VA Loan Live Hangout, Sept. 12, 2013

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Here’s a transcript of the VA Loan Live Hangout from Sept. 12, 2013.

Samantha: Hi guys, welcome to this addition of VA Loan Live. I’m Samantha here with Veterans United Home Loans, joined by Chris Birk, who is an expert on the VA Home Loan and also wrote the book on VA home loans. Chris, welcome.

Chris: Hey, Sam, how are you?

Samantha: Doing great. And we’re also joined by Zach Gunter, who is a loan officer with our company. He’s been with our company a long time and has lots of knowledge to share with us today. Welcome back.

Zach: Hey Sam, thanks. It’s good to be here. Thank you.

Samantha: So, we’re just gonna jump right into all the questions that we’ve been receiving on Facebook Twitter, Google+ and on our VA Loans Live page. And if you’re just watching you can join us live, and ask questions live at VU.com/VAloanlive.

So, let’s see, our first question comes from Thomas Smith, and he says he has a conventional short sale that had occurred in 2012 and he wants to know when he can qualify for a VA loan? Zach, can you kind of address those different issues?

Zach: You bet. Thomas, that’s obviously a real common question right now given the market that we’re coming out of. You’re right, you heard correctly in this instance. You wanna wait two years from the close of that short sale. At that point, you could look at applying again. Obviously, there’s still going to be some credit restrictions. We’ll want to make sure your credit has recovered to a place that you qualify in that regard, but two years is the drop-dead, you can start looking again.

Samantha: Excellent. And Chris, what’s the credit score that we’re looking for for a VA loan?

Chris: It’s going to vary by lenders Sam, but in general, right now, VA lenders are looking for a score of at least 620. So in the grand scheme of credit scores, it’s actually a pretty low score, all things considered for conventional financing, you’re looking at more like a 740 score. But still, after something like a short sale or a foreclosure, you’re undoubtedly going to take a hit to your credit, so you’re gonna wanna spend the bulk of those two years doing everything you can to repair your score and your overall credit profile.

Samantha: Excellent, well thank you. Let’s see, next question comes from Tom B. We just got it in, and thanks for watching, Tom. He says, “I’m 30 percent disabled through the VA, and a 20 year retiree. What closing costs would I have, number one.” And then he wants to buy a modular home. And we have some questions on that. So Zach, would you mind addressing the 30 percent disability and what additional benefits he has because of that?

Zach: Sure. In this regard, the VA disability, any compensate disability will waive the funding fee, the VA charges. A funding fee is really how VA administers this program, it’s what they use to offset the cost when a veteran who has been guaranteed defaults on a home loan, this is how that gets paid off. It’s how they protect this program. And it’s what replaces mortgage insurance in the regular market.

So, usually even when you’re charged the funding fee that’s where your savings is coming from. In your circumstance, or any veteran with 10 percent or more disability, that funding fee is waived altogether. What that means for you and any other veteran with 10 percent or more disability, is that sometimes even if conventional is off and even if you’re putting 20 percent down, VA still may be an excellent option.

So, for your lifetime you’re always gonna wanna check on your VA loan, cause it’s gonna be strong regardless of your down payment circumstances.

Samantha: It sounds like a great benefit.

Zach: It is.

Samantha: The next question that he had was he wants to buy a modular two story home and place it on land that he currently owns, Chris. He wants to know if the septic, basement, water line and electric hookups can be included in the VA loan. So can you kind of talk about modular homes and what circumstances you can use to modular?

Chris: Yeah, absolutely. You mentioned closing costs too and I think we’ll circle back to that too. You can absolutely do modular with your VA benefit.

You could also do manufactured. Those are two very different things. Manufactured is essentially a mobile home and so for anybody who is watching who is thinking about going that route just know at the outset, it’s incredibly difficult right now to find VA lenders that will actually fund these types of loans.

They are inherently risky products for lenders and it’s just not something you’re going to find a lot of them doing. That said, if it’s still something you’re interested in send me an e-mail. It’s chris@vu.com. I’ve got a list of lenders that at least used to do these types of loans. I’d be happy to send it to you.

As far as modular goes, Tim, this is not a manufactured home in that sense. These are essentially constructed on-site materials that are factory built and brought to your piece of property or location, then by qualified professionals built to suit at that location. And so this is definitely something you could do.

As far as closing costs are concerned, having that VA funding fee waived is a huge benefit, like Zach mentioned. Zach, do you want to talk in general just about some of the overall closing costs that you deal with with veterans every day?

Zach: Absolutely. There is a common misconception with VA loans that closing costs don’t exist, which simply isn’t true. Title company still needs to get paid. Depending on whether or not you’re in an attorney state, they still have to get paid. The lender will generally make money on the loan also. So, there are a lot of costs, including recordation by your county and sometimes also the state.

So, all those are still going to exist. The benefit with VA is that as long as you’re working with a loan officer, a facility who knows what they’re doing, as well as have a Realtor involved who understands VA, you can negotiate those at the outset of your contract to be seller paid. In essence you’re still financing those costs but it’s kind of a semantics game.

We have to show them as seller paid. So, you’re increasing your offer a little bit to compensate for those costs.

Samantha: Alright, so I think that answers the majority of Tom’s questions. But I think, let’s also talk about building a home on property that you already own. I know that we’ve seen this question on Facebook recently, and so, Chris, if you could kind of talk about the steps you have to take in order to build a home and use a VA Loan.

Chris: New construction is absolutely something you can do with this benefit. Now, like so many things with the VA program, you have think about two different things, and one is satisfying the VA and two is satisfying lenders, and so the VA doesn’t actually make home loans. It basically insures them. It’s the lenders like Veterans United who actually lend you the money, and because they’re the ones who are assuming most of the risk, they’re almost always, if not always, going to have additional requirements beyond what the VA is concerned.

So, they can do things or look for things that the VA doesn’t necessarily ask to see. A credit score is probably the prime example. You will have to hunt for a VA lender out there who will actually pay at the outset for the construction of your home.

To actually pay a local builder draws over the course of months to bring that thing from the ground up.

What’s much more common in the current lending environment is you go to a local builder or a local lending institution. You get a short-term construction loan, and then upon the completion, basically upon the completion of the home, you finance that short-term construction loan into a VA Loan, which gives you the same benefits that you would have as if you were purchasing an existing structure. And so you can absolutely look for VA lenders who will pay at the outset, but more than likely in the current mortgage environment, you’ll need to work with the builder.

That’s something that I know Zach and other loan specialists here do all the time. I don’t know if you’ve done any new construction recently.

Zach: One of the most common ways that people are able to successfully do this is when you already own a piece of land, maybe it was family land, something you’ve had for years but hadn’t planned to build on.

You can use the land for collateral on our construction loan. That keeps you from having to come up with a down payment and it also meets the qualifications of the construction loan, which obviously a construction loan they’re never going to do on a zero down basis, and that’s why the extra step’s there.

But usually when I see people being successful, that’s how they’ve done it, is they’re collateralizing that land to the bank for the initial construction loan and they were paying the whole thing off at one time on the final.

Samantha: And Zach, if someone wanted to give you a call and talk to you about a construction loan, what’s your contact info?

Zach: My phone number is 800-814-1103 and my extension is 3482, and if you’d like to e-mail me you’re also welcome to do that. I am zgunter, so zgunter@vu, like Veterans United dot com.

Samantha: Excellent, thank you. Let’s see we just got in another question from Diane King who’s also asking about mobile homes. Can you recap real quick for Diane, what the rules are with regards to mobile homes and a VA loan?

Zach: Absolutely, mobile homes, according to VA can be done as a guarantee-able loan. It needs to be on a permanent foundation, but it is difficult. Chris was talking about this just a little bit ago. It’s difficult to find a lender because of the inherent risk and the way they can sometimes lose value. They’re not always a good bedfellow for a zero down loan.

So many lenders are skittish about doing these. So, I would do a lot of homework to find a lender before you get too far into that process if you want to use your VA loan.

Samantha: Excellent. Thank you. We just got another question. Thank you guys for all the questions on VU.com/VAloanlive. This one comes from Jeff Monroe, and he says, I went through Chapter 7 bankruptcy in August 2010. His house didn’t foreclose until October 2011. Because he worked with a bank to try and do a short sale now he has private mortgage and has a 20 percent interest rate. He wants to know if he can refinance with the VA.

Zach, can you kind of talk about the timeline on when he could look into doing a refi?

Zach: Absolutely, is it Chris? Jeff. Sorry, sorry Jeff. Depending on whether or not this is an FHA loan or what type of product you have, if it was conventional or VA or anything else, you’re looking at a two-year window. So, October 2013, you can start looking at refinancing with VA. As we talked about earlier, your primary focus with this time you have in the next month I guess.

Check your credit. Find out where you are. If there are any things that you can do, actually you might want to give us a call right now. We have a department of secondary approval. It’s called our Lighthouse division. You’ve got 30 days to work with so it would be a fantastic time. Call me. If I’m not licensed in your state, I’ll get you with someone who is.

We’ll get your credit pulled, we’ll find out where you are in regard to the credit, and hopefully by the time you get to that October, November time frame we can have you in shape to do something. Again, my number’s 800-814-1103 and my extension is 3482.

And we could probably reply to his email, can’t we?

Samantha: Yeah, absolutely.

Chris: There’s a really common and confusing part of this too, and that is when there is a bankruptcy and a foreclosure. So, the first piece on a Chapter 7, you’re going to need to wait two years after the date of discharge. That’s pretty much non-negotiable. If it were a Chapter 13, it’s possible that you could be ready to move on a VA loan after one year.

What becomes incredibly complex, even for people who work in the industry, is when there’s a foreclosure wrapped up in a bankruptcy or that follows a bankruptcy. And the bottom line with this, as far as anybody is concerned whose dealt with these two events, is that lenders are really concerned with when you are no longer legally obligated on that property.

So, if it was the bankruptcy, then at least as far as Veterans United is concerned, that’s the time, that’s the date when your clock starts as far as that two-year wait. So the foreclosure isn’t necessarily if it happens a year later, or two years later that in general cases, and this is always gonna depend person to person, but generally speaking, it’s gonna start with that bankruptcy and not the foreclosure. I know it gets so confusing for people, so if you’ve dealt with these events which do not, in any way preclude you from using this benefit again, even if you defaulted on a VA loan, give Zach a call, send him an email, because it’s really such a person-to-person type thing.

Samantha: Absolutely, thank you, Chris. Let’s see, our next question comes from Chris’ Facebook page, which is VA Loans Insider, and this is a question from April. She wants to know if she’s an independent contractor as a stylist, how can that income be calculated? She said she had a friend who wasn’t able to use her income because of the independent contracting when she was getting a home. She wants to know what kind of guidelines does she need to follow in order to get into a home using that income.

Chris: I’m sure Zach has many and many stories about self-employment income and how frustrating it can be for veterans. But when it comes to you working for yourself, you being self-employed you’re pretty much always going to need at least two years of tax returns in order to make this count as reliable, steady, verifiable income.

I don’t know how common that is that you hear from self-employed veterans, but I know it’s a source of frustration for quite a few.

Zach: It is, because in the old days we had stated income or when we could use cash flow assessments or profit and loss statements to close loans, those days are gone. It’s not just VA, it’s market wide. Anytime you’re looking at being a contractor or a self-employed individual we’re going straight off of what you told Uncle Sam you made, so your taxable income off of two years’ tax returns.

Having been a self-employed person before, I know that over the years I made the most money in my life I was claiming the least. So, I’m very sympathetic, but unfortunately the rules are different now across the board. We’ve gotta look at those tax returns. So, make sure. When you think your CPA is doing a fantastic job by not showing any income on your tax returns, it’s really gonna hurt you when you go to apply for a loan.

Chris: That piece is so incredibly true. I mean, and if you’re just getting ready to start out, I mean, entrepreneurship is extremely important for veterans, if you’re just starting out, what Zach is basically saying is that if you have $100,000 to show at the end of the year, but you write off $50,000 of that, Zach only gets to look at that $50,000 not the $100,000.

And so, again, self employment is still person-to-person. Shoot him an e-mail, give him a call, and he’ll let you know. And if you need to wait, there’s plenty we can do between now and then to help make sure that from a credit and overall financial perspective you’re in the best place possible.

Samantha: Alright. Let’s see. We have several questions that we’ve received on VA Loans Live regarding credit. John said he had bad credit but a certificate of eligibility. When can he start using it? We’re going to address several of these here together. Derek wants to know what’s the minimum credit score. And then Rafael says he’s a veteran who wants purchase a home for the first time and was told that he can be turned down for a loan if he doesn’t have good credit.

So, let’s see, Zach can you kind of talk about the minimum credit score and why it’s necessary in this market to have a credit score that’s, you know, within an acceptable range.

Zach: Sure. This falls in, you know, all of you to a range of a lot of, where a lot of frustration stems from. VA has their own set of guidelines, and if you get online and look at VA, no there is no minimum credit requirement. There are a lot of situations where VA has no prohibition against certain things, they have no minimum credit score.

Because, as we talked about a little bit earlier, VA is the administrator. They’re not actually the lender. There’s going to be a lot of cases where banks, because they really are absorbing the brunt of the risk here, banks are going to have their own overlays. They want to be able to determine not only your ability to repay, but also your willingness, to show you have a history of repaying your debt.

And that’s what your credit score is. It’s literally an ability and a willingness to repay debt. And unfortunately that’s one of the best ways we have to reflect the likelihood of us getting this loan paid back. And so, banks are gonna be using credit scores, and it’s going to differ from bank to bank. But, fortunately, we are an institution that has an opportunity for you. If we can’t qualify you immediately, we do have a free way to help you raise those credit scores.

And there’s no obligation, this is purely a service, it’s a win-win for the customer. I mean, you can absolutely use us to help you increase your credit scores and work with someone else if you choose to. There’s no contract or obligation there.

Samantha: Great. And I think the program that Zach’s talking about is our lighthouse program. If you wanna get some more information on that, you can visit our website at lighthouse.veteransunited.com or give one of our lighthouse program representatives a call at 800-698-5158. And once again, you guys are watching VA Loans Live. We’re joined by Chris Birk, the expert on the VA loan process, and Zach Gunter who is a VA mortgage specialist.

We’re getting lots of questions right now so we really appreciate everyone watching. We’ve got two that just came in from Tom. Tom, your first question was, can I find a good priced rehab property and borrow against the future value of the property after renovations? Chris, do you kind of want to talk about rehab properties?

Chris: Tom, you can. It’s called the FHA 203 VA Loan. Unfortunately, there is not an option right now, and I say right now because it would not surprise me that if in the next 5 years there is a VA program like this. But right now, there’s not a way for you to do this with a VA Loan. FHA, the Federal Housing Administration does have a program that is geared exactly toward this. Now, some of the downsides of FHA, there’s a minimum down payment, 3.5 percent.

You’re going to pay both an upfront and a monthly fee. Not just monthly, but quite honestly a 30 year, that’s how long your mortgage is, form of mortgage insurance, but this does allow you to build in those costs. As far as actually making a rehab or a fixer upper work on a VA loan this is where a real estate agent, and we can absolutely.

Zach works with real estate agents all the time who understand this program and how important it is to know at the outset whether a fixer-upper type property is something you’d even want to approach.

Zach: Really we are seeing them commonly in certain markets. It’s not an uncommon loan at all. One benefit that VA has over a lot of other programs is that we don’t have some issue with seasoning, which is what in the industry what they say is a title has to be held by one person for a certain amount of time.

With other programs it can be difficult to purchase a flipped house, but VA has no problem. As long as we can substantiate on the appraisal that there were significant improvements made to the property from the last time it was sold, VA’s not gonna have an issue with it. So it is a real possibility. We do them commonly, but like Chris said, you’ve got to be careful.

You have to make sure all repairs are permitted. So having a qualified realtor who knows the people in the market involved and possibly the builder, possibly the flipper is gonna be a huge asset.

Chris: And then the other piece of this too, and this is a common question too, is that can I add $10,000 or $20,000 to my loan amount to make those repairs?

It’s just not something that you’re gonna be able to do. A lender’s gonna look at the purchase price and an appraisal’s gonna be conducted and they’re gonna look at the appraised value of the home. Whichever is the least of those two, that’s how much they’re gonna give you and essentially not a penny more.

So, adding in extra thousands of dollars to make repairs after the loan closes isn’t something you can do either.

Samantha: And one thing to note here, is that that doesn’t prevent you from doing improvements that are energy efficient. There’s an option called the Energy Efficient Mortgage with the VA. And it’s going to allow you to make different energy efficient improvements to your home, up to $6,000.

Assuming that you qualify for the higher amount. So you can add up to $6,000 to your VA mortgage and allow you to make energy efficient improvements. So, things like fixing caulking on windows, and anything that would make the home more energy efficient. But all of that has to go through the underwriting process along with the rest of your loan to make sure that it’s approved.

Chris: And a heated swimming pool is not an energy-efficient improvement, unfortunately. Not that I think you could put a pool in for six grand.

Samantha: Alright, and then that second question from Tom. Tom, we’ve already talked about the credit score. Generally, you need a 620 for the VA. But, he also wants to know is there any breaks on points with the VA loan? Zach, can you kind of talk about points and what those are for people that aren’t aware and how those play with VA?

Zach: Points are kind of a blanket term and people throw it out there to account for all kinds of costs. But, generally speaking, one point is considered one percentage point of your loan amount. Most often you hear people talking about them in regard to interest rate. You can use points to express how much money you pay to pay down an interest rate.

Usually banks are showing you their par rate. Par means a point where we make exactly the amount of money that we need to make on that. Usually when you’re seeing points or hearing people talk about paying points, you’re paying an amount of money to buy that interest rate down. So, buy the interest rate to a place where the bank is no longer making money.

And all you’re doing is prepaying that interest to catch the bank back up and buy yourself a lower rate. Another way, I think this is the way you may have meant this, is people just talking about closing costs in general. And, no, VA is not gonna discount the cost coming from all the third-party vendors: the vendor, the title company, the attorney.

But we do have that mechanism where we can ask for seller concessions and basically finance those costs for you. So, kind of, but no they’re not going to actually discount other peoples’ fees. So, I hope that adequately answers your question.

Chris: And VA buyers don’t routinely pay points, and part of the reason why is that VA rates are incredibly conventional if not consistently lower than conventional rates.

So, as far as paying points goes, make sure that when you’re shopping loans and loan rates and terms that you’re comparing apples to apples and you’re looking at APR and not just the interest rate or the note rate on the mortgage and that you’re including when you’re calling for quotes, you’re asking about whether this includes points or things like that.

Because, you just wanna make sure that you’re looking at the two same things because those are not necessarily the same.

Samantha: Excellent. This last question comes from John. And he says just, simply, I keep getting turned down for loans. Zach, what options does he have to kind of get in a position so that he can get approved for a loan?

Zach: Well, obviously, John, without knowing your exact circumstances, I don’t expect you to email them to us. But, it’s hard to tell you exactly what the issue is. Credit is by far the most common issue we see with people. It’s a real standard thing. When you’re 18 years old and somebody gives you a place to sleep, guaranteed meals, everything’s paid for.

I was active duty Army, made a lot of bad decisions, because everything was taken care of for me. Just by virtue of being deployed, often your credit is going to suffer. So, the best advice I would have is call in. Let me go through an application with you, see where your issues lie. And, we may have some very good solutions for you with lighthouse.

So, that may not be a tomorrow thing, but could very likely be a six-month to one-year fix.

Samantha: Excellent. Thank you. Chris, we just got some questions in on Facebook on our Facebook page Future Military Homeowners. And Glenn here says, how much red tape does this cover? And what’s the issues or specifications?

So, that’s a really broad question. But, can you talk generally about how VA loans are different from conventional loans and some of the requirements basically? I think what Glenn’s probably getting at is minimum property requirements. So, could you talk about minimum property requirements for a minute?

Chris: I will. And I think, just red tape in general is one of those myths and misnomers about this program. That’s not to say that it’s not rooted in some truth. I think it’s old truth though. The VA program maybe you worked with this program. Or, you’re a Realtor, you’re a veteran who bought thirty years ago, twenty years ago. The VA program of today is not that program from decades ago.

It’s much more automated. It’s much more streamlined and so you may have more paperwork with a VA loan. There may be a few more steps involved given the incredible benefits that you get with this program. But as far as like a mountain of red tape is concerned, those days are are over. They really are. As far as conventional versus VA is concerned, I mean, the benefits are pretty crystal clear.

That’s not to say that there aren’t veterans out there who are better suited to a conventional loan, but generally speaking, it’s a five percent minimum down payment on conventional. So, a $100,000 purchase that’s $10,000 out-of-pocket up front before you get the keys and shake hands and walk out.

Interest rates are gonna depend on a few different factors but VA rates are consistently lower and, by the way, in most parts of the country you’re purchasing up to $417,000 without having to put money down. Monthly private mortgage insurance is another one. Zach touched on this a little bit earlier as far as the VA funding fee is concerned.

A couple of differences with the funding fee is one, the exemption for service-connected disabilities. Two is that you can roll this cost into your mortgage and pay it over for the 30 years that you have it. Private Mortgage Insurance you’re gonna pay every month until you’ve got 20, 21, 22 percent equity. It’s gonna add, probably, anywhere from 80 to 130 dollars under that mortgage payment that you’re gonna write every single month.

As far as the property requirements go, I don’t know, Zach. If you want to talk a little bit about – I get worried when we start talking about minimum property requirements because it starts to confuse people. There’s so much involved. I think a lot of veterans and realtors look at it like the VA is trying to protect veterans out of a home, and that’s really not what these are all about.

Zach: Sure. And that’s an easy misunderstanding to come to, obviously. VA says, safe, sound, and sellable. They want to know that you’ve got 5 years serviceable life left on the roof. They want to know that you have siding. The thing is we don’t want this veteran to get into this home and immediately have a two-thousand dollar repair that has to be made.

And so that’s the angle that VA is coming at this from.

Samantha: So, it’s not really there to make it more difficult. It’s there to protect them and their financial investment, right?

Zach: Precisely. And VA is guaranteed. This is a program that has one of the lowest foreclosure rates in the country of any program. So, VA is going to continue to guarantee these loans on a zero-down basis, they also have to take a certain amount of responsibility to protect the collateral that props up the entire program.

So, in that light, it is understandable.

Samantha: Thank you. And guys, if you are wanting to get some more information about the overall process of the VA loan and specifics, you can check out Chris’ book. You can get a free copy at valoanbook.com. Give Zach a call, Zach what’s your phone number again?

Zach: 800-814-1103 and my extension is 3482.

Samantha: Alright. And my contact information is samantha@vu.com. Chris, what’s your email?

Chris: It’s just chris@vu.com.

Samantha: Excellent. I think that wraps up our time for today. We really appreciate everyone watching. We look forward to answering more questions that you guys have for next week. If anything comes up in the meantime feel free to give Zach a call.

Shoot me or Chris an email and we’ll do our best to answer your questions. Thank you.