VA loans: an untapped market opportunity in 2022?

BLOG VIEW: As the mortgage industry continues to transition from a refinance market to a purchase market, lenders are challenged to better identify qualified borrowers and help them achieve the American Dream of homeownership.

Representing more than 19 million Americans nationwide, with dedicated lending programs specifically designed to support them, military veterans represent a segment of the population that provides opportunities for lenders.

Yet a general lack of understanding of VA loan programs and the specific needs of veterans keeps many lenders on the sidelines, leading many who have served to feel underserved.

To begin with, a qualified VA borrower must have an entitlement based on military service that no other loan program requires. Generally, between 90 and 121 days of service trigger eligibility for active duty, depending on when and what branch a veteran served in (for example, the National Guard and Reserves are calculated a little differently). Determining eligibility and understanding the flexibilities and benefits the VA program offers, such as using seller concessions, paying off debt, and waiving certain fees are all key to maximizing program benefits.

VA loans tend to be more specialized because the guidelines are intentionally written to be more flexible, especially in approving eligible borrowers who may have had credit issues in the past. The VA loan program is really designed to be a benefit in that it allows military borrowers who have earned this right through their service to be approved for a loan that another loan program may not. This is reinforced by the fact that the program also allows manually underwritten loans, which gives the lender more flexibility than some of the more traditional programs.

Additionally, the VA allows a maximum of 8% concessions for sellers. This could free up the lender up to 4% direct to pay off closing costs and prepayments, for example, then apply the remaining 4% to pay down debt on behalf of the borrower, which can help qualify. Some lenders who have pledged to support veterans go a step further and waive some (or all) lender fees on VA loans in certain markets, resulting in significant savings for borrowers. It also provides significant bargaining power to partner agents and lender clients when determining seller concessions and what to negotiate, or potential borrower costs at the closing table.

Many loan officers think VA loans are harder to get and they couldn’t be more wrong. These loan programs have been intentionally written so that lenders can say “yes” to a qualified borrower under most circumstances.

VA loans in the face of rising house prices

It is no secret that property prices have risen rapidly and dramatically over the past 18-24 months, in many cases exceeding the quality management rules set by the GSEs. The answer to VA loans is tied to the Blue Water Act of 2019. Prior to its passage, each county in the United States had its own VA loan limit up to which no down payment was required, essentially 100% financing. Anything over this loan amount triggered a calculated down payment. After 2019 that changed and today as long as a borrower has what is known as full entitlement i.e. no other VA loans at that time, they can purchase an amount of loan as large as it qualifies without down payment. With real estate valuations continuing to rise steadily, this represents a significant benefit to the VA borrower by increasing their purchasing power.

Also, many veterans are unaware that they can have more than one active VA loan at a time (as long as their entitlement covers it and they qualify for loans). The VA program allows unlimited purchase at 100% of appraised value if there are no other outstanding VA loans tied to the service member’s eligibility. Unlike other loan programs (except the FHA), VA loan borrowers can actually have as many loans as they are eligible for at a time. For example, if a borrower already owns a property through a VA loan, they would be capped at the loan amount on the next purchase of what they qualify for with both loans and what their eligibility will secure. If the borrower has no other VA loans, there is no loan limit as long as they qualify for payment and DTI. However, having multiple VA loans can also require quite complex calculations, in turn requiring skilled and trained loan officers who know how to make it happen.

A market worth serving

The biggest thing holding lenders back from engaging more fully with VA loans is simply a lack of understanding of the program and its benefits. The men and women who have sacrificed so much for this country deserve better – they deserve to have access to the benefits to which they are entitled. Many of them – and their families – have made great sacrifices to ensure that we all have access to the American dream of homeownership, and it is only fitting that they too have access to this dream. .

Jeanette Salamon is Area Manager (Virginia Beach, Virginia) for Homespire Mortgage.

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