Guest is Geetesh Kapoor of Fairway Mortgage

DoD Updates: If your shipment was picked up after May 15, 2020 then you have 180 days to file a claim. This change was approved before COVID and will continue moving forward. But it does not apply to shipments picked up before May 15, 2020.

If you are PCSing to Alaska and traveling through Canada, you will need to have a negative COVID test within 48 hours of your arrival at the border, and you will only be given 4-6 days to travel through Canada, depending on your entry point. 

Can you tell us the difference between a VA Home Loan and a traditional home loan?

A VA Home Loan is guaranteed by the Department of Veteran Affairs. A conventional loan is backed by a Government Supported Enterprise (GSE) such as Fannie Mae or Freddie Mac. A Conventional loan usually requires a minimum down payment, has a mortgage insurance premium if you don’t put down 20%, and has additional limitations and requirements. A VA Loan can only be used to purchase a primary residence that you intend to occupy when you purchase it. There is no minimum amount of time for you to live there. (You can always turn it into a rental property later). A conventional loan can be used to purchase any home–a rental home or a vacation property. The VA Loan does not require any money down and does not have a mortgage premium. 

With a VA Loan, are there eligibility requirements for service members?

You must have been active duty for at least 90 days, or Reserves activated for 90mdays or 6 years of credible service. Veterans must have a DD-214 to prove eligibility. A surviving spouse must not be remarried. You should contact a lender to get a Certificate of Eligibility before you look at homes and talk to real estate agents. 

Why do you need the Certificate of Eligibility?

You want to get this before you look at homes, so you don’t fall in love with a home and then discover you don’t qualify. Real estate agents want to see this Certificate of Eligibility to help you look at the right homes and make the right offers. This is essential to getting a VA Loan, so you should start here first. 

The VA Loan no longer has a cap on the money limit, right?

Yes, in 2020, they removed the limitations in 2020 as long as the veteran is within the borrowing zone for their lender. If you already qualify, there is no cap. However, if you purchase one home with the VA Loan, and then want to purchase another home with the VA Loan, in a high cost of living area, you may not have enough entitlement left available to purchase a new home. 

Yes, you can use a VA Loan to purchase multiple homes. There is no limit to how many times you use it, but there is a limit to how much is available to you if you buy a 2nd house. If the first home is $400,000, 25% of that is $100,000. Until you sell that home, the VA guidelines are that you must sell the home to regain your full entitlements. If you are moving to an area with a higher loan limit, say $800,000, then 25% of that is $200,000, but subtract the $100,000 from that. So your entitlement is $100,000 and multiplied by 4 that is $400,000. So you can get a 2nd home up to $400,000 in that area  using the VA Loan. That’s why the Certificate of Eligibility is so important, because it discloses the exact amount of your entitlement so you can get a house within that range. But if you sell a home, the loan eligibility resets to full potential. But remember your VA funding fee will increase each time you use the VA Loan. (However, if you are a veteran with a disability rating, the VA funding fee will be waived.)

There is sometimes a cap on how much you can borrow without money down, depending on your lender, even with full entitlement available. Some lenders set an internal limit of 1 million or 1.5 million without any money down. 

Do VA Loans require a minimum credit score?

The VA Loan does not require a specific credit score, but the individual lender will have minimum credit score limits. Many will not go below a score of 600. They look at the lowest score reported on the credit report. They do not average the scores. So if a spouse or the service member are below 600, that is the score they look at. However, if that credit score is attached to a person without an income, then they can always remove themselves from the paperwork so the person with better credit can purchase the home. 

What specifics about the VA Loan do military families need to know?

You need to know how much you qualify for and start there with your lender. If there is a down payment required from your lender. You need to know if there are ways to get out of another VA Home Loan to free up your entitlement. You should always ask how competitive you need to be. For example: inspections. Some areas require water, septic, or wood-destroying insect inspections. Depending on your state, these inspections must be paid for by the seller. But the Home Inspection, radon inspections, etc can be paid for by you as the buyer. The purpose of these inspections is to create a to-do list so you are aware of potential defects in the home–electrical, plumbing, heating and AC, roof, caulking and leaks. The inspector looks at the home with a fine-tooth comb. They make sure your home is safe. You don’t have to know all the answers, but your lender should be able to walk you through it and answer your questions. 

The VA Loan doesn’t require a down payment, but sometimes putting money down can give you additional perks. Doing a 5% down payment can lower your interest rate and be more helpful to you. 

Be sure that you use a lender and real estate agent who is familiar with the VA Loan and military life, because if they don’t know some of the details or paperwork, you won’t end up with the best answers and might miss things or pay more out of pocket than necessary. 

At what point during the home-buying process should a family talk to a lender?

You should talk to a lender when you are thinking about buying a house, before you start looking at properties. They can help guide you through the process and start you on the right track. It doesn’t cost anything to talk to them, discuss your goals, and learn about your rights and benefits. I always ask, “How much cash are you comfortable spending buying a home?” It shouldn’t be every dollar in your account! When you type data into a system, it looks at your total assets and assumes you want to spend everything. You also need to decide how much you want to spend per month on a mortgage. Do you want to go above or below BAH? Are you willing to compromise other aspects of your life for a bigger home? I don’t make assumptions about a client’s preferred lifestyle or target mortgage. The more you know up front about what is necessary to buy a home, the better off you will be.

The pre-approval process lets them know your credit score, your assets, and makes sure you meet the requirements for a loan. Once you have a pre-approval, you can write a competitive offer. The pre-approval should not require any paperwork besides the credit check and bank record check. But listen to your lender, because you don’t want someone chasing you down for paperwork halfway through the underwriting process. You want to know about any potential red flags to review them ahead of time. So go through the pre-approval process in detail. 

What is the difference between a national and a local lender?

Most people want to work with someone who has been referred by someone who had a positive experience. Often, that is the experience you get with a local lender. Fairway is a national lender, but I work as a local lender here. At the end of the day, you should work with someone who has your interests at heart and can accommodate your request. A local lender can usually offer you more speed in the process than a national lender. The market is moving very quickly now, so local lenders are better equipped systematically to handle things at faster speed. 

You can always find someone cheaper and get a lower interest rate or cheaper agent somewhere, if you look hard enough. But sometimes you get what you pay for with cheap service, less consistency, etc. For me, you are not just a transaction. It’s a difference in the level of commitment. National lenders have a call center, but you may not talk to the same person or be able to reach them after hours. There are so many costs involved in the decision, so compare that to the benefits. 

What can military families do when the extreme seller’s market rates are going above the home’s appraisal value?

There is no solution to the market, there is just high demand and high competition: some people are writing cash offers, waiving inspections, etc. If you waive your appraisal contingency clause, you could be left paying out of pocket if you bid above the asking price or true value. When you write an offer, the VA appraisal will look at the property and compare to recent sales in the area. They will count in the competitive nature of the market. They will also rely on the real estate agent to share the comps with the appraiser to support the sales price. If the value is not supporting the sales price, you can appeal it with the Department of Veteran’s Affairs. This is where having a local lender is helpful because they know more about this process and the local values to help support an appeal, if necessary. But there is always a risk to lose an offer, even when you waive contingencies. Sometimes you can write a letter to appeal to the seller, although this is becoming discouraged. Check with your real estate agent. It helps to pay your own closing costs, so you are asking less from the seller. There is a myth that the seller will pay more closing costs or inspection costs when receiving a VA offer, so work hard to dispel that myth. You may also have to “take more shots” or write more offers before you can win in today’s market. Everyone is experiencing this, not just VA Loans. Create more chances, look at more homes, and write more offers.

What should a military family do for the lender to help make the process go smoothly?

Having basic information on hand is important: Leave and Earning Statement or W-2’s to show the income for the past 2 years, recent tax returns from the past 2 years, your DD-214 if you are discharged or Statement of Service if you are Active Duty, and your point statement if you are Reserves. Have your disability statement if you qualify. For the first meeting, have access to your bank accounts online. Try to avoid moving money back and forth through different accounts. Don’t keep any cash under your mattress and then suddenly deposit it into your account!

Encourage your lender and your real estate agent to work as a team collectively for you, since they have a common goal. If the lender and real estate agent aren’t working well together, decide if you love them both or want to make a change. If they both have your interest at heart, then they will probably mesh. If you aren’t feeling supported or like a human being with either one, then look elsewhere. 

If my permanent residence will be a Houseboat or a large RV, can I use a VA Loan for that purchase?

No, you can’t use a VA Loan for an RV, that is not purchased with a home loan. Same with the houseboat, it needs to be a boat loan. The residence for the VA Loan must have a permanent foundation. The VA Loan does not have any limitations on the acreage of a property, as long as it is a residential property. You can use a VA Loan for renovations on your home, but there are some limitations. Some lenders will not grant it, and it has been on pause since last year due to COVID.