A Simple FAQ - Part 2, The VA Loan
We spent the weekend with a first-time homebuyer who is also an active-duty service member. This means much more education because a VA loan is unlike anything else. Nearly 4 million Veterans and service members currently have active VA-backed mortgages, and VA guaranteed more than 528,000 loans last year alone. Among recent U.S. home buyers, 16% were Veterans and 2% were active duty. This isn’t a tiny corner of the housing market.
During our initial meeting to go over wants and needs, we took time to walk them through what the process would be like using their VA benefit. At this point, they hadn’t even talked with a lender. They had a ton of questions that would help them move forward or stop them in their tracks.
1. What exactly is a VA Loan?
The mere mention of using a VA loan can send shivers down the spine of a listing broker who doesn’t understand this. The biggest myth is that going through the VA process is a nightmare. Nope.
So, in essence, a VA loan is backed by the Department of Veterans Affairs - they guarantee a portion of the loan for the lender, who can be a bank, credit union, mortgage company, etc. It’s this guaranty that makes the biggest benefit of the program possible. For qualified borrowers, it can include no down payment and no mortgage insurance.
2. What does entitlement mean?
It means the amount of the loan that the VA is willing to guarantee to the lender. This isn’t your spending limit.
Full entitlement means you have your full loan benefit available because you’ve either never used it, or you’ve used it but paid it off completely.
Remaining entitlement means that you haven’t paid off your previous loan in full.
Think of entitlement as the VA’s backing. Your lender still gets to decide how much house you can actually afford.
3. What are loan limits?
Boiled down, a loan limit is a benchmark amount. It’s not a hard cap on how much you can borrow. With a full entitlement, your limit is what your lender says you can afford. For a borrower with partial entitlement (which typically happens if you already have an active VA loan on another property) the county loan limit is used to calculate their remaining "zero-down" borrowing power.
For us here in Doña Ana County, the limits look like this:
1-unit $832,750
2-unit$1,066,250
3-unit$1,288,800
4-unit$1,601,750
4. About those funding fees?
Not every borrower pays one. This is a one-time charge associated with many VA loans and can be paid at closing or financed into the loan.
Some will be exempt, including veterans who receive disability compensation and certain surviving spouses receiving compensation like survivor benefits. Your certificate of eligibility will help determine your status.
5. We’ve heard rumors about appraisals killing deals.
Time to myth-bust.
The appraiser is doing two things: giving an opinion on market value and looking for obvious conditions that fail the VA’s MRP - minimum property requirements. The VA wants to make sure that the property is safe, sound, and sanitary.
A bad roof, exposed wires, broken windows, and mold issues are going to be called out and expected to be remedied before closing. An ugly countertop or 70’s shag carpet will not be called out by the appraiser.
If the appraisal comes in low, there are some options such as submitting a Reconsideration of Value, re-negotiating the price, or having the buyer bring cash for the difference. The appraiser can also “call Tidewater” before they issue the value when it comes in low, where relevant market data can be submitted. It gives the transaction a chance before the plug is pulled.
Bottom line: a well-maintained, reasonably priced home should not be afraid of a VA buyer.
When all is said and done, using a Realtor that understands the military lifestyle, the stresses of a PCS, timelines for boots on the ground at the next station, and has lifelines to lenders who know and understand the VA loan is going to make your life easier. We understand that you might not be able to come out for a home tour, or we may not meet until we bring you keys. One of my first military clients was stationed in Aviano, Italy, which was a 9-hour time difference. Client calls at 3 am were common.
How do you find someone who knows this? Look to NAR’s Military Relocation Professional website and find Realtors there. Ask other families at your current station or, if you have access to family groups at your new station, ask them who they used.
If you’re coming to southern NM, give us a call!
