It is estimated that less than 50% of veterans take advantage of their VA benefit to purchase a home, studies show the main reason they do not is because they are unaware of the excellent purchase benefits they are entitled too. With over 2.3 million veterans now living in California alone, and with a large percentage of these based in San Diego, working with VA buyers presents a tremendous opportunity to help you grow your business and to also help our veterans purchase a home. VA purchases do have some different rules to follow when compared to regular purchases, so here are some tips to help you close more VA transactions.
San Diego 2012 VA loan limits drop from $537k to $477k
The VA just released their loan limits for 2012. Unfortunately for San Diego the VA lowered our 2011 VA loan limit from $537k down to $477k. This means that 100% VA financing is now only available to $477k for buyers in San Diego, whereas in 2011 this was available to $537k. You can check here for the new 2012 VA loan limits for your county. *For a purchase price over $477k, there is a special formula the VA uses to calculate what a VA buyers down payment requirement is. Feel free to contact me if you have a VA scenario and you want to calculate what a buyers new down payment requirement is.
Here are the most frequently asked questions in regards to VA purchases.
1. Who is eligible for VA financing?
A veteran is eligible for VA financing if he/she served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard and was honorably discharged after 24 continuous months of active duty, or the full period for which called, or ordered to active duty, but not less than 90 days (during wartime) or 181 continuous days (during peacetime).
2. VA buyers can purchase with $0 down payment?
As mentioned above, VA buyers can get 100% financing here in San Diego to $477k? VA financing is still the only loan program that allows 100% financing in any area (FYI the USDA allows 100% financing, but this is strictly for rural properties). As the FHA still requires a 3.5% down payment and most conventional loan programs still require anywhere from 3% to 20% down payments depending on the credit profile of the buyer, this is still putting home ownership out of reach for many buyers.
3. Easier qualification rules for VA buyers
Most banks have easier qualifying and credit guidelines for VA buyers. Because many first time buyers typically don’t have a lot of established credit, getting qualified for a conventional loan can be more difficult. Most VA lenders only need a 620 credit score to offer 100% VA financing. Also some VA lenders allow a buyer to qualify up to a 60% debt to income (DTI) ratio on VA loans, Fannie Mae is now capped at 50% and 45% in some cases.
4. VA buyers pay no monthly Mortgage Insurance
Another huge advantage for VA buyers is that they do not have to pay any monthly mortgage insurance (MI) on their loans, as these are backed by the government. Remember all FHA loans require mortgage insurance. So having no monthly mortgage insurance allows VA buyers to either purchase a bigger home or have have a lower monthly mortgage payment.
3 Tips to ensure VA purchase offers get accepted
There is a misconception out there that sellers discriminate against buyers using VA financing because of the following three reasons: 1. The low down payment requirement means less skin in the game. 2. The (misguided) perception that the seller must pay for some or all of the buyer's closing costs. 3. The (false) belief that VA appraisers are less generous in their appraisals. Here are 3 tips to debunk seller held credit myths about VA financing, so you can ensure your purchase offers will get accepted.
1. The zero down payment requirement means less skin in the game
We can't argue with this because VA does allow 100% financing, so this does amount to very "little skin in the game". But here is what you can do to strengthen the VA buyers profile, show the seller that the borrower has a DU approved loan (automated VA underwriting approval) and also include asset documentation (proof of reserves etc) to support that approval. This will assuage the fears a seller might have about a buyer (and that buyer's lender) performing with their financing.
2. The (misguided) perception that the seller must pay for some or all of the buyer's closing costs.
On VA transactions, the seller is NOT required to pay ANY costs for the buyer, but is allowed to pay up to 4% towards a VA buyers costs. There are certain "VA non-allowable" costs for which a VA buyer is forbidden to pay, (for example No escrow fees, wiring, notary, tax service or processing fees are allowed to be charged).
So here is a good tip to help get a VA offer accepted, so this issue of who covers these VA non allowable fees does not become an issue when negotiating a purchase price. It is advised that the following language be inserted in to the purchase contract so the seller is not put off by the VA offer: “Seller not responsible for any buyer closing costs, regardless of the selected loan program. All agency-related "non-allowable" costs to be borne by lender”.
3. The (false) belief that VA appraisers are less generous in their valuations.
There is a common misconception that VA appraisals usually come in lower. While I am sure that a lot of people have had a VA appraisal come in lower, I am sure they can say the same about FHA and conventional financing too. Underwriters and appraisers will point out, as long as the property is properly priced and the offer is reasonable, the VA appraisal should go smoothly. We have done on average 2-3 VA transactions a month for the past few years and I have only seen a value come in lower in maybe 10-15% of these VA transactions, which is similar for other forms of financing too.
VA Appraisal TIP. One of the most common appraisal value "hits' I have seen is when the purchase price is increased, above listing price, to accommodate for the seller-paid contribution. Be wary of that when submitting/accepting offers and have a back-up plan. If the appraisal does come in low make sure the buyer has additional reserves to potentially come in with more cash to close, because Remember the lender will only approve financing to 100% of the appraised value.
A great marketing opportunity, support our troops!
Because of the large number of veterans that are living in California, this represents a tremendous opportunity to work with VA buyers. My wives dad is ex military and her brother is currently in the Navy, so I especially enjoy working with VA buyers. I have always found that VA buyers are a pleasure to work with because they are very loyal and they communicate very well too, and it also feels good to know you are giving back a little to our armed forces by helping them obtain home ownership, as they sacrifice so much for all of us on a daily basis.
If you have any questions in regards to VA purchases please feel free to contact me directly at 619-325-4111. My lender is approved directly with the VA, so we are able to offer all the best programs that are available to our military friends. I look forward to chatting soon.
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