VA LOAN MYTHS – PART 1 of 2

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So a while back I wrote up a piece called VA Loan Eligibility Simplified. I wanted to expand on this for my comrades in arms that are either Veterans or currently still wear the uniform. I wanted to tackle some misconceptions about using a VA loan and because there are a lot of myths out there, I felt that the best way to do this is to break it down into two parts.  I will tackle five myths with this first posting and another five in the next posting. 

 So here are the five myths I want to tackle first:
1. You MUST be a Veteran to qualify for a VA Loan
2. You need perfect credit to apply for a VA Loan
3. You can only use your VA home loan benefit once
4. You can only have ONE VA home loan
5. VA Loans are difficult to process with too much red tape

 The second set of myths that I will tackle in part two are:
1. VA Loans have a loan limit
2. Appraisals take too long and are too difficult to pass
3. VA Loans cost more in closing costs
4. VA Loans have a higher interest rate
5. VA loans can’t be used overseas

Now, ask yourself this question, “how many of these myths have I heard before?”  I would wager that at least one or two have been mentioned to you. I know that I heard my share of these during my time in service as well as during my experiences buying a home.  I have bought five and sold four of those five homes during my career with my last home being the one I currently reside in here in Florida and have used both conventional and VA loans so have a bit of experience as both a seller and a buyer.

So let’s get right to it shall we?  The first one is one of the biggest ones out there, “You must be a veteran to qualify for a VA loan.”  This one is not as clear cut as one would think!  Now, if you read my July blog entry, “VA Loan Eligibility Simplified,” you will see that even I thought this was the case until I got educated. So who is eligible for a VA loan?  Per VA guidelines and I copied this this directly from the VA website at, https://www.benefits.va.gov/homeloans/purchaseco_eligibility.asp, the VA places people in one of the following categories for eligibility assessment.

1. Service during wartime
World War II - September 16, 1940 - July 25, 1947
Korean War - June 27, 1950 - January 31, 1955
Vietnam War - August 5, 1964 - May 7, 1975
Service Requirements:
·         At least 90 days active duty - with other than dishonorable discharge
·         Less than 90 days active duty - if discharged for a service-connected disability

Gulf War - August 2, 1990 - to be determined
Service Requirements:
·         24 months continuous active-duty - with other than dishonorable discharge
·         At least 90 days or completed the full term that he or she was ordered to active duty with other than dishonorable discharge
·         At least 90 days active duty - and discharged for hardship, early out, convenience of the Government, reduction in force, condition interfered with duty or compensable service-connected disability
·         Less than 90 days active duty - if discharged for a service-connected disability

2. Service during peacetime:
All - July 26, 1947 - June 26, 1950 and February 1, 1955 - August 4, 1964
Enlisted - May 8, 1975 - September 7, 1980
Officers - May 8, 1975 - October 16, 1981
Service Requirements:
·         At least 181* days continuous active duty - with other than dishonorable discharge
·         Less than 181 days active duty - if discharged for a service-connected disability

3. If you were separated from Service:
Enlisted - After September 7, 1980
Officers - After October 16, 1981
Service Requirements:
·         24 months continuous active duty - with other than dishonorable discharge
·         At least 181 days or completed the full term that he or she was ordered to active duty with other than dishonorable discharge
·         At least 181 days active duty - and discharged for hardship, early out, convenience of the Government, reduction in force, condition interfered with duty or compensable service-connected disability
·         Less than 181 days active duty - if discharged for a service-connected disability

4. Active duty service personnel: If you are now on active duty, eligibility can be established after 90 days of continuous active duty.  Upon discharge or release from active duty, eligibility must be reestablished.

5. Selected Reserve or National Guard: If you are not otherwise eligible and you have completed a total of six credible years* in the Selected Reserve or National Guard (member of an active unit, attended required weekend drills and two-week active duty for training) and one of the following:
 
          Were discharged with an honorable discharge
          Were placed on the retired list
          Were transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service characterized as honorable service
          Continue to serve in the Selected Reserve

*Individuals who completed less than six years may be eligible if discharged for a service-connected disability.

 6. Spouses. The spouse of a Veteran can also apply for home loan eligibility under one of the following conditions:
 
          Unremarried spouse of a Veteran who died while in service or from a service connected disability, or
          Spouse of a Service member missing in action or a prisoner of war
          Surviving spouse who remarries on or after attaining age 57, and on or after December 16, 2003 (Note: a surviving spouse who remarried before December 16, 2003, and on or after attaining age 57, must have applied no later than December 15, 2004, to establish home loan eligibility. VA must deny applications from surviving spouses who remarried before December 6, 2003 that are received after December 15, 2004.)
          Surviving Spouses of certain totally disabled veterans whose disability may not have been the cause of death
          You are a surviving spouse in receipt of Dependency and Indemnity Compensation (DIC) benefits in cases where the Veteran's death was not service-connected

7. Other Eligible Beneficiaries: 
You may also apply for eligibility if you fall into one of the following categories:
 
         Certain U.S. citizens who served in the armed forces of a government allied with the United States in World War II
         Individuals with service as members in certain organizations, such as Public Health Service officers, cadets at the United States Military, Air Force, or Coast Guard Academy, midshipmen at the United States Naval Academy, officers of National Oceanic & Atmospheric Administration, merchant seaman with World War II service, and others

As one can see, it is not JUST veterans.  Of particular interest for current service members and veterans is the fact that the criteria for Gulf War vets is, “to be determined.”  We are still actively engaged in warfare in the gulf it may be a while before they finally decide the end date for this one.  However, when in doubt, find a specialist to help you determine your eligibility.  There are a lot of them out there but one that is exceptionally helpful and a great resource is the Veteran’s Association of Real Estate Professionals (VAREP).  VAREP is a non-profit organization that specializes in helping the military community with VA loan benefits.  Their main site is www.varep.net or you can go directly to their counseling site at https://vethomeownership.com/.  If you have any questions on whether you are eligible for a VA loan or not, they can help.  Now, let’s move on to the second myth, “You need perfect credit to apply for a VA Loan .”

As everyone knows, a good credit score is important for your overall financial health but we all make mistakes. In some cases, peoples scores are low not because of bad credit but because of NO credit whereby they have paid for everything in cash and never taken out a loan or credit card! So why should a VA loan be any different?  Well, it is.  The fact of the matter is that the VA DOES NOT set a minimum credit score for VA home loans. This being said, the VA itself doesn’t provide the loans, private lenders do.

This is where the credit score comes in as private lenders that are qualified to issue VA loans set their own minimum credit score requirements and since they are the ones issuing the loan, they can choose to deny a loan based on your credit score.  Don’t get too upset though if you don’t think you will qualify, there is more to loan repayment than a credit score and each lender looks at a list of things to determine whether you are a good candidate for a VA loan or not.  It certainly helps if you have a good credit score and this directly impacts your interest rate and loan terms.  The higher the score, the better the terms and rates.  As stated earlier about eligibility, VAREP is a great resource and, they can help with this as well.  VAREP provides home ownership and financial counseling services to military members and veterans free of charge. In the interest of full disclosure, here is a link to a file that discusses counseling fees.

The third and fourth myth, “You can only use your VA home loan benefit once” and “You can only have ONE VA home loan” can be tackled together.  These are both ones that I believed when I used my first VA loan at Ft. Stewart, GA.  I sold the house right after I got assigned to Beaumont, TX and because of this erroneous myth, I wound up using a conventional loan for my second home loan. So here is the bottom line on VA loan eligibility, it is a lifetime benefit. There is absolutely no limit on how many times you can use a VA loan and, there is no restrictions on the number of VA loans you can have.  This being said, it gets a bit complex but it boils down to one word, “Entitlement.”

Although the VA loan is a lifetime benefit it does not necessarily mean you are eligible for a second one unless you meet the required entitlement threshold. When you take out a VA loan the VA “guarantees” a certain amount of that loan and this guarantee is your VA “entitlement.” For loans under $144,000 the primary entitlement is $36,000 however, when your home goes over $144,000 you have a secondary entitlement that is calculated using a set percentage to determine what your VA entitlement is. So what does this all mean?

Let’s break it down into two scenarios.  Scenario one, you sold your home and paid off the loan and now want to buy a new home.  In this scenario you have your full entitlement as there is no outstanding balance that the VA is guaranteeing.  To receive your full entitlement back you will need to request that it be restored and this is done by completing and submitting VA Form 26-1880, Request for a Certificate of Eligibility. If you click on the link that I mentioned in the eligibility discussion and scroll down to the end of the page you will find a discussion on restoring eligibility.

Scenario two, you are moving but instead of selling your house you are keeping it and will rent it out.  Rather than renting a house where you are moving too, you choose instead to buy another house and want to take out another VA loan.  This one is a bit more complex and requires working with your lender and the VA to determine what your “remaining entitlement” is.  I won’t go into the process of how this is determined as that would be an article in of itself but I will simply state that IF you have NOT used all your VA entitlement and have a remainder, you may potentially take out another VA loan.  You still have to qualify for the loan itself but the ability to have more than one VA loan does exist. A lender that is familiar with the VA process can help with this as well as VAREP. It all sounds rather cumbersome but the reality is that it really isn’t and this leads us our final myth for this article, “VA Loans are difficult to process with too much red tape.”

This is a myth that is also perpetuated by some lenders for various reasons but the reality is that it is untrue.  I’m on my fifth house and this is my fourth VA loan. It actually took longer to process the one house I bought with a conventional loan than any of the homes I bought using the VA loan.  The average closing time for home loans, conventional, FHA and so forth is 30 – 45 days. The average closing time for VA loans is…30-45 days.  Wait, isn’t that exactly the same?! Why yes, yes it is. 

So why is that?  Well for one, the documents needed to close on a home are pretty much the same across the board with subtle differences depending on the type of loan it is.  For a VA loan a Certificate of Eligibility (COE) is required.  This means that a DD 214, Certificate of Release or Discharge from Active Duty, or statement of service is needed to show that the person is eligible.  The statement of service applies to service members that are still on active duty, in the Reserves or National Guard.  There are a few additional documents that the lender must obtain but in today’s age of technology, this doesn’t take anytime at all.  If someone uses this as an excuse it is probably because they don’t understand the VA loan process.  If that someone is a  mortgage loan officer, I would recommend you walk away and find someone else!  All four of my VA loans processed and closed within 30 days to include the very first one I had in 1999!  Don’t let anyone convince you that VA loans are too hard to do because it is simply not true.

So that finishes off the first five myths. Now you know why I am breaking it up but the second set should not be quite as verbose as they are not as complex in debunking.  I hope this was of help to you and if you have any questions, please feel free to contact me.  If I don’t know the answer right then and there, I will guarantee you that I know someone who does and will get you the answer you need!