VA loans offer low downpayments and other advantages for veterans. Joining me to explain VA loan requirements is Joe Kelly, mortgage professional and founder of VetsCanSave.com. Following is an edited excerpt from our interview where we talk about:
Gerri: Let’s start off by explaining, “What is a VA loan?”
Joe: A VA loan is specifically geared towards those who are active duty or those who have served us in the military. It allows them some benefits in the mortgage arena that other programs don’t allow. One of the biggest ones is for those people who are looking to buy a home. They can do so with zero money down and that’s one of the only national programs still left where someone who really doesn’t have any savings put away can buy a house with zero down. They can have the money that they need for closing costs come either as a gift or a concession from the seller. So that’s a big benefit.
There are also some other benefits than just the leniency of the underwriting. Interest rates tend to be about a quarter percent lower for VA loans and FHA loans than they are for other loans. There are some tremendous financial benefits for anybody in the mortgage arena for those who served or currently serve.
Gerri: It’s interesting Joe because a few years ago, VA and FHA loans didn’t seem to be as popular because conventional loans offered so many crazy wild programs and a lot of people were going for that.
Joe: They’re becoming incredibly more popular. It’s just part of a general wonderful trend in the country that we’ve seen over the last several years, that regardless of someone’s politics or whether you agree with where we sent our military, (there is) this tremendous outpouring of support for those people who have sacrificed their time, or their lives or their finances to be able to go and serve our country - you see that reflected in the mortgage arena.
You mentioned the restaurants (offering free meals to those in the military on Veteran’s Day). I’m the proud father of two army veteran sons. One fought in Iraq, one active duty Navy and one soon-to-be son-in-law who’s one of the guards of the Tomb of the Unknown Soldier. I can tell you, my two boys who are veterans they get excited every Veterans Day and they go and spend the day in restaurants that are treating them. It’s special to them.
Gerri: Yes, it should be. I should mention that Joe's website, VetsCanSave.com has a lot more information about VA loans
as well. So you mentioned the no down payment aspect of the VA loan and
you also mentioned that the interest rates may be lower. I just want to
emphasize that or clarify that because right now mortgage rates are
super low, so you're saying even with super low mortgage rates you may
be getting even a better deal with a VA loan?
Joe: That’s correct, on average. That hasn’t always been the case but it’s been the case for about the last year. This is a reflection that we seen in how the mortgage rates are priced and things. But VA loans and FHA loans - which is the other government program that lets people put very little money down or have less equity in their house if they’re looking to refinance - those rates do tend to be about a quarter percent lower.
Anybody can visit VetsCanSave.com and give us their scenario, and will give them a more specific quote. But thirty-year fixed rates are in the low threes (at the time of this interview). I’m talking like three and a quarter percent depending on closing costs and the person’s qualifications and those such things. Fifteen-year rates are below 3%. It’s an incredible time especially if you currently are looking to buy they can take advantage of how much prices have gone down across the country.
The other big thing with the VA loan, if you currently have a VA mortgage you can refinance even if you have no equity in your property. It goes up to 100% loan value, or even higher if you’re upside-down depending on who your lender is, I don’t have time to go through that here, we can go through that if they contact us. Many lenders allow you even if you’re upside-down to do what’s called a streamline refinance and lower rate and even have no closing costs - where nothing’s wrapped into the loan, the lender’s paying all the closing costs. Some really great benefits.
Gerri: So for those who may already have a VA loan it sounds like refinancing could be super easy and a no-brainer for them.
Joe: It is and many people have gone through that maybe one or two times in the last several years because the rates have been falling. They’ve been taking advantage of it. In many cases, those folks may have paid closing costs or wrapped those closing costs into the loan. I strongly encourage everybody who has a VA loan, if your rate is above 3.5% right now, you really should take five minutes worth of action and either visit us at VetsCanSave.com or a lender that you know and trust and passionate about serving veterans and their families, and find out if you can lower your interest rate for no cost.
I don't encourage you, if you paid closing costs six months ago to go pay closing costs again. It may look good on paper but you’re not going to recoup those closing costs. But if you can do it for next to nothing, that’s pretty savings that are next to free savings. That’s worth it.
Gerri: What kind of credit requirements are involved in either purchasing with a VA loan or refinancing with the streamline refinance, Joe?
Joe: As far as credit scores go Gerri, it’s going to vary somewhat lender to lender but they are (generally) lower than they are for other types of programs. Generally, the majority (require) a 640 credit score or above. There are some that go lower than that. There’s more leniency if there was a foreclosure or a short sale in the past. It only has to be two years since a foreclosure or short sale, or bankruptcy, unlike a conventional loan where it’s four years. So there are benefits if someone’s moved on from a rough period of time. It’s a shorter amount of time to be able to refinance or purchase again.
Gerri: Just to clarify, you may be able to get a VA loan two years since foreclosure or bankruptcy in the past?
Gerri: Okay. And then what about refinancing? Do you need a good credit score to do that?
Joe: On the refinancing side, on average about a 640 credit score minimum. This is an area where lenders have tightened up a bit (just like in other types of loans). If someone is looking for a streamline refinance where no appraisal done, there’s really not any checking of employment or assets. It’s a very simple process. But (there) the credit scores requirements are a little bit higher more like 650 or 680. So it’s important for people to check their score and do things that they can with an expert and helping them raise those credit scores before they come to us or even during the process so they can take advantage of the low mortgage rates.
Gerri: Now, what if someone is a retired veteran and they are receiving just retirement benefits but they don't currently have a job and income from a job, is that a problem?
Joe: It’s not a problem if they’re currently in a VA loan, Gerri. If they have a VA loan, they can do what’s called a streamline refinance which I’ve just mentioned. And with that there’s no qualifying for it. If they’ve been making their payment on time, if their credit scores meet for that lender the minimum amount, they can refinance and lower the interest rate. They can wrap-in any closing costs if they want to buy down the rate or they can have the lender pay the closing costs.
And another big benefit for veterans is if they have any VA-related disability even 1%, the funding features of closing cost is associated with a VA loan called the VA funding fee, that’s waived for anybody who has VA disability.
Gerri: Joe, it just sounds like something that veterans should absolutely check out. I’ll send them to VetsCanSave.com. Thanks for joining me Joe.
Joe Kelly is an experienced mortgage professional with more than 25 years in the industry. You may have seen his innovative mortgage strategies featured in national news stories. They work with homeowners and prospective buyers nationwide. I am proud to have them a sponsor of Talk Credit Radio because of their commitment to mortgage education. If you are thinking of buying or refinancing you can reach out to them at Arcloan.com.