Paul has had a lot of questions from listeners & clients about VA loans recently, so he decided to bring in an expert as a guest this week – Karly Rosalez. Karly is a Mortgage Loan Originator at The Money Store, and is a specialist in VA loans.
Karly explains what a VA loan is, who can use a VA loan, and what the qualifications are to get one. Karly tells us what the benefits of a VA loan are, what fees someone still incurs when using a VA loan, answers the question “Will my payment be higher with a VA loan?”, and shares all the details that you need to know!
This show is filled with very valuable information for anyone considering purchasing a property with a VA loan. Tune in and learn more!
Farm Talk: Lets Talk About VA Loans with Karly Rosalez!
Paul Ward: Today, I’m excited because we have a guest, we’re talking to Karly Rosalez with The Money Store. Karly, you are a specialist, I would say, in VA loans and I’ve had several people inquire lately about VA loans. Rather than me just kind of spouting off what I know and giving misinformation, I thought it’d be best to have an expert. We’ve got several questions here from listeners and I wanted to ask you those questions and see if we could share some good valuable information. First, for those that don’t know, what is a VA loan?
Karly Rosalez: A VA loan is a mortgage program or option for active or discharged veterans, for every branch of service. Whether it be the Marines, Army, Air Force, Navy, National Guard, Reserve; as long as you have been part of a branch of service and been discharged or honorably discharged or are currently active, you can utilize this program. It is only for you and a spouse, must be a married spouse, which is the most important piece. Some people forget that.
Paul Ward: Okay, so not your mom or dad or your kids.
Karly Rosalez: Or even girlfriend or fiancé, it does need to be a spouse. You can have two veterans that are married obviously take advantage of the program as well.
Paul Ward: Oh, interesting. Now I’ve heard that with VA loans you can buy a home with no money down. Is that true?
Karly Rosalez: That is correct. And actually, the best part of the program, ultimately you can go in with what they say 100% financing. Obviously, there are closing costs involved, but that’s the biggest piece that the veterans can take advantage of is not having a down payment. You have the option for a down payment, but it’s not required.
Paul Ward. Okay. Now what are those fees typically run? Are they cause a small percentage of the purchase price? Is it a flat fee? How does that work?
Karly Rosalez: For closing costs it’s any standard fees for any purchase. So, it’s nothing out of the ordinary, it’s your standard lender fees – which is according to each bank, direct lender or broker, whatever they may charge. And escrow and title fees, and also your prepaids; which include property taxes, insurance to create that impound account so then you have the taxes, insurance impounded and ready to go for when they’re due two times a year.
Paul Ward: Okay. Now, in terms of a monthly payment; let’s just use general numbers. Let’s say I’m buying a house at $500,000, and not to put you on the spot here, but if I’m putting 20% down versus putting 3% or 0% down, I would imagine the veteran’s monthly payment would be larger than the traditional buyer that’s putting 10 or 20% down. Is that correct? Would their monthly payment might be higher?
Karly Rosalez: Well, it all depends. You can assume that yes, because you’re going to have a higher loan amount. But you’ve got to keep in mind, VA loans had the most attractive interest rates, so you’re going to have a better interest rate on a VA loan, again depending on credit scores, in comparison to someone who may have 10% and have mortgage insurance. If you have somebody who’s obviously putting a large down payment with excellent credit, then yes, VA could have a higher payment. So, all different factors and parameters that could impact what your monthly mortgage is going to be depending on each program.
Paul Ward: What is mortgage insurance?
Karly Rosalez: Mortgage insurance is an additional insurance for any loan that is less than 20% down. But you’ve got to keep in mind the VA loans, which are directly through the Veterans Administration, do not require or charge mortgage insurance monthly. That’s a huge factor when it comes to the VA loan as well. Because again, it’s zero down payment minimum required and also does not have mortgage insurance. You go with any other loan like a conventional loan or an FHA loan for instance, with less than 20% down, you’re going to have mortgage insurance that can easily add anywhere from $100 to $400 a month to your monthly mortgage.
Paul Ward: Oh well that’s pretty, that’s pretty considerable. Now do the lenders worry about VA loans being foreclosed upon? Because if I’m putting 0% down or 3% down and I walk away from the property because I don’t really “have much skin in the game”, how does that work? Does the bank worry about these loans being foreclosed on?
Karly Rosalez: Keep in mind, it is a government program obviously and the VA administration guarantees 25%, so that’s a huge part of it. The VA will be the ones who are guaranteed 25% up to each counties loan limit. For instance, in LA County where there’s a loan limit up to $726,000, you can do still 0% down payment or 100% financing and VA will guarantee 25%. If for instance, you go above $726,000 or the County loan limits, you as a borrower will have to bring in that 25% guarantee in a form of a down payment. There’s a certain calculation to it. That’s where we’ll sit down with you, if you do go above that County loan limit, to let you know what your minimum requirement would be to ensure that that loan has the 25% guarantee.
Paul Ward: Oh, interesting. Is it a longer process to apply for a VA loan? Let’s say I’m going out and I’m looking at houses and I think that I’m going to find the right thing here and I’ve just been out on a Sunday stroll – not that we recommend that you go look at houses before you’re pre-approved – but does it take longer to get preapproved for a VA loan? I would imagine you’re dealing with a big government bureaucracy and it can take weeks or months to get approval. How does that work?
Karly Rosalez: No, and keep in mind we’re a direct lender. So we’re going directly according to the guidelines of the VA administration and what they allow or don’t allow. We will pre-approve you and that’s a standard process, as any other loan would be, whether it be FHA or conventional or jumbo. It’s all a standard preapproval, so it shouldn’t take any longer than any other.
Paul Ward: Oh, okay. Great. So, you’re a direct money lender, so you’re actually, in some cases, lending your own money.
Karly Rosalez: Correct.
Paul Ward: I know you can’t give an exact figure and of course it’s always changing. What are the VA loan rates, if you could give a range typically for this period of time? (November 2019)
Karly Rosalez: Rates today, for example on a 30-year fixed VA purchase (again, depending on credit because, keep in mind, credit scores is a huge impact in regards to the interest rate that we can offer) can range anywhere from let’s say 3.25 to 3.75 would be a standard range depending on the credit score and the loan amount. It’s always best to give us a call and ask us to go over a scenario. Give us a hypothetical scenario and we can give you an idea as to what that interest rate and monthly payment would be based on the credit score and information you give us.
Paul Ward: Okay. That seems really reasonable compared to some of the other conventional loan amounts.
Karly Rosalez: Yes, it’s a great program. Zero down, flexible credit, flexible ratios. They want to do what they can to offer our veterans who served our country a great program to have the opportunity of home ownership. So if they’re eligible for the program, I strongly suggest utilizing it. The one thing I do want to obviously let all veterans know as well, and realtors as well, there is what’s called a funding fee (FAJ). Well, any government program also has a funding fee. This is going to be based off of your loan amount times a certain percentage, depending on if you’ve used it for the first time or the second time. It is not something you have to pay in cash, it can be financed back onto the loan, but it’s just something you need to be aware of so you’re not so have any surprises throughout the process.
Paul Ward: Gotcha. Is this a few hundred dollars? Is it a few thousand?
Karly Rosalez: It’s a good few thousand dollars and it’s going to again, be based off of the loan amount times a certain percentage, and then you add it back on to the loan. Will it make much of a difference on the monthly payment? No, it’s not a huge difference.
Paul Ward: It’s like your coffee for the month. Now, strategy-wise, if I’m a VA buyer and I’m approved for 0%-3% down and I’m competing with other buyers, here in Southern California, you’ve got people that are putting 10% down, 20% down, 25% down. How do you compete as a buyer? You’re preapproved, but you’re putting less down. How do you convince the other party, the seller and their agent, to accept your offer? Because if you back out of the deal, you might not have even that much money into an escrow account. Another party might be putting, $5,000, $10,000, $20,000 into an escrow account and the seller is going to think, “Gosh, if this person backs out I might have 20,000, whereas the VA buyer, they only put down a thousand.” How do you make that argument, beyond just a patriotic argument, to a listing realtor and the seller?
Karly Rosalez: Well, the good thing with the VA loan, it’s a longer process It’s not going to be any different of a process for approving and qualifying alone and closing a loan. So, it shouldn’t take any longer than any other standard loan. Therefore, it shouldn’t be treated any differently. For us, again, it’s just one first mortgage. For instance, if you’re doing conventional, you’ve also got to go through the mortgage insurance approval, so it’s a double approval process. That’s where ours could be a little bit more streamlined in comparison. Another factor we always tell our veterans is to write a letter, let them know about the service that they’ve done. Like you said, it’s a patriotic country. It always goes a long way because people will make a decision based on who they’re going to give their home to that they’ve lived in for the last 20 years and they want to go ahead and give it to someone that’s served their country. So, that is huge. And bottom line, the seller’s going to get the same net at closing if they have a conventional loan versus a VA loan. A qualified VA borrower is the most important piece as well. You want to make sure they’re fully qualified because you could have a conventional buyer who’s not qualified or not fully prepared and a VA. So, it just really depends on making sure you have all your ducks in a row and communicating with that seller.
Paul Ward: That’s a good point. Also, can you buy a fixer upper or a house that might not be fully inhabitable with the VA loan? I know with some other loan programs like FHA, they’ve got a lot of stringent guidelines in terms of making sure the house is safe and inhabitable. With the VA loan, can you buy something that needs a little bit of work or do you have to buy something that’s only considered move-in ready?
Karly Rosalez: Well keep in mind. all programs – conventional, FHA, etc. – are going to look for health and safety issues. VA is more particular in regard to the condition of the property. Their point of view is we want our veteran to move into a house that is move-in ready so we do need to make sure there are no health and safety issues or anything that will be an issue. That’s something that I suggest you communicate with your lender and communicate with your seller in regard to what is maybe an issue or not and see what we can do prior.
Paul Ward: Gotcha. But cosmetic things don’t matter, like purple carpet?
Karly Rosalez: No, not at all. If it’s soiled, that’s an issue, but I think that’s an issue across the board, right? But we don’t care about the colors of the wall or the carpets, so we’re fine there.
Paul Ward: Do VA loans do a units count? Like if I was to be kind of an investor-owner, just one to four, so I could move into one unit as owner occupied and still rent out the other three. Would that qualify under the VA guidelines?
Karly Rosalez: Correct. You can purchase one to four in a VA program but keep in mind it is a primary residence program only.
Paul Ward: So, you have to live in one of the four but you don’t have to have family members in the other three, you just have to live in one and then you can rent out the other three.
Karly Rosalez: Correct.
Paul Ward: Oh, that’s great. And that would still be that low interest rate or would they go up a little bit?
Karly Rosalez: Yeah, they’ll change a bit. When you’ve got units and you’ve got different factors going into the equation, interest rates will change a bit, but not drastically.
Paul Ward: Okay. Well, this has been very helpful. Karly, thank you so much. Do you operate throughout California or is the money store all over the United States?
Karly Rosalez: We are a nationwide company based out of the East Coast. We’ve been around for the last 40 years. I am personally licensed in just the state of California. So, if need be, obviously cause we do have a lot of veterans that get moved or relocated, we can always connect them with somebody within our interstate lending department.
Paul Ward: How would somebody go about reaching you?
Karly Rosalez: They can call me directly on my cell. I’m available anytime via cell phone or text message. And that phone number is (805) 302-8224.
Paul Ward: And do you have an email too?
Karly Rosalez: Yes. Best email would be firstname.lastname@example.org.
Paul Ward: Great, well thank you so much. This has been very informative and hopefully our listeners will find it useful.