Michael Oursler, Chief Credit Officer for NewDay USA, hosted a webinar [1] and discussed the benefits and complexities of utilizing VA loans.
NewDay USA specializes in loan origination for veterans, as more than 90% of originations are VA loans. Ourseler said the current VA system is a “benefit to the veterans.”
Oursler said both FHA and VA loans serve different purposes. He said FHA loans were designed to offer housing for people who can’t qualify under normal requirements, and that VA guidelines and programs are “very flexible.”
He added that VA loans allow lenders to make logical decisions if a credit risk is low, “regardless of how it looks on paper.”
According to the VA handbook, Oursler said the VA guaranty is 25% of the loan amount up to the county limit. The guaranty is the amount the VA may pay a lender in the event of a loss due to foreclosure.
He also said that there are special calculations for loans less than $144,000 and for gauranties higher than 25% of the loan amount.
There is currently no maximum number to the amount of active VA loans or loan amounts that can be held, but there is a maximum to the entitlement and guarantee.
Oursler said it is important to understand the Certificate of Eligibility (COE) issued by the VA, as it details how much entitlement a veterans has. The COE can also be reduced due to any active entitlement that has not been released.
“A vet can lose entitlement if they have a prior VA loan that were to go to foreclosure, short sale, acquisition ... any case where they VA would have had to have made a payment, they will hold that entitlement against the veteran for future loans that would then limit how much entitlement and guaranty the VA will issue for them in the future,” Oursler said.
Oursler also said it is important for underwriters to order a COE “as quickly as possible” to see how much the veteran guaranty is and what down payment is required.
He also said the application has been automated and 80% of the information can be pulled automatically.
As far as pay structures, Oursler said down payments for veterans range from 0% to 9.99%. Disable vets do not pay through the VA funding fee.
Another benefit to the VA loans is that 4% is the maximum seller concessions, compared to 6% through an FHA loan.
Oursler did add that the recently signed Blue Water Navy Bill, which goes into effect January 1, 2020, increases the benefits for veterans of the Vietnam War affected by Agent Orange. The bill also removes county loan limits and updates the VA funding fees.
Oursler said it is critical that professionals within the VA space pay close attention to this bill over the next few months. He said the bill may increase funding fees by 0.15% to 0.30%.
In regard to bankruptcy, Oursler said the VA will disregard it when applying for a loan if the veteran as discharged more than two years ago. He said the VA has guidelines in place if discharged between one and two years.
He added that some of the common issues that may arise when dealing with VA loans are: auto payment issues while deployed, fraud, redeployment and multiple moves, the transition from active duty to civilian, and the delay of disability receipt.