7 must-read facts about VA Loans

by Chris Birk
Veterans United

Twenty million and counting.

That’s how many Veterans have secured home financing since 1944 using the VA Loan Guaranty Program (www.benefits.va.gov/homeloans/). This benefit has now helped generations achieve part of the American dream they fought to defend.

Today, in an era of tighter mortgage lending requirements, this long-cherished program is arguably more important than ever. So is making sure that Servicemembers and Veterans are aware of the home loan benefits earned by their service.

To that end, here’s a look at seven key facts about VA loans.

No down payment
This is the singular, headline-garnering benefit of the program. Qualified Veterans can purchase up to $417,000 in most parts of the country without having to make a down payment. Buyers in more expensive parts of the country can go even higher. It’s tough to overstate just how significant this is in the current lending environment.

For example, let’s say you want to purchase a $200,000 home. For a conventional mortgage, the minimum down payment would be $10,000, or 5 percent of the purchase price. FHA loans require at least 3.5 percent down, which in this case is $7,000. Saving that kind of lump sum can be a tall order for the average military homebuyer. For some perspective, VA borrowers on average have just under $7,000 in assets.

The no-down-payment benefit helps Veterans get into homes without having to spend years scrimping and saving for a day that might never come.

Government guaranty
VA doesn’t actually make home loans — in all but a few cases. Instead, it provides a financial guaranty to private VA-approved lenders; basically a promise to repay a portion of the loan should the borrower default. That promise gives lenders a degree of confidence and allows them to extend financing to qualified Veterans without the need for a down payment.

It’s important to understand that VA’s fiscal guaranty doesn’t mean that eligible Veterans automatically get a home loan. Not every Veteran who’s eligible for a VA home loan will get one, because prospective borrowers still need to meet requirements set forth by both VA and approved lenders.

Credit requirements
While the VA guaranty breeds confidence, lenders are still on the hook for most of the loss if a Veteran defaults. That’s a big reason why lenders are able to introduce requirements beyond what VA needs to see to determine eligibility. A credit score minimum is probably the most common example of where these two roads diverge.

A credit score is essentially a representation of your ability and willingness to repay debt. Rather than cite a specific score, VA simply wants Veterans to be a “satisfactory credit risk” in order to utilize this program. But lenders go a step further and require that borrowers meet or exceed credit benchmarks. This type of additional requirement is known as an “overlay” and helps lenders better manage their risk.

Right now, most VA lenders are generally looking for a score of at least 620. That’s well below what Veterans will typically need to satisfy conventional and even FHA lenders.

No private mortgage insurance
Loan programs that require a down payment often come with an additional financial drain: mortgage insurance. Unless you can put down a hefty chunk of change (typically 20 percent of the purchase price), conventional borrowers will be on the hook for a monthly mortgage insurance payment until they’ve built sufficient equity.

FHA loans have an upfront mortgage insurance premium along with an annual fee that borrowers now pay for the entirety of the loan term.

VA loans have no mortgage insurance. Because of this benefit, the Veterans who secured VA financing last year will save $19 billion over the life of their loans.

Fighting off foreclosure
VA loans have had the lowest foreclosure rate of any loan product for nearly all of the last five years. That’s an incredible achievement considering nine in 10 come with no down payment.

The overall safety of the loan program is rooted in VA’s prudent underwriting requirements, its even-handed appraisal process, and its tremendous commitment to helping Veterans keep their homes.

The Loan Guaranty program has more than 150 loan specialists who work to educate Veterans about foreclosure avoidance and intervene with lenders and servicers. Their efforts have helped more than 300,000 Veterans who became delinquent on their mortgage to fight off foreclosure.

It’s not a one-time benefit
One of the most common misconceptions about this program is that it’s a one-time shot. That’s absolutely untrue. Once you earn this benefit, it’s yours for life. You also don’t necessarily need to repay your original loan in full in order to purchase again with a VA loan. What’s possible will depend in part on how much VA loan entitlement you have remaining.

VA loans are booming
VA loan volume has soared 380 percent since FY07. The program’s recent boom comes as Veterans have struggled to qualify for conventional and even FHA home financing in the wake of the housing market collapse. Veterans are flocking to the safety, security and significant benefits of VA loans.

The federal government created this program nearly 70 years ago to help level the playing field for Veterans and military families. Today, the VA Loan Guaranty program plays the same critical role in helping open the doors of homeownership to those who might otherwise struggle to secure it.

In fact, VA loans may now be more of a lifeline for military borrowers than at any time since World War II.

Chris Birk is the author of “The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits.” He is also executive editor at Veterans United Home Loans, www.veteransunited.com.

New 2014 mortgage protections for military home buyers

By Holly Petraeus, the Consumer Financial Protection Bureau

It’s no secret that the housing crisis in recent years was particularly hard on military families. Servicemembers and their spouses at installations around the country, and even abroad, cited problems with mortgages as some of their most serious financial challenges. But now, the CFPB has written new mortgage rules that can help.

More than a third of the consumer complaints we’ve received from the military are mortgage-related. And at listening sessions around the country, concerned military families have told me about the painful consequences of poor mortgage servicing, sloppy lender recordkeeping, and inconsistent foreclosure practices. Obviously, servicemembers aren’t the only homeowners who have run into trouble with mortgage servicers or faced financial hurdles. But the demands of military service sometimes increase the severity of the problems or limit the solutions available to address them.

So, I’m happy to report that we’ve written new rules that address some of the worst problems in the mortgage servicing industry and bring new rights and protections to borrowers, including servicemembers. For military families, this means that when they seek help for a troubled mortgage or have to move because of Permanent Change of Station (PCS) orders, they will get fewer nasty surprises and face less risk of losing their home.

Here are some changes that should help servicemembers:
• Restrictions on dual tracking. In the past, servicemembers dealing with mortgage troubles sometimes found that their mortgage servicer had moved forward to foreclose on their home at the very same time it was working with the servicemember on a potential loan modification. That’s called “dual tracking” and our new rules set up clear guidelines that restrict this practice.

• More help for troubled borrowers. Too often servicemembers have had to apply over and over again for programs that might help them keep their homes, being asked to send in the same paperwork repeatedly. Our new rules require mortgage servicers to evaluate a borrower who files a complete application for help for all the options that are available to that borrower. That means no more multiple rounds of applications and wasting of precious time and resources for the homeowner seeking help!

You can find out about options for helping servicemembers with a troubled mortgage by watching our Military Educator Forum on the subject at www.consumerfinance.gov/servicemembers/on-demand-forums-and-tools/, finding a HUD-approved housing counselor at www.consumerfinance.gov/find-a-housing-counselor, or calling 888-995-HOPE (4673). You can also Ask CFPB for answers to your mortgage related questions at www.consumerfinance.gov/d/askcfpb/.

• No more runarounds and missing documents. Our rules require mortgage servicers to train their people to answer your questions and, if you do run into trouble, the servicer has to assign people to help you. The servicer also has to have policies in place to make sure they don’t lose your paperwork.

Those are some of the new rules. In addition, servicemembers should know that we issued guidance in June 2012, along with other regulators, saying that mortgage servicers should have processes in place to handle requests for assistance from servicemembers with PCS orders, and that they should clearly communicate their policies.

In 2011, two important players in the mortgage market — Fannie Mae and Freddie Mac — updated their policies to say that a PCS move is considered a “qualifying hardship” for mortgage assistance options for servicemembers. In other words, servicemembers do not have to be behind on their mortgage payments before they can ask for help. It was also announced that a homeowner with a Fannie or Freddie loan and PCS orders will automatically be eligible for a short sale.

Also, those servicemembers who do a short sale (selling their home for less than they owe on the mortgage) will not have to pay the difference between the original loan amount and the proceeds from the sale if the property is their primary residence and it was purchased on or before June 30, 2012.

Finally, the U.S. Department of Veterans Affairs (VA) also has provisions for a short sale called a “compromise sale.” Servicemembers should contact their lender or the VA for more information on this program.

We work closely with the military community to get the word out about any policy changes that affect servicemembers. We encourage servicemembers and their spouses to talk to their JAGs or military Personal Financial Managers (PFM) about these issues, too.

We hope our new mortgage rules will allow servicemembers to spend more time on their important mission and less time worrying about their mortgages. Learn more about our work on mortgages at www.consumerfinance.gov/mortgages.

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