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This article discusses FHA financing, how veterans end up in it and the effect it has on buying power. 

So many times when I am talking to veterans who have bought a home and they’re not in VA, they are in FHA financing. When I asked them, “How did you end up in FHA when you were eligible to use VA at the time?” 

A majority of the time, they say that the real estate agent or lender told them they could use VA financing, but sellers aren’t particularly interested in this type of financing. 

They are told that sellers tend to like FHA financing more because they understand it and that there are a lot of issues with VA. Leading them to ask them to come up with 3.5% for a down payment, so they could put them FHA financing and hopefully get their offer accepted sooner.

Well, nobody wants to wait around to buy a house! When you’re ready to buy a house, you’re going to buy a house so you choose to go FHA financing. 

Once you’re in FHA financing, a few things happen as a result. One, your buying power has been reduced by 13-15% because you’re paying an additional fee with FHA financing called mortgage insurance. Now, while you may have got into your home, that additional fee means that you have a higher payment even though you put money down.

And two, let’s say that you’re buying a $300,000 home. In the first three years, your out of pocket cost between the down payment and mortgage insurance is almost $15,000 more with FHA than if you were to use VA financing. This means more money out of your pocket and less buying power. Who wants that?!

If you go with VA, there’s a lot of reasons to do it:

• Lower interest rate
• No mortgage insurance
• Lower monthly payment
• $0 closing cost possibility

If you want the option of getting in with no money out of your pocket or no closing costs

net out of your pocket is that somebody else has to be paying those closing costs on your behalf. There’s always closing costs with a loan. Those costs would be underwriting and processing with a lender, an appraisal, along with title and escrow fees. You have one time fees with every loan. VA has it. Conventional has it. FHA has it.

With the VA home loan, you are allowed to get somebody else to pay those costs. Traditionally, the seller was required to pay those costs on your behalf, causing them to steer you away from using VA financing. However, that is no longer the case. You have the ability to pay the costs, while using your VA home loan benefit, and the seller is not out any more money.

As of January 1st of 2020, with the Blue Water Vietnam Veterans Act, if you have full entitlement to use your VA loan, you can buy a house with no money down. If you search for county loan limits, those are there. FHA puts limits on how much you can buy and your loan amount. With VA, there is no cap. For us, we can actually go up to $2 million on a loan amount with certain restrictions. Of course not everybody is going to buy up that high, but that’s how high we can go. 

Along with that, the VA loan is easier to qualify for and there is no prepayment penalty. Another bonus of the VA home loan benefit is that the loan is assumable anyone.  It does not have to be a veteran. This means that anybody can work with the lender you’re making your payments to, and they could take over your payments if they qualified to do that.

And finally with the VA loan, if you want to do a refinance down the line and you want to lower your rate in payment, you can use the Interest Rate Reduction Refinance Loan (IRRRL). In order to use the IRRRL, you must be able to lower your interest by at least 0.5% compared to where you start and it is a super easy process! At this point, there’s no income qualifying, appraisal, etc. so the process can be quickly streamlined. 

If you are having issues making payments, the VA is there to help you. And if you want to refinance down the line, you can refinance with no equity, meaning you could do 100% financing.

Don’t keep this information a secret! Share it with your battle buddies. An remember, when it comes to the VA home loan benefit, the answer is no if you don’t ask, so please just ask!

There are many things you can do with your VA home loan benefit and one of those is a cash-out refinance. The benefits of this are the ability to take money out of your home for any reason, similar to most other loan programs, the FHA loan, and the conventional loan. With the VA home loan benefit and a cash-out refinance,  you have the potential to get the appraised value of your home and get a new loan up to that home value. It’s similar to if you buy a home with a VA loan,  you are not required to put any money down, meaning there’s no equity on a refinance. 

You can do a similar thing; you can get a home loan up to what the home appraises for. You will benefit from a cash-out refinance because it lowers your interest rate, and if you want to do debt consolidation, there are even more advantages! When you do debt consolidation, you’re taking other debts such as credit cards, student loans, car loans, etc., and consolidating them into the mortgage payment. Basically, you’re allowed to do another loan only if you have enough equity in your home, and take out extra money over what your mortgage is to pay off those bills. Therefore, rolling the debt into your new VA home loan and lowering your payment.

Here’s an example scenario. Let’s say you’re looking at a credit card with interest rates in the 20% range. With your VA home loan, the interest rate on your debt, now that it’s moved over from a credit card, is going to be gradually lower. At this moment in time, in June 2020, the interest rates are in the low threes. So if you compare 20% on a credit card to the 3% on a home loan, that is a good deal! 

You are allowed to use the proceeds for any reason, however; you will be asked by the lender to write a letter explaining what you will be using the proceeds for so they know that you are not wasting the money.

It’s important to remember that if you do a new VA loan, you have to wait 210 days after the due date of the first mortgage payment and you must have made 6 on-time monthly payments. With that, if there are new rules under the VA and Ginnie Mae that if you go over 90% of the value of the home, the interest rates are slightly higher because the cost of money is greater and the risk to the lender is bigger.  

To greater protect veterans, the VA put rules in place that require veterans to have a net tangible benefit in order to do this. In order to do the loan, you must be able to 

• Eliminate MI or PMI 
• Shorten the term
• Lower the interest rate
• Lower the principal and interest payment 
• Increase monthly residual income
• Refinances or pays-off interim loans (i.e. construction)
• Maintain less than or equal to 90% of the reasonable value
• Refinancing from an Adjustable Rate Mortgage (ARM) into a Fixed Rate Mortgage

There are many reasons to use your VA home loan benefit to save money!

Andrew Vierra, VA Home Loan Specialist and Branch Manager with WealthWise Mortgage Planning and VALoansOfCalifornia.com, discusses how you can use your VA home loan benefit to refinance out of your FHA loan into a VA loan. 

One of the challenges that we see when veterans try to use the VA home loan benefit to buy a home is many people in the financial and real estate community are unfamiliar with how the VA home loan benefit works. 

When you talk to your real estate agent or financial professional about using the VA home loan benefit, they may start off saying that they can help you, only to ask you if you have some money set aside so they can put you in a FHA loan. It’s possible they may mention that people don’t like working with the VA home loan program because they believe there’s a lot of challenges with it, thus deterring you from using your VA home loan. 

If you were to answer yes, and mention that you do have money to put down, more often than not you will be put in a FHA loan. Why? Because sellers are more comfortable with this loan and they tempt you with the idea that you may be able to get into a home much faster.  So you bite the bait, because you’re ready to buy a home now. 

Now you’re in a FHA loan, you have bought your home and you move on without understanding the challenges you may face down the line because you are not using VA. 

For example, let’s say you were buying a $300,000 home. If you are eligible to use your VA home loan benefit and you chose FHA instead of VA, in the first three years, between the required down payment and monthly mortgage insurance on the FHA loan, you will pay almost $20,000 more out of your pocket using FHA than VA. 

Although you are in FHA, you can use your VA Home Loan Benefit and refinance out of your FHA loan! By doing this, you will also eliminate the monthly Private Mortgage Insurance and depending on the value of your home, you can potentially get back the down payment that was required. And theoretically, even if interest rates are higher on the VA loan than your FHA loan at the time, by getting rid of the monthly mortgage insurance your monthly payment will decrease.  

If you are eligible for the VA home loan, you can benefit from looking into this to see if it makes sense. In order for you to refinance from FHA to VA, you must:

• Wait 210 days after the first mortgage payment to when the new loan closes. 

• Made six on time monthly payments 

We can do a new VA loan up to 100% of the value home.  It is similar to you buying the house and putting no money down. If you used your VA home loan benefit to buy when doing the new loan you now can take out 100% of the value. 

The biggest thing is to look at your current situation. Send me a copy of your current mortgage statement. It’s going to show me everything that I need to know so I can do a quick calculation to see if it makes sense for you to refinance into the VA loan. There’s no cost associated with doing calculations either and if it doesn’t make sense, you do nothing. But if it does, you could be saving a bunch of money every month!

Andrew Vierra, VA Home Loan Specialist and Branch Manager with WealthWise Mortgage Planning and VALoansOfCalifornia.com, discusses the VA service-connected disability, its role in the VA home loan, and how your California County Veteran Service Officer can help. 

When you use the VA home loan benefit, the VA charges a VA funding fee. The fee isn’t required to be paid upfront and it’s not anything that you have to write a check for. That fee is rolled up into the loan, and it’s financed. The fee itself varies based on how many times you have used the VA and how much money you put down.

If you put down no money, then the fee is 2.3% of the loan amount if you’ve never used the benefit before. But if you’re receiving VA Service Connected Disability pay, the fee is waived.

But say that you’re not receiving VA disability, and you thought that you should apply. If you contact your California County Veteran Service Officer and start your claim prior to closing on your home loan, and you end up getting your disability granted after closing on the loan, you are eligible to receive a refund for the fee that you paid. That could be quite a substantial fee!

For example, if you were going to buy a $400,000 home and put no money down, the fee is 2.3% if you haven’t used VA before. That’s $9,200 that potentially could be refunded to you after closing of escrow. Now there are a lot of different details that go into this.

So if you want more information, you can Google to find out who your CA County Veteran Service Officer is. You can reach out to me because I have the contact information and I can provide that to you. Or if you want more details on how to go about starting your claim, you can contact the VA directly at 877-827-3702

So there’s a lot of ways to get the information. But if you’ve ever thought about applying for VA service-connected disability and you’re going to use your VA home loan benefit, it’s a pretty good financial incentive to start the process.

If you want more information on this or anything else on a VA home loan, you can reach out to me. Please don’t keep us a secret. Tell your battle buddies forward this information to them and the one thing I tell people all the time:

If you’re thinking about using your VA home loan benefit, the answer is no if you don’t ask, so please, just ask!