding VA loans or any type loan, please contact Curt Kravitz. He has been taking care of our VETERANS and all other clients for the past 35 years! You can reach him at 661-705-2500 or at ckravitz@bayeq.com.

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