Saturday, February 25, 2006

Learn a little bit about VA Loans

From time to time we field questions from clients about the lending process. The following post is a Q&A session, about VA loans, that occured between one of our clients who relocated from Italy. We think this exchange and the information contained within will be helpful to you as you begin the process of searching out an appropriate loan package.
In an Original Message on
Saturday, February 22, 2003 2:19 PM Michael wrote:

Lori and GII,

Question - (I'll trust your judgment). I am researching other financing options since I called USAA and they verified that they are unable to guarantee closing < 60 days.

Yes... my wife and I too keep track of USAA's closing time lines... problem right now is that with rates so low, they just can't seem to separate the Refi clients from their pool of new mortgage applicants...

While trying to nail various lenders down with all the applicable information on fees, timeframe and everything, one wrote the following:

"VA loans normally the sellers pay all of the VETS cost if not I would suggest you use a very good agent who can make this happen for you....."

This is the first I heard of this - not even the on base home buying seminar mentioned this. What is your perspective?

Mike and Nathalie

Well... now you've entered into a neck of the woods that Lori & I know very well. First let's take the lender's statement,

"VA loans normally the sellers pay all of the VETS cost"

There is some accuracy to in this statement. The VA, by federal mandate, forbid and prohibit VA buyer's paying certain types of fees. VA Pamphlet 26-7, 8.20 of Chapter 8 identifies these specific fees. A section of that pamphlet reads:

The lender's flat charge is intended to cover all of the lender's costs and services which are not reimbursable as "itemized fees and charges." The following list provides examples of items that cannot be charged to the veteran as "itemized fees and charges." Instead, the lender must cover any cost of these items out of its flat fee.

· Lender's appraisals
· Lender's inspections, except in construction loan cases
· loan closing or settlement fees
· document preparation fees
· Preparing loan papers or conveyancing fees
· Attorney's services other than for title work
· photographs
· interest rate lock-in fees
· postage and other mailing charges, stationery, telephone calls, and other overhead
· amortization schedules, pass books, and membership or entrance fees
· escrow fees or charges
· notary fees
· commitment fees or marketing fees of any secondary purchaser of the mortgage and reparation and recording of assignment
of mortgage to such purchaser
· trustee's fees or charges
· loan application or processing fees
· fees for preparation of truth-in-lending disclosure statement
· fees charged by loan brokers, finders or other third parties whether affiliated with the lender or not, and
· tax service fees.

This is by no means the list of items in it's entirety... but it gives you a good idea of those fees you, as a VET, simply cannot pay. However... equally true is... there is nothing written into the statute that pushes these fees onto the Seller, or any other party to the contract. Thus... who pays these fees is the lenders problem. The VET is insulated from paying these fees.

Now... that said... why would you ever think it was just that simple? cause it ain't. There is a caveat to this mandate of fees a VET cannot pay. If the names of these fees are not listed in the closing statement, or on the lender's GFE (Good Faith Estimate) the caveat goes this way... the lender can charge the VET up to 1% of the loan amount as an allowable fee to be paid by the VET to the lender. This is the "flat fee" referred to above.

The education, required of a Realtor, to help their client process through a VA transaction is more complex than it may seem on the surface. A Realtor who does not fully understand the nuances of the VA loan may overlook items and/or contents of the lender's loan program that could unfairly impact the VA Buyer's out of pocket expenses. For example, most Realtors think that the VA Buyer can pay courrier fees. That is incorrect, the only time a VET can pay such fees is if the loan is for the refinance of an existing property. Some Realtors think that the Seller MUST pay the 'non-allowable' fees associated with a loan, I.E., those fees listed above that the VA Buyer absolutely cannot pay. As we have discussed above, this is an inaccurate assumption and, if not processed correctly during the negotiation stage of the transaction could cost the VA Buyer the home, thus loosing out to a competing Buyer.

Ok... now for the next part of the lender's comments. The lender writes,
"...if not I would suggest you use a very good agent who can make this happen for you..."

The lender has all the good will wishes for his prospective client, however... it is not as easy as it seems. Depending on the "Market Conditions" a Seller could be encouraged to support the VA Buyer's costs in their entirety or some portion of them or the Seller could opt to support none of them. And too... the Seller could refuse to pay those fees that the VA Buyer cannot pay by mandate of the VA Lending Rules.

So, what's a VA Buyer to do? First... the lender is absolutely correct... The VA Buyer should engage the services of a Realtor who understands the VA Loan Arena. Realtors who specialize in this area of our industry constantly update themselves with the latest information about the VA Lending Platforms,
maximum VA loan amounts for the particular part of the country they sell homes in and in general keep their finger on the pulse of the market as the market might be responding to VA Buyer's offers.

In our market and in your price range, it is often difficult to encourage the Seller to support all or even a portion of the VA Buyer's closing costs AND... include a discount of their property from the list price. Example of Buyer Costs: (for a home in the $160,000 price range, Buyer's Closing Costs could run between $2,500 to $4,000 depending on the loan product the Buyer selected and the points, if any, associated with the loan).

It is more practical that a Seller would agree to assist the VA Buyer with the VA Buyer's closing costs, including those fees the VA Buyer cannot pay, if the Seller was offered close to or exactly the list price of the property, assuming the property is valued within the "Market's Value Response Zone", I.E., the home will appraise for the agreed upon sales price.

Now that you have had a very cursory over view of the VA Lending arena, here is a nugget that you can take to the bank!

Over the past 6 or 7 months, most of the VETs we have represented in their real estate purchases, here in the Valley, have opted to not use the VA Lending Platform. That is because money is currently so inexpensive, that if the VET has the capitol resources to fund as little as 5% down on their purchase, the loan platforms available to today's Buyer's can save the VET Buyer up to and in some cases more than $100.00 per month in a house payment. There are loan programs that can even provide an escape from the dreaded MIP (Mortgage Insurance Premium) associated with conventional loans with less than 20% of the purchase price tendered for down payment.

Check out options such as 5/1 and/or 7/1 ARMs. Check out too, the LIBOR (London Interbank Offered Rate) loan One of our most recent VET Buyer Clients is closing next month and has selected this type of loan. He purchased a $176,000 home here in Avondale. Be sure to have
all of the nunaces of the LIBOR explained by the lender you select; for if you don't fully understand
why it is so attractive to the VA Buyer who is not going to be in their home more than 3 to 5 years, you could get the "Be-Gee-Bers" scared out of you. Also ask about "Piggy-Back" loans. These are conventional loans that help eliminate the mandate for MIP. You will see that any one of these loan platforms can be demonstratively more advantageous than a plane old 'Vanilla' VA Loan.

Since USAA is not going to be able to support your mortgage needs at this time and while you are
checking out your loan options, check with two of our preferred lending sources. Pacific Funding, Mark Schmidt at 800-245-6722 ext. 102 or you can reach Mr. Schmidt via e-mail at or... Coldwell Banker Mortgage, Rosemarie Cox at 602-565-6948 or you can reach Rosemarie via e-mail at

In today's Hi-Tech Internet world, another extremely important part of a lenders abilities is to be able to harness all of the Internet technology available today. At this time, USAA will not be able to close you on time, that is if you are looking to close in a normal 30 day contract window. USAA also does not offer a 100% On-Line application process. Coldwell Banker Mortgage and Pacific Funding Group are our most trusted Mortgage Affiliates. Both lenders offer On-Line loan processing, offer competitive loan pricing (i.e. rate and points packages) and can in fact close your loan in a timely manner. Both lenders are featured on our web site. Pacific Funding can be reached at Pre-Approve
Me for A Home Loan with Pacific Funding Group
and Coldwell Banker Mortgage can be reached at Pre-Approve Me for A Home Loan with Coldwell Banker Mortgage. Both lenders also offer a Rate Watch link too. We would suggest that you point your web browser to each of the links above and make your on line application. Also, send us a phone number that you can be contacted at, include the country code, and then let us know when you have completed the on-line process with each lender. We will then have representatives from each lender call you so you can discuss your particular needs with each of them, in a personal one-on-one phone conversation with a real live person.

Both of these lending sources offer products that are, in our opinion, extremely competitive to their market and, even more important to us and our clients is their superior integrity and attention to our clients. If the inevitable human attribute, "Fallibility" should show it's face during a transaction in that the "Fallibility" was present at the lender level, both of these lenders have stepped up in the past to cover our clients inconvenience even if it meant a monetary outlay of the lenders dollars. That kind of integrity is extremely difficult to find in the Mortgage Market today. Heck... it's a shark fest out there and you, the consumer, are the 'chum'.

"...This is the first I heard of this - not even the on base home buying seminar
mentioned this. What is your perspective?

It is not unusual that you did not hear about this at a home buying seminar. You have only been at this loan/home buying stuff for several months, perhaps only several weeks. We do this all day long, 365 days 24 X 7. In our 15 years in the real estate business, we have helped over 1,100 families buy and/or sell real estate.

There are over 1,000,000 Realtors in the National Association of Realtors. There are between 70,000 and 75,000 Realtors here in Ariozna, many of them in Maricopa County and several thousand
in the Phoenix Association of Realtors. In all of those numbers, there are but a handful of Realtors who truly understand the VA Loan Platform or the VET Buyer's needs.

Lori and I do understand. That is so for several reasons. First, over 17 years ago, we were mentored by one of the best Realtors in the State of Florida. Next, I am Retired USAF. I made it a point to learn how to take care of our own many years ago and I do that on a daily basis. And last, but not least, Lori & I stay current with as much financing data as we can find. Every day we scower the Internet looking for new and/or updated information on different loan options for our prospective and current clients. And... we check in with our preferred lender pool to get a feel for the Bond Market, one of the economic indicators that has a huge impact on interest rates.

While many seminars are just chock full of great and useful information, you would have to make
a career of attending every Buyer Seminar you could locate to be fully aware of all that is available to the consumer... or...
you could be come a Realtor .

You ask great questions... Your questions prove that Internet Buyers are more savvy than the average Buyer. Today's Internet Savvy Buyer has a wealth of resources to pull data from. Only thing missing is the element to convert the DATA to Information. That is where your Realtor comes in...

Well... now... you may have some answeres to questions that you hadn't even thought to ask... ;o) Hope we have helped just a bit...
Lori & "G-II"

Let us know what kind of a home you are looking for

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