Busting VA mortgage loan myths

There’s no higher honor than serving in the United States Military, which I deeply understand as a former Army sergeant. And, like many of my fellow service members, I’ve experienced firsthand the sense of missing out on a significant benefit we’ve rightfully earned protecting our freedoms — the VA mortgage loan — which stands as one of the most powerful tools that our nation’s veterans and active-duty military personnel can use to purchase a home and build long-term financial security.

Unfortunately, too many misconceptions persist among real estate and even mortgage industry professionals about the VA home loan, and those misconceptions have big (and negative) impacts.

Earlier in my life, I was directed away from using a VA loan when I purchased my first home. It cost me nearly $17,000 and from then on, I’ve made it my mission to prevent the same thing from happening to my fellow veterans. I’m here to debunk the myths and explain why every veteran and qualifying service member should embrace this well-deserved benefit and capitalize on the opportunities it presents.

To be fair, negative perceptions of the VA loan are often rooted in negative experiences in the past. The great news is that the program has undergone significant improvements, particularly after the Blue Water Navy Vietnam Veterans Act was signed into law in 2019. This act amended the Serviceman’s Readjustment Act of 1944, commonly known as the G.I. Bill. A lot has changed and it’s time to remove the stigma.

VA mortgage loans generally provide veterans and active-duty service members with more favorable terms than other loans on the market. A VA loan is a mortgage partially backed by the U.S. Department of Veteran Affairs, which is issued and serviced by authorized lenders. The VA makes a guarantee to the lending institution for 25% of the loan amount and the lender is responsible for evaluating the eligibility of the borrower.

Benefits can include:

• No down payment
• Competitive interest rates
• No private mortgage insurance (PMI)
• Limited or no closing costs
• Funding fee waived for service-connected disabled veterans
• More favorable credit criteria

Loan types

There are a number of VA loan options to meet the needs of today’s veteran buyers, including purchase and refinance. My favorite, and one of the most valuable and underutilized products in today’s low-inventory market, is the VA renovation loan. This product allows a homebuyer to purchase a fixer-upper and finance the purchase and renovation in one loan based on the expected appraised value of the home after improvements.  

Who is eligible?

Active duty service members with at least 90 days of continuous service and veterans who served on active duty and were honorably discharged meeting minimum requirements based on dates of service qualify for the VA loan. National Guard and Reserve members who meet certain criteria are also eligible.

 And now to debunk the myths:

• MYTH: VA loans take forever to close and rarely close on time.

REALITY: VA loans generally close in a similar time frame to many other mortgages in the market. A proactive lender with VA loan expertise will work with you to keep your closing on track.

• MYTH: There’s a limit to the loan amount for a VA loan.

REALITY: There is no limit. While lenders can set their own loan limits and loan-to-value requirements still apply, the VA does not set an absolute limit on VA loan amounts. And while the benefits of the VA loan create an incredible path to homeownership for first-time and lower-income buyers, veterans purchasing homes from all ends of the income spectrum can use the benefit.     

• MYTH: A VA loan can only be accessed once.

REALITY: The VA benefit can be used again and again — it doesn’t expire. There is no limit to how many times a veteran can use the program so long as a veteran is still eligible and has remaining entitlement.

• MYTH: You can only have one active VA loan at a time.

REALITY: Sometimes people need to finance multiple properties at once, as in the case of active-duty military personnel who receive transfer orders. While certain conditions and rules must be met, with a VA loan, it is possible to finance multiple primary residences simultaneously.

• MYTH: The appraisal process for VA loans is more stringent and difficult than conventional loans.

REALITY: The appraisal process is similar to conventional and other government-sponsored loans. The VA approves and contracts with local appraisal professionals to ensure a seamless process.

Always remember: Our nation’s heroes have made tremendous sacrifices. Don’t let outdated perceptions negatively impact their financial future. If your clients are eligible for a VA loan, steer them in the direction of a lender who has specific expertise with the product and works with the veteran community so they are well prepared to help ensure a smooth process.

David Smith is the VP of National VA Lending at loanDepot.