VA home loans are generally very easy loans to qualify for if you’re an eligible veteran or service member. However, there are some things you may not know that can take you down a slippery slope, or at the very least cost you a LOT of money. Below are the top 5 things to avoid with VA home loans.
Opening New Credit
VA wants to be sure you have a fairly reasonable way of paying back the loan. Thus, lenders are required to qualify customers based on a number of criteria. The criteria can range from debt to income ratio (the ratio of total monthly debt payments versus monthly income) to Residual income, (how much income is left over after all monthly expenses have been made). Lenders will even go as far as impose credit scores minimums. With regard to ratios and residual income, your monthly debt payments are factored in and of obviously, the more debt you have the higher your monthly payments.
Now of course the lender pulls credit at the beginning of the process. So one would think that’s it. Not the case. Lenders will make one more “soft pull” before closing to be sure nothing has changed with the customer’s credit profile. If a customer has gone out and opened up new credit, this can have a drastic affect on not only the ratios and the residual income, but can also have an affect on the credit score. Any of this can drastically affect the approval and even cause a loan to be denied. If you can wait to open new credit, it will at the very least, save you some headaches down the road.
One of VA’s roles is to protect veterans/service members. One way VA does this is by assuring you purchase or live in a home that is of sound quality or construction. VA WILL NOT insure VA home loans if the home does not meet it’s standards. Although seemingly unwritten, it is a very common sense list. The list includes, but not limited to: mold, foundation issues, rotting wood, missing or distressed siding, chipping paint, cracked windows, missing decks or railings, missing shingles, and leaking pipes and water damage. In short, if the home suffers from issues related to health or structure, be very cautious before purchasing this property.
Lenders that are not LAPP Certified
What is LAPP? It stands for Lender Appraisal Processing Program. It is a process in which the appraisal is reviewed for accuracy and not over-inflated. If the lender is LAPP certified, they generally issue the Notice of Value within 24 hours (if it’s a VA specialized lender). If the lender is NOT LAPP certified, they will need VA to issue the NOV.
With all brokers and most mortgage lenders in America without LAPP certification, you can imagine the load this puts on VA to review the thousands of appraisals that come in each week. This can cause major delays in the appraisal process. Knowing appraisers can take up to 10 business days to finish their report, added to the time it takes for VA to issue an NOV, the entire process can take anywhere from 3 weeks to over a month. Not only can this cause you to miss your purchase contract date and result in the seller backing out and leaving you with inspection and appraisal costs, it could affect your rate lock as well.
Aside from brokers not being LAPP certified, there are other reasons they should be avoided. One, they are not actual lenders and as such, are not the decision makers in the final VA underwriting approval. In addition, brokers generally do less volume and are not specialized in doing VA home loans. Therefore, you can guess what kind of process you can expect from all of this. Add in broker fees on top of actual lender fees and you’re in for a bumpy ride.
This should go without saying. VA does allow lenders to charge up to 1% origination fee and quite a few lenders take advantage of it. VA however, did not intend veterans to be treated this way. The VA loan program was created to help veterans. Yet where other loans generally cost upwards around $1,000 in lender charges, the 1% origination can be THOUSANDS of dollars. That is an injustice to say the least. You put your life on the line for all Americans. Now some Loan Officer is trying to overcharge you for your loan? Factor in this as well. VA loans are one of the most profitable loans in the country without the origination fee. So why are lenders still charging them? Put your checkbook away. There are lenders that provide their services to veterans for free.
Apply here and save THOUSANDS.