U.S. military veterans buying homes are missing out on some of the biggest benefits of having served in the armed forces.
That’s why Neil Brooks, president of veteran-focused mortgage company NewDay USA, wants to get the word out about what is available to them.
“The biggest barrier to veterans using their benefit is education,” he said. “We need to do a better job when people transition out of the military or even when they’re still in the military, letting them know about this benefit.”
Mortgage lender Nations Lending Corp. estimates that only 13% of America’s more than 20 million retired service members have ever used a VA benefit when purchasing a home, even though eight in 10 veterans are homeowners.
Brooks spoke with Homes.com about what misconceptions may be keeping veterans from claiming their benefits and how their service can translate into paying much less upfront. (This interview has been edited and condensed.)
What benefit is there to using a VA loan?
The major difference between a VA loan and other loans is that you have no down payment. The government acts, in layman’s terms, like a cosigner. It backs the loan. If you have an FHA loan or a conventional loan, you’re going to put down somewhere around 3.5% to 5%.
On top of that, if you have an FHA or conventional loan, you’ve got mortgage insurance, which can raise the price significantly. With a VA loan, you don’t need it. They have what they call a VA Funding Fee. The VA rolls that fee into the mortgage. The payments might go up slightly, but they don’t go up huge, so the veteran has more buying power.
There may still be closing costs.
Since the government is basically cosigning the loan, does it also guarantee it for the service provider?
The VA does guarantee a certain payout to servicers if that loan goes into default.
How many times can veterans use this benefit?
One of the big misconceptions that veterans have when they buy a house is thinking they can use it only once — like a first-time homebuyer (FHA) loan. This is a lifetime benefit.
Could they use it to start buying and flipping investment properties?
They can’t use it for investment purposes. Let’s say you’re a veteran and you own your home. And let’s say you’ve paid it off, then you can use your benefit to go buy another house.
Let’s say a veteran gets orders to move outside the state. That veteran can rent the current house and use what’s called second-tier entitlements to buy the next one. With second-tier entitlements, what they do is look at what eligibility is left. On the second house, the veteran may have to make a small down payment, but it’s usually a fraction of a traditional payment. There has to be a hardship to use those.
Are VA loans hard on the sellers?
There’s a key feature of the VA appraisal that benefits the seller called the "tidewater." It allows sellers and their agents to have actual input in appraisals before they are submitted. Before appraisers go out, they pull all the comparable sales and do their analysis.
If they feel the house is going to have difficulty reaching that selling point on the contract, they will contact the agent and the seller. They give them an opportunity to send supporting documentation for the price, such as upgrades the appraiser might not know about. They allow them to do that before they complete the appraisal. That’s a huge feature for sellers.
Do these benefits expire, or do they require one to have performed extra duty?
There’s nothing that can take your benefits away. The real problem is that VA loan benefits are severely underutilized right now because a lot of veterans don’t think it’s for them. A lot of veterans think you have to have served for 20 years. Many think you have to have combat experience to qualify. That’s just not true.
In general, if you were active duty and you were honorably discharged, you qualify. If you were in the National Guard, however, you need more time in service.
[According to VA.gov, service members need 90 days of active duty or up to 24 months of continuous service, depending upon the time period served. National Guard and Reserve members need 90 days of non-training active duty or six years of service.]
There are a lot of misconceptions out there. And it’s one of my missions to get the word out to veterans to use these benefits. There are some stats that show up to 58,000 transactions per year could have used a VA loan and did not. So that’s a lot of people.