Helping Mortgage Clients Understand the VA Home Loan

Your service member clients will rely on your knowledge and expertise. Here’s what mortgage pros need to know.

Last year alone, more than 400,000 home loans were guaranteed by the U.S. Department of Veteran Affairs. That’s a lot of VA home loans, and a lot of service members helped.

But how many of those now homeowners know the ins and outs of their loan product? It’s no secret that the VA loan is unique and sometimes complicated.

That’s where you come in. As a dedicated mortgage professional, part of your job is growing borrower education. That includes helping mortgage clients understand VA home loans.

Here’s just how to get started:

Clarifying VA Home Loan Eligibility

There’s no point in a borrower getting their hopes up if they just don’t qualify. So, you’ll want to start with some information gathering.

Explain that veterans, service members, and their surviving spouses may be eligible for a VA loan to buy, build, improve, or refinance a home. As you know, eligibility varies based on service history, duty status, character of service and discharge, and possibly other factors as well, so you’ll need to ask about each relevant factor.

If they do appear eligible from a service standpoint, don’t forget to stress that they’ll still need to meet credit and income requirements, too.

Explaining How VA Loans Work

Now, if you have a client who’s interested and seems eligible, you’ll need to walk them through how this mortgage product works in depth.

Remember: While you work with these concepts each and every day, the average American isn’t in the same boat. Go slowly, be thorough, and pause often to answer any questions.

Start by explaining the different categories of VA home loans. Here’s a sample script you can use:

“Your hypothetical VA home loan could fall into one of two categories: VA direct or VA-backed.

With a VA direct loan, the U.S. Department of Veteran Affairs is the mortgage lender.

With a VA-backed home loan, borrowers use private lenders, but the U.S. Department of Veteran Affairs guarantees a portion of the loan. That means there’s less risk for the lender and the borrower may get better terms as a result.”

 Then, walk through the four main VA loan types together:

Purchase loan

Explain that a VA-backed purchase loan may offer better terms than a loan from a private lender.

Cash-out refinance loan

Clarify that a VA-backed cash-out refinance loan allows borrowers to cash out the equity in their home in exchange for a new home loan with different terms (that is also usually larger than their current loan).

Interest Rate Reduction Refinance Loan (IRRRL)

If your clients happen to already have a VA home loan, explain that this allows them to replace the current loan with a new one with different terms (i.e., to take advantage of a lower interest rate or move from a loan with an adjustable or variable interest rate to a fixed rate).

Native American Direct Loan (NADL) program

Clarify that this program is for veterans who are Native American, or their spouse is Native American and offers a loan to buy, build, or make improvements to a home on federal trust land.

To wrap up, be sure to mention that most VA loans don’t require a down payment or private mortgage insurance (PMI). Borrowers need to understand that this might mean they won’t have to pay for extra costs such as processing fees, pest inspections, and real estate broker/buyer fees. Finally, add that origination (lender) or appraisal fees are sometimes waived but are often limited or paid at closing instead of upfront.

Gathering VA Home Loan Talking Points

At the end of the day, the VA loan is one of the most powerful mortgage products on the market. But it can be highly confusing to consumers.

That’s why it might make sense to have a few prepared talking points, covering some important but potentially confusing factors, ready to go.

You can make a mental note of each one or, for bonus points, create a branded hand-out your clients can take home and study up on,

Here are some of our top suggestions:

• The Funding Fee. This is paid by the qualified borrower since the VA home loan program doesn’t require down payments or monthly mortgage insurance. This one-time charge allows the VA to offer advantages to its’ service members, veterans, and their families.
• The Certificate of Eligibility (COE). This is the documentation required for a VA loan. Borrowers do not need to have their COE to start the home loan process and can obtain this documentation in numerous ways, including their eBenefits portal.
• Qualifying property types. Not all types of property qualify for a VA loan. Lenders will be able to give insight into each borrower’s unique situation, but most condominiums, manufactured homes, modular homes, and new construction homes are approved while vacant land and co-ops are not.
• No one is guaranteed a VA loan, even with VA entitlement. To determine their eligibility, borrowers should check the minimum service requirements and the borrower will still need to qualify for the loan.
• Overall cost. Borrowers without a down payment may spend more over the life of the loan. Simply put, the lack of down payment will typically be rolled into the mortgage loan and interest will be charged.

Wrapping Up: Helping Mortgage Clients Understand the VA Home Loan

The VA home loan is a particularly powerful path toward homeownership. That’s why your service member clients need your time, attention, and expertise.

By simply covering eligibility in depth, explaining how the loan works, and following up with a few key talking points, you can do the important work of both growing borrower education and giving back to those who served.

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