– Hey, how you doing? Emmett Dempsey, Treasure Coast Mortgage. Today's video is gonna be a in
depth dive into the VA loans, will be your guide for 2021. From start to finish, all the
highlights of the VA loan. And the VA loan is very
special to me personally, because I'm a veteran and
I have a VA loan myself. I love helping other
veterans with their VA loans, and this guide will help answer some frequently asked questions about the VA loan from start to finish. So let's go ahead and take
a look at the VA loan, okay. VA loan requirements 2021 complete guide. Again, you know, here's Captain
Dempsey back in the day, just quite a few years ago. Airborne rigger and lets move along. So the VA loan highlights. So what makes up the VA loan. Allows eligible veterans and others to buy home with 100% financing,
which is awesome, okay.
Allows you to refinance cash
out up to 100% cash out. I know I just did one myself. So it's definitely a great loan. No mortgage insurance, which is huge and I'm gonna show you why that's huge compared to other
different types of loans. Very low rates due to
the government guarantee. It has a funding fee,
which is not so great. And as well as refinance and
streamline programs available called the IRRRL, Interest
Rate Reduction Refinance Loan. Okay, and currently it's about
10% of the mortgage market in which is expanding. We want to make sure that all veterans take advantage of their
VA loan benefits, okay.
The history of the VA loan. All right signed into law by FDR in 1944, even before World War II even ended. It was part of the original
Serviceman's Readjustment Act, better known as the GI Bill of Rights. It was meant for those
who fought in World War II to come back to the United States and to be even with their
civilian counterpart, as far as building credit,
getting home ownership, things of that nature, okay. At the outset 1944, the VA Guarantee was about
$2,000 with a 50% guarantee. But the average home price
back then was about $8,600.
So don't we wish that homes were $8,600, but not so much, okay. Initially the program was
only for World War II veterans and they only had five years to use it. So, and then over the years
with different conflicts in Korea, Vietnam,
Persian Gulf, et cetera, it resulted in further congressional acts over the years, over the decades in order
to expand to the VA program that we have today, okay.
Who qualifies for a VA loan? First a veteran who is not
dishonorably discharged. So the guys in "A Few Good Men" they couldn't get a VA loan. Served 90 consecutive days
on active duty in war time or serve 181 days consecutive
days during peace time. Or you can serve six years in
the national guard or reserves or be the surviving
spouse of a service member who died while serving, or have a service connected disability. Entitlement, DD214, COE, oh my. So let's go and take a look at that. You start with your DD214 release
of discharged active duty. And for those of you who know, most veterans know what this document is. Here is my DD214. I had redacted that, but basically this is what it looks like. You're gonna come down here
to the character of service, honorable discharge,
release from active duty. This is service, the number two document, because a lot of times
you get copy number one, this is copy number two. You want your service document that shows the character of service in
order to get to your COE.
So you're gonna need that. And what happens is
you'll get this document. Here's the COE I got for my last refi. Army, funding fee, status non-exempt. Veterans basic entitlement is 36,000, and we're gonna go over all that stuff right here in a minute. And a veteran must pay a
subsequent funding fee. And here is a COE of a
redacted client of mine. You can see that there's prior loans charged to his entitlement, we're gonna go over how all of
that factors in, in a minute.
It basically says the veterans
basic entitlement is zero, we'll go over that in a minute, but here's exempt with monthly award. So basically what I do, I usually pull these COEs for my clients so they don't have to go to
the VA or anything like that. But this is just what
these documents look like in case you've never seen them before. Your DD214 and your COE. Okay, let's go back here. You get your COE for your mortgage broker, that's me, you know I can pull it for you. The program is administered by the Department of Veterans Affairs, however they do not lend money. The VA does not have a bank. What happens is different
banks loan to veterans with a guarantee by the VA. What it is the VA guarantees
a portion of the loan against default risk.
So it allows lenders to
lend at attractive rates because they're protected
from their losses. So they're allowed to offer that you basically with no down payment, but 25% guarantee. The guarantee is called a VA entitlement. Like I said, over the years, it's changed. It was 50% when it started,
you know, now it's a 36,000, your basic entitlement, as I showed you on your COE. And 25% of the loan amount up
to the conforming loan limit. So effectively, it's basically like
making a 25% down payment, whereas a conventional loan
with no mortgage insurance is 20% down. Whereas a VA loan effectively where the banks look at is a 25% down loan because to them they're gonna
get their 25% no matter what.
So they're gonna have
that cushion of equity so they're allowed to lower
their risk and offer these loans and offer the mortgage liquidity to make the VA program work. Entitlement loan limits. Wait a minute 36,000, is
that the only loan I can get? No, no that's just the way that the VA. And basically if you figure
25% and 4 times 4 divided by 4 is kind of how I always
liken the VA program. No, that's the basic entitlement and VA loans have secondary
or bonus entitlement, which is tied to the
conforming loan limit. We're gonna go over that in a second. The basic plus your secondary equals your full entitlement. And then, so whenever you say, well my basic entitlement is 36,000 plus whatever the
secondary entitlement is, depending on the conforming loan limit equals your full entitlement. Currently the conforming
loan limit in for 2021 is 548,250. It's been going up over
the last few years.
I remember I've been
doing loans since 2007 and it's been 417,000 for
years and years and years. And then it finally started to thaw out and raised to meet the market. To calculate the full entitlement. Basically you divide the current conforming loan limit by four. So here's that calculation. You know, it's 548,250
divided by 4, 137,063. So, you might see these
numbers thrown around there so that's how we arrive
at your entitlement. And I'm gonna go over further on in the video about that. Also just want to stop you, go ahead and like this video, it really helps the YouTube
algorithm find my videos and if you haven't already,
go ahead and subscribe. All right, let's go and
take about the loan limits and the closing cost. VA loans have no loan limit. That was recently changed. I think it was the Navy blue water act, something along those lines where effectively you
have full entitlement, there's no loan limit
even with no down payment. So that's a huge, huge benefit. But you must have full entitlement to go over the conforming
loan limit, whatever it is. However lenders, I consider anything above
the conforming loan limit a jumbo loan, and they have pricing add-ons or overlays, basically minimum FICO scores.
It might make it a little bit harder because it is a lot of money. So even though it's insured, it's still a big, big
loan that they're making and then there are certain
high costs counties. I know out in California, Virginia, certain high cost counties, up to 822,375 is their limit. And there's no down payment required, but it can affect your funding fee. And closing costs are
standard for the state. You know, even though
it's a zero down loan, there is cash to close with
closing cost and prepaids. I know the state of Florida
there's no state income tax, you have to pay the taxes, the dock stamps for every mortgage has
them here in Florida. So there are closing costs to be paid, even though the down payment is zero, but your cash to close
consists of your down payment, closing costs and prepaids. Let's go and talk about the funding fee. The fee goes to the Department
of Veterans Affairs, sorry there is a typo, to help cover losses
from the entire program. So the funding fee goes to the VA to help cushion default
for the entire program throughout the country.
The fee is required unless the veteran has a 10% or more service connected disability, but you can also finance this fee. So it's not like you're paying it out of your pocket. And here is the funding fee chart. It all depends on how many
times you use your VA loan. Because if you use them more than once, then you can pay us at what's called a subsequent use funding fee. So you put nothing down your fee is 2.3%. Okay if you put down 5% or more, that fee lowers at 1.65, and then 10% or more 1.4. So if you don't want to pay
as much of the funding fee and if you have some
cash you wanna put down, go ahead and I will go and run numbers and see what it is,
whether it makes sense. But the more you put down, the less you're funding fee. What are the credit requirements? Basically VA in 26-7, which is the document
that it's governed by, has no debt minimum requirement. No minimum FICO. Generally the minimum is FICO is 500 and as a mortgage broker, I have certain lenders
that will go down into 500.
A lot of your mortgage banks they won't go below 620, or even 640. So that's kind of where their cutoffs are. As a mortgage broker, I can
definitely go lower than that. So one of the most lenient
types of the major loans, that's huge. But your best rates are
generally for 640 or above. Credit event wait times. You don't wanna be this
guy with an empty wallet, so folks going through the housing crash, they had to have
foreclosures and wait times. And here's the credit event
wait times for the VA. Foreclosures about two years. Chapter 7 and 11 bankruptcies, two years. Chapter 13, one year. Short sales, two years. A deed in lieu of foreclosures, two years and a cured default as well is two years. So you might see guidelines out there about extenuating circumstances. I have never seen an
underwriter accept them ever. So they even say it with job loss, but like for 2008 and things like that, even 2020 job loss happened to everybody. I have never seen an underwriter
ever giving the leeway to approve it so I just
don't even go down that road. I would just ignore the
extenuating circumstances.
But even so the VA wait times
are about a year shorter than your FHAs. 'Cause usually your FHA
will say three years, whereas conventional
foreclosures like seven years. So it's definitely easier to qualify. All right student loans. This is a big issue. I know there was recently
some good guideline changes for FHA, I just did a
long video about that. But VA is pretty lenient on the way that they account for them. We still have to account for deferred student loans, just
like conventional FHA whatnot, but however, VA loans
account for it differently. If you have written evidence that but the loan is gonna be
deferred for over 12 months, a monthly payment is
old-school just ignored, like the way all deferred
student loans used to be. But if not then we calculate the loan at 5% of the loan balance divided by 12. Even so let's say a $25,000 balance times 5% divided by 12
it's $104.17 a month. Still better than 1% conventional, or half a percent Freddy. And I think FHA just went down
to half a percent as well, but it's still your VA, again, wins out in the way they calculate student loans.
Interest rates. The interest rates on a VA
loan are very, very attractive because of the VA entitlement guarantee. Cause like I said, it's akin to putting down
25% in the lender's eyes. Since the VA loan is guaranteed by the federal government, rates are extremely attractive and they're lower than conventional loans. I'm gonna show that in a minute. They're similar to the FHA rates and however, there's
no way MI like FHA has. And I'm gonna show you
how that really plays into play in a minute.
Brokers don't have better rates, the lenders can overcharge. There's been a lot of controversy
and a lot of prosecutions about lenders overcharging veterans. Definitely needing to shop around, like your major, you seen them
on TV, your veteran lenders. Do your shopping. Even your major banks
on your military base might not always be the best. Definitely shop around and
get a loft loan estimate. So you can definitely look. Those loans are more because the other ones
are highly profitable for mortgage lenders, and some have been prosecuted for abuses. So we definitely make sure our
veterans are taken care of, that's why I kinda, I love working with veterans and make sure that they're taken care of and they're getting the best possible deal that they possibly can
so they can do that. Definitely get a loan
estimate to compare fees, worst case is a fee sheet, the best is get a loan estimate. You can compare and contrast and we can see where you can match or beat what you're being offered. All right, property requirements. Basically you must be
owner-occupied within six months. Like you can't buy an investment property or a vacation house with a VA loan.
You have to buy the house
you're gonna live in. But you can buy a one
to four unit building because technically single family homes are one to four units. They're not just one houses. So you can buy a fourplex, triplex. I haven't seen too many
in here in Florida, but I'm sure other states have more. If you can buy a duplex live
in one side, that's huge, and then you can kind of piggyback off of that house hack.
The standard for a VA is
safe, sound and sanitary. It depends on the property's location, new legal considerations. And I know that some areas of
the country that don't have central air so they take
that in consideration. It's like, okay, not every house has to have this cookie cutter. It depends on where it's at. Street access and who
does the maintenance, that's a big thing. Sometimes on dirt roads they make sure there's
maintenance agreements to make sure that those roads are usable. And another quirk about VA is that you have to have a termite report done, or wood destroying organisms,
is required on every VA loan and on a purchase that has
a seller has to pay for it.
Don't ask me why, but that's just one of
the quirks about a VA loan that's written into the guidelines. Have to have a WDO report. All right the appraisals. VA appraisals are handled
through the VA portal. There's a VA roster of appraisers and their assignment by them. When you requested an appraisal, it just does a round Robin and they get out there pretty quickly. In our market right now is pretty busy. The appraisers in general are busy, but VA turns them around and they have a certain standard that they have to get it back in time. Part of the same process as
conventional FHA appraisal. They just go out look at recent
sales within tight radius. The appraisal processes is to the same.
It's just, it's a Roth of appraisals, but one benefit of the VA
loan from a realtor side is what's called Tidewater. And Tidewater is a visual
when the appraiser says, "Look, I'm not gonna
meet this purchase price. So you realtors and folks need
to give me some good comps that I might've missed. I'm gonna give you a chance
to find me some comps to support your sales price. And then before I issue my final value." So they go forth. They send it up and then once the appraiser
is done with his report, he'll go ahead and issue it. All support is by supporting comps. The appraiser issues a notice of value. The appraiser issues the appraised value and then the appraiser
goes to the underwriter and then a government underwriter will issue what's called
an NOV or notice of value. The underwriter has to
agree with the appraiser.
You can say if they disagree
then the NOV won't be issued. One other thing I didn't
put on here is that you can also do a value
reconsideration request, and I've been winning these with the VA. So if we feel it's kind of
almost Tidewater part two. So I had one where Tidewater was called, appraiser didn't care he
just issued his value. I went to the VA service
center and was like nuh huh. This is what, here's my
supporting comps and we won. So, VA I've won more
appraisal battles with VA than with any other loan. All right, next employment. Again, to your job history, just like most mortgages, they will consider less than two years. They generally for any new employment, they want you to have at
least 30 days of pay stubs in order to be established
at your new job. And they're fairly lenient
when it comes to conventional.
Like I said, the VA
guidelines are fairly leaning towards the veteran to for
approval versus denial. All right, debt to income ratio. This is one of the number one things that all mortgages are based off of. Okay the acceptable max
for VA on paper is 41%. However, debt to income above 41% can be approved with good residual income. Now DTIs over 60% can be approved depending on residual
income and other factors. And we're gonna talk about
residual income in a second. What is residual income? It's the amount of discretionary income left over after all
major expenses are paid. VA also counts childcare
expenses under 13, if you have a large daycare
bill that can affect your DTI. And that's another unique
feature that's not so great about VA loans is that
there's a childcare letter you have to sign to say how
much your childcare expenses are and then it counts against you, all right. The residual income requirement. The requirement depends on what part of the country you live in. There's a under 80,000 chart, but all loans basically
these days are over 80,000.
So that's the chart we'll use. Depends on the size of your family here and it depends on where you live. So you have a family of
three in the south it's 889. It's not a huge hurdle to meet, but that's what we use
for residual income. So in order to go above 41%, you have to have to 120%
of the residual income in order to hit that. What is going on? Oh crap. Okay. Okay. Sorry I'm trying to get back on track. So residual income and the home you're buying factors into residual income as well. So we usually do utility expense times .14 for the home square footage. And for, let's say for
a 2000 square foot home, the charge is $280. So they factor all these items in the residual residual income. So in order for you to get
a higher debt to income, and the VA loan can go up to 60%. You can go, I've had some VA loans,
you know, 65% back-end DTI, but they had really good, strong residual income
in order to meet that. Manual underwriting. So another thing too, is like, what I've been talking about is, let's call it automated underwriting through Fannie Mae uses DU DO and Freddie Mac uses LP, or LPA rather.
So what happens if you get
approved eligible or LPA accept. So if sometimes they're on the bubble and what if they get a
refer eligible, you know, so it's not just a flat out denial, like a referral precaution. So VA allows a, what's
called a manual underwriting. So they look at your
income, your debt to income, and that government underwriter
can approve your loan and not have an automated approval. Which is a pretty cool rule. And then the guidelines basically just instruct the
underwriters to do their best to find a way to approve the loan. And usually the lenders
will write these guidelines about what they'll accept. All right, seller credits. Even though there's no
down payment is required, there's still cost to pay like closing costs and prepaid items.
And the VA rule, you have that 4% of the
sales price is a maximum. That's in addition to the normal discount points. So the max is not 4%, it's 4% plus whatever is
the normal discount points and the buyer's loan
related closing costs. Then compare that to the
conventional 3% and FHA is 6%. However the VA sellers
can even pay buyer's debts to help them qualify. So you can pay off a car with a concession in order to qualify. So
you can do that as well. But however, in 2021 I know in my market seller concessions are not
as prevalent as they were. If I had a couple of VA loans where the buyer pays all the closing costs and the concessions were only to help pay what they already paying. So they're not as common as
that as they were in years past when we have a softer buyer's market.
But as the market shifts that might be more prevalent. Special feature, two VA loans. So let's go and take a look at this here. And I kind of hinted at this in a minute and I did a video and it's pretty popular preview. Folks have been calling about it. Your next house has to be owner occupied. You check you're eligibility
to see charge entitlement, and then depending on
the county loan limit, we can determine the max
price with no down payment. So let's go take a look
at this example here. All right, so I showed you
a COE of this guy here, 73,375. So let's just say 269,069. So the current home,
let's just say 73,375. And this is just Excel I
use this for everything. So here's your basic entitlement 36,000. 101,163 and I backed into that. So I just changed the loan limit, and then just divided by 4 minus 36 and that's how you arrive
at a secondary entitlement and then it uses this.
So for that one I just showed you, here's a COE of this client here 73,375. And basically he has remaining
antonymous 63 times 4. You can buy the next house for 254,750. Let's say you wanted to
buy a $375,000 house. So here's that. So you have to make an 8% down payment. So this might not the best scenario, but let's just say for 3.5% FHA, but less down payment, but you also had the mortgage insurance as well as 5% conventional whatnot.
So let's just, you can kind of
play with these numbers here. So let's just say you
bought a $200,000 house and then you want to buy a 350 house. So it makes sense. Basically you gotta make
a $400 down payment, so that's not bad. But again compared to FHA it's always 3.5%
conventional 5% down 17,500 but you can see this is
kind of how it works. So it all depends on how much entitlement was charged against you
on your old property. And then for the next house, again has to be owner-occupied, so you can when you're leaving, you can rent out or maybe
be your vacation house, if you can carry both properties. Versus your new home, which
is that you're buying. So yes you can have more than
one VA loan at the same time. All right, refinances. All right refinances, you have your cash out and
your streamline is available. You also have your VA interest rate reduction refinance loan and of course, no income
documentation, no appraisal needed. It's very easy and cash out loans. Sometimes you can go up
to a 100% of the cash out, but it depends on the lender.
Because it used to be up
to 80% or somewhere 90%. I had multiple investors and I have ones that'll
go up to a 100% cash out. Loan churning of VA loans. And it was done by some mortgage lenders, but it was prosecuted by
the CFPB for good reason. In response some safeguards
were put into place for VA cash out loans, for
any kind of refinance loans.
A VA loan cannot be
refinanced for 210 days since the first payment. Have passed since the first payment and since mortgage
payments have been made. So it's really more than six months. It's 210 days from the first payment. So if you, we're in August. So basically your first
payment is October 1st. So you use October 1st plus 210 days. So that's when you're eligible and then just give me a call and then I'll do the day calculation and see when you're in
the window for that. And then any refinance of VA has to have a net tangible benefit and cash out is not
it's own benefit either. So you need to pay off
debt in order to increase your residual income in order
for it to get that cash out to fly through underwriting. All right, loan comparison. FHA versus conventional. All right, let's take a look here. All right, let's go to.
All right this is my mortgage coach. So as far as $350,000 purchase. So FHA 3.5% VA 30 year
fixed, conventional 3% down. So you can see that the rates
on VA and FHA are pretty good. FHA is slightly better and then a conventional
about a half a point or so higher than a FHA. And then for this one in 1994 payment FHA, the VA's 1838 and then the conventional 3% down is 1995. But how can that be? I mean putting down a
down payment on this one and you're VA still beating
them out to about $157 more. And the reason is 'cause
that mortgage insurance. So you go to the more info tab here. I just assume 150 for
insurance, 250 for taxes. But you can see this mortgage
insurance 236 on a FHA and that never goes away by the way. Then you also have the
conventional 3% down, but that'll at least fall off
when the property appreciates. And the VA starts up with none. The closing cost here, upfront mortgage insurance premium here, but it's a big old funding fee on the VA. And if your subsequent
use, that is a drawback. When you're looking at it,
you see that numbers like, "Ooh, that's pretty high." But it can finance it so
it's definitely worth it.
Even in this scenario, it's
high on that funding fee. At the end of the day
you're a bit lower payment and you're paying 10,000 out of pocket. This guy in a FHA is putting
22,000 out of pocket. And the guy for the conventional
is 20,000 out of pocket. So you're paying half of
what those folks are paying and your payment's better. So the VA in my opinion is
the best loan out there. I definitely, definitely
recommend it if you're a veteran to use your VA loan if you can. Let's go back here. All right, the seller
listing agent perception. A lot of listing agents
out there they advise, they have bad assumptions about VA loans and they assume that all of
the veterans put down no money.
They're risky borrowers. The VA appraiser is gonna
crawl all up in my attic and look at everything. It's like, no, they're not and the statistics bear it out. The VA loans are one of
the best performing loans and they default lower than
even conventional loans. I know we're in kind of a
crazy market these days. A lot of cash. A lot of property selling over lists and some sellers feel that
veterans don't have the funds and that's not true. So if you're a listing
agent out there listening, definitely take a VA loan. They're very strong loans and we can get them
closed quickly no issues. All right, how to apply for a VA loan. Definitely give me a call. You can shoot me a text
message at the number here. Go to DempseyMortgage.com. Get your DD214 together with
your character of service. Just like I showed you. Get your certificate of eligibility
if you happen to have it or I can run it down for you.
You complete your application. Shop at a few lenders, a bank, a broker. You get a loan estimate. Make sure that you're
getting the best deal. What I do, I always do find your max
purchase price you qualify for based on your income and
then we buy your new home. Well, that's kind of it in a nutshell. Hopefully that was an informative guide. Here's some more videos on my channel that you might find useful. Thank you so much for watching and I'll see you on the next one..
Sell your Home for a $5000 flat Fee Full service Soldier to Soldier
