Things got a bit busy so I didn’t have a chance to follow up with the second par of this post. Being that today is Veterans day I thought it would be a good time to finish this two part post.
The second set of myths that I wanted to tackle are below and I will address each one separately as I did in he first post.
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
So let’s get to it shall we? The first one is a good one and very misunderstood.
1. VA Loans have a loan limit. FALSE! You may be thinking, “what are you talking about? I saw a chart for 2018 that said the limit was $453,100!” So here is where the confusion comes in. The term “loan limit” is used not just by lenders but also by the VA itself. What is important to understand is that the term does not mean the actual amount of the loan, it means the amount of a loan that a “qualified” buyer can secure WITHOUT needing a down payment.
Additionally, the limits are determined by county so although the norm for 2018 is $453,100 across the majority of state counties, this amount is higher in places like San Diego California which is set at $649,750 for a single family home. Now, "VA's 2018 Loan Limits are the same as the Federal Housing Finance Agency's limits" and you can find the current zero down limits here, VA ZERO DOWN LIMITS if you want to see what the limit is within your county. What you will also see is that the limit changes based on the number of units you purchase. For example, if you live in Monroe County Florida a single residential home has a limit of $529,000 that you can borrow without a down payment however, if you purchase say a fourplex, your limit is increased to $1,017,300! If you are a real estate investor and a veteran, this is good to know but remember, you must live in it for it to qualify under your VA loan benefit.
So what if you want to purchase a home for more than the zero down established limit? No problem! Here is how it works. Let’s keep this local to where I am at here in Manatee County, the maximum loan you can secure without a down payment is $453,100. Let’s say you found a beautiful home on the water for a total of $850,000 and you want to buy this home. If you were buying this via a conventional loan the lender would more than likely want 20% or $170,000 as a down payment. But we are not talking a conventional loan now are we? If you qualify for a VA loan you will only need $99,225 for a down payment and you can take out a VA loan! How did I figure that out? Simple, take the loan amount, $850,000 and subtract the limit for your county, in this case $453,100 and you get $396,000. Now, multiply this number by 25% and you have a requirement for $99,225 as a down payment to secure your $850,000 dream home and guarantee it with a VA loan. In short, the rule is simple, multiply the difference between the limit and the purchase price by 25% if the price is over the established zero down limit.
In summary, there is NO actual loan limit imposed on a VA loan. The loan limit applies to the amount you can borrow WITHOUT a down payment and it differs by county that you live in. If you want to buy a house that is over the zero down limit you will be required to put a down payment on the home that is 25% of the difference between the limit and the purchase price. So, don’t let ANYONE tell you that there is a VA loan limit, it is simply a mischaracterization of what the term “VA Loan Limit” really is.
2. Appraisals take to long and are too difficult to pass. In the past, it did take a bit longer but this was due in part to a limited amount of VA Approved Appraisers. Did you catch the part about VA Approved? So two things to know up front; first, the VA does not do home appraisals; second, not just any appraiser is allowed to do a VA home appraisal. The appraisal industry is already closely regulated but this doesn’t mean that just anyone will do. The VA picks and chooses who is allowed to execute appraisals for them based on a lot of factors but the number of appraisers has dramatically increased to accommodate the increase in VA loan applications and reduce the time it takes to get the appraisal done.
A good lender will immediately request an appraisal once the contract is signed, the longest it ever took me to get a VA appraisal was a week and the average time to execute and complete an appraisal is 10 days. For non-VA appraisal’s the average time is 3 days however the average closing period is 30 days so whether it is three days or 10 days you will still get the appraisal done before you close. There are exceptions to closing times e.g. a cash buy which can be closed in a week but if you plan on using a VA loan, just plan on taking an extra bit of time. So the first part of this myth really is just a poor excuse by a lender to not use a VA loan.
So what about the second part i.e. they are too difficult to pass? Well, I actually had an approved VA appraiser speak to us for about an hour about this very subject. There are three things that VA appraisers look for when they execute an appraisal, Safety, Soundness and Sanitation. They still follow the guidelines established by the United Standards of Professional Appraisal Practice (USPAP) but they put extra emphasis on the three “S’s” that I just mentioned.
Safety – is the property safe for occupancy? Is the electrical wiring ok? Is there lead paint etc.
Soundness – is the property structurally sound? In other words is it falling apart? Is the water working?
Sanitary – is the property sanitary? Is sewage backed up? Is there any condition that would be considered a danger to an occupant’s health due to lack of sanitation?
If any one of these conditions are violated the appraisal will not pass muster. A key note to understand, the standards used for FHA conforming loan appraisals are also used for VA loans so, the process of passing a VA appraisal is no more rigorous than that of an FHA loan appraisal. One final note about VA appraisals, appraisers that do not adhere to the standards are removed and replaced. If an appraiser or appraisal company is not conforming to the standards set by VA they are given the boot and a new company is brought on. This helps to ensure that the standards are maintained across the country. If someone is using this myth, especially the seller, I would seriously wonder if there is something wrong with the property or, are they just misinformed.
3. VA Loans cost more in closing costs. First off, closing costs vary from state to state, county to county, lender to lender etc. The closing costs in Manatee County Florida will be different from say San Francisco California. What this really refers to is the VA funding fee but VA is not the only entity that charges a funding fee. FHA and USDA also charge a funding fee but, before we go any further, what is a funding fee? A funding fee is how the VA, FHA and USDA guarantee a loan. Yes, it is that simple. If you default on your loan the guarantee must be paid somehow and this is how it is done. So let’s take a closer look at VA funding fees.
VA funding fees are not a set amount across the board, they vary based on down payment, whether the loan is a first or second time use and your service type. You can find the rates here, VA FUNDING FEE TABLE but the fee ranges from 1.5% up to 3.3%. Additionally, you don’t have to pay any funding fee if any of the following apply.
“You do not have to pay the fee if you are a:
Veteran receiving VA compensation for a service-connected disability, OR
Veteran who would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay, OR
Surviving spouse of a Veteran who died in service or from a service-connected disability”
You can read additional information about funding fees on VA’s website at, VA HOME LOANS.
This is really the only additional cost that a VA loan brings to the table. Loan origination fees, title fees, etc are all the same regardless of whether it is a VA loan or conventional loan. Lastly, borrowers have the option of rolling the VA funding fee into the loan amount if they are not eligible to waive the fee. This enables them to reduce the up front closing cost but will increase the long term cost of the loan. So this myth is “plausible” as they used to say on the Myth Busters TV show. Whether the closing costs are higher, lower or the same depends on many factors but your Mortgage lender and local VA rep should be able to help with this wherever you are at so take the time to consult them to determine what your costs will be.
4. VA Loans have a higher interest rate. False. Bottom line, when you look at the rates across the country VA loans tend to have better rates. You will find sites that tell you the opposite but the reality is that your interest rate is affected by a lot of things and is not dependent solely on the type of loan you are taking out i.e. VA, conventional, FHA etc. Across the industry however, you will find that VA loan rates are typically equal or less than conventional rates dependent on the lender. This is why it is critical to shop around when you are looking for a mortgage loan and I highly recommend that you seek someone local to help you with this venture.
This brings us to the last myth.
5. VA loans can’t be used overseas. True and False. So there are two parts to this myth. The first part is absolutely true. According to VA Pamphlet 26-7 Chapter 3, Section 10, “Real property securing a VA-guaranteed loan must be located in the United States, its territories, or possessions.” So, if you live in Puerto Rico, Guam, Virgin Islands, the Northern Mariana Islands or American Samoa you can use your VA loan benefit. If you live in any other country other than the US, its territories or possessions then you are out of luck.
So what’s the second part? The second part is on how the question is sometimes worded. And that is, “VA loans can’t be used WHEN you are overseas or deployed.” This is false as long as you are not trying to buy a home in a foreign country. If you are living in Germany and are buying a house in Texas in anticipation of your return, you can use a VA loan. Same goes for being deployed. So, if you want to buy a home in Europe, Central or South America you can’t do it using a VA loan. If however you are stationed or deployed overseas and plan on buying a home in the United States, its territories or possessions, you are clear to proceed.
I hope this was of help to some of you and I will caveat this by saying that you should always contact your regional VA representative to help you understand VA loans or visit the VA’s website at, VA HOME LOANS HOMEPAGE. You can also go to VETERAN HOME OWNERSHIP and use the services of the Veterans Association of Real Estate Professionals to help you understand your VA loan benefit as well. Things change all the time, so when in doubt ask for help!
I hope everyone takes the time this Veterans Day to remember and thank the men and women who have served in our armed forces or are still serving. Although this is an American holiday, it also coincides with Armistice and Remembrance Day which are recognized across the Globe. I was privileged to serve my country for over 30 years and continue to serve my community as a Real Estate Agent dedicated to helping people realize their home ownership dreams.