The VA Loan Program

Dispelling Myths and Misconceptions

Charlie and I recently went through a training put on by the Veterans Association of Real Estate Professionals to obtain our Military Veteran Housing Certification (MVHC) designation. In this post I hope to dispel some myths and confusion regarding the VA loan benefit program and its origin, intention, and uses.

In 2010 the results from the National Veterans Survey revealed that 33.6% of Veteran respondents did not know about the VA home loan program, and 8.1% of VA eligible loan seekers had a REALTOR who discouraged the use of the VA home loan. I believe these statistics are a good representation of the population, as Charlie and I faced the same confusion and push back ourselves when we were seeking financing for a new home many years ago.

A brief history of the VA loan:

The VA home loan program was a part of the Serviceman’s Readjustment Act of 1944, which aimed to help Veterans buy homes when returning home after WWII. The program was conceived as a good alternative to a simple cash payment, as it would save the government money and better serve the needs of Veterans. As of 2017 there were over 740,000 funded VA loans totaling over 188 billion dollars in benefits!

What is a VA loan?

A common misconception is that the VA is a bank, and that the VA actually loans the money for and services the VA loan. The reality is, the VA simply guarantees the loan. The VA’s guarantee takes the place of the protection offered when a borrower puts a down payment or purchases mortgage insurance for a typical home loan. Most VA loans are handled by private institutions, and the VA simply provides the ability for the Veteran to obtain favorable financing options by guaranteeing the lending institution is protected from any future losses.

The loan is good for residences that will be purchased or constructed to be occupied by the Veteran, their spouse, or dependent children. Under some circumstances, condos and multifamily residences may qualify for purchase with VA loan benefits. You can find a list of eligible condos in your area here: Veterans Information Portal Condo Report. Or, find out more about VA multifamily eligibility here. The benefit may be used many times, and under certain circumstances an eligible Veteran may have more than one VA loan outstanding at any one time, on multiple residences.

How to find out if you qualify

It is vital to allow the VA to make the determination if the Veteran is eligible for a VA loan benefit. This is not a determination that should be made by a lender. Veterans should obtain a Certificate of Eligibility (COE) form 26-1880 directly from the VA. The COE is the official document that certifies if the Veteran is eligible for the VA benefit, and will indicate the entitlement, or amount the VA will guarantee on a loan, for each individual. The COE can be ordered by the lender online and is available within minutes. if the lender is not able to pull up the COE online it does not necessarily mean the Veteran is ineligible for VA loan benefits, it simply means the system does not have enough information to make that determination at that time.

Once eligibility has been determined, the Veteran is subject to lender determined criteria, called overlays, to determine if and for how much they qualify to borrow through that particular lender. The VA does not set these requirements. The overlays may include but are not limited to; credit score requirements, debt to income ratio, and consideration regarding the handling of collection accounts and bankruptcies. As overlays vary from lender to lender, it is advisable to consult with more than one lender when shopping for a loan to guarantee the Veteran selects the best option for their circumstances.

Allowable and non-allowable Fees

Once eligibility and lender qualification have been determined, there are certain closing costs and fees that must be considered and planned for accordingly to meet VA funding requirements. There is a maximum allowable amount of fees that the Veteran/buyer can pay for. If the seller, agents, or lending institution will not incur the remaining costs, the loan will not be funded. There is a list of reasonable fees the Veteran may pay for, which include appraisal and compliance inspections, title related fees and the VA funding fees, among others. The full list of allowable and non-allowable fees can be found in the VA Policy on Fees and Charges Paid by the Veteran-Borrower.

The VA appraisal and minimum property requirements

The minimum property requirements (MPR) for a VA loan ensures that the home is built to applicable local building codes and that it meets HUD and Federal building requirements and regulations. MPRs ensure the home is safe, structurally sound, and sanitary, and meets the acceptable standards of a home in its particular locality. The VA appraisal involves examining the home for potential safety issues, structural weaknesses, and any sanitation concerns, such as the presence of pests.

The appraisal and MPRs, in our experience, are where seller and agent concerns focus when it comes to considering an offer contingent on a VA loan. In reality, if the house being pursued by the Veteran is in safe, structurally sound and sanitary condition, there is little to fear about the VA loan. The loans can close as quickly as a conventional or FHA loan, and are often less expensive for the buyer. Many underwriting accommodations can be made for Veterans buying or refinancing with a VA loan, which makes them easier to qualify for. In some cases VA loans can be used to finance up to 100% of a home’s value, which can greatly expand a seller’s buyer pool.

As always, it is vital you consult with a lending professional for any specific questions regarding your personal financial situation. If you would like help finding a qualified lending professional to facilitate the use of your VA loan benefits, or contact us any time.

Additionally, you can click here to find out about our real estate services, and learn how working with us will support what we are doing to benefit our local Veteran population.

Entry Level Home Investing Reaches 20 Year High

According to a report by CoreLogic, over 11% of homebuyers are investors.  While it could be speculated that conglomerate investment firms such as Blackstone and American Homes 4 Rent account for a large portion of these sales, data indicates that is not the case.  CoreLogic’s research indicates that most investors in real estate properties have purchased between one and ten properties in a ten year period.  Their data indicates that 61.6% of investment properties are owned by “mom and pop” investors vs just 15.8% being owned by institutions, with professional investors making up the other 22.7%.  Many houses purchased by investors are bought to diversity their investment portfolio, to function as a landlord, or by someone who will fix the home up and flip it to an owner occupier.  

It is important to note that CoreLogic only considers buyers who use a corporate, non-individual identifier on the deed at time of purchase. What that means is buyers who use their names when purchasing investment properties as opposed to that of an LLC, corporation, or other business entity, are not included in this report.

Home purchasing activity of investors has been on the rise in the US, and in 2018 it reached its highest level in two decades.  CoreLogic’s research indicates that most investor activity is being seen in the entry level home tier, also targeting areas with higher than average rents.  What this does to potential owner occupant homebuyers is create a shortage of available houses, and drive rental prices even higher. 20.3% of investor purchases were in the entry level housing market in 2018, compared to 6.3% of upper end homes.

So what does this mean for renters and potential homebuyers in the Reno housing market?  It means that there is more competition now to get into an entry level home that there has been in 20 years. What I have personally witnessed in Reno is great number of out of state investors who have purchased properties in the downtown Reno area, and either use them as rentals, or simply let them fall into disrepair, waiting for their value to increase for resale.  

Many of these properties end up boarded up and condemned.  These investors take the money they earn in our community elsewhere, leaving blight in our city with very little short or long term benefit to our city.  

If you are a first time homebuyer, or a homebuyer looking to get into an entry level home, there are things you can do to help your chances of getting into an affordable home.  Working with a licensed real estate agent to closely watch the market will give you an advantage over home seekers simply using the internet to find homes. Agents have access to more up to date and accurate listing information.  Additionally, working with a qualified and competent lending institution can give you an advantage over other buyers.  Sellers in a competitive market can be more picky about the sales contracts they choose to accept, and having a reputable lender backing your offer with a financial pre-qualification letter makes your offer much more likely to be accepted.  As always, if you need help, get in touch with me here any time. I am here to help. 

The Most Lucrative Business Deal Isn’t Always the Right Deal

I recently read a post by Jamie Anderson, Why Surrounding Yourself with Positive People Isn’t Always the Best Choice, and the piece spoke right to my soul.  Anderson argues against the idea that we are only as good as the people we surround ourselves with. Studies often suggest that we are wise to select our friend group based on what they can provide for us; social status, professional status, positive attitudes and the like.  Anderson counters this idea, asserting that there is nothing wrong with being the positive force when others are weak, inspiring others and building them up instead of expecting them to always do so for you.  I think her ideals are commendable.

As I was reading, I couldn’t help but see a likeness in Anderson’s ideas about friendship and my own ideas about my business.  I find myself having to constantly defend some of my business motives and decisions, to people who have no vested interest in my business. It’s hard to explain to money minded people that maybe always doing the thing that makes the most money, solely because it is the thing that makes me the most money, isn’t necessarily the right thing to do. 

I feel very fortunate to have found a brokerage to partner with which shares my values. Doing the right thing, not the easy thing, and serving remarkably is the foundation of everything that we do.

The right thing for me, is doing what is going to have the most positive impact on the largest number of people and Berkshire Hathaway HomeServices supports that.  Maybe that “‘thing” is personally financing a property for someone who has tried to save up a down payment their whole life to no avail, due to circumstances out of their control.  Maybe it looks like paying for a client’s home inspection, so they don’t have to put the charge on their credit card, or buying a distressed property and putting enough money into it to change the course of an entire neighborhood.  It may not be the most immediately lucrative financial decision, but whether or not it’s the right decision is for me to decide.

So much of the downtown area in Reno is owned by faraway landlords.  Of the properties I look into that are vacant, in disrepair, or condemned in the downtown Reno area, I would put a number of around 75% being owned by people all over California. Many of these out of state owned buildings have the highest calls for police services in the city.  These are disinterested investors, sitting on these properties waiting for them to increase in value enough to turn a decent profit, then they sell.  Often times another investor is the buyer, who then sits on the property for years, again waiting for it to appreciate in value only to be resold as is. Sometimes they use the properties as “weeklies” and rent the rooms out to fixed income individuals.

The craziest thing about these run down motels in Reno is this; they’re bringing in $300 per week per room. In the case of a 40 room motel, like the Desert Sunset on 4th street, that amounts to over $600,000 per year to the owner; for people to live in a filthy motel room without a kitchen, linens, or cleaning service.

The problem in Reno is not just out of state investors.  I tried to buy the Desert Sunset Motel in 2017.  The place was a disaster; mold, squatters, hypodermic needles everywhere, boarded up and condemned. I wanted to buy the Desert Sunset and fix it up so badly. At the time, I intended to clean up the property, modify it for ADA compliance, and provide housing through HUD for senior citizens who were being displaced by the expansion of the Sand’s Casino.

But it was bought, for double fair market value, by a local politician’s son.  The buildings are still boarded up to this day.

My hope is that more people who care will start buying these properties and rebuilding the character of the areas surrounding downtown Reno.  If they do, it may not be the most immediately lucrative business decision they ever make, but that doesn’t mean it isn’t the right thing to do.  It is easy to see that these investors don’t care about our city. But if they don’t, and we don’t, then who will?

My First Hero; Why I Care So Much

I’ve shared a few stories now about why I’ve taken such an interest in the Veteran community on my website, and my blog.  The truth is, I would consider caring for Veterans part of the fabric that makes me who I am.  I was born into a family of Veterans; one of whom’s submarine arrived in Pearl Harbor the day the US entered WWII, and another who flew overseas in an era when Veterans were not valued the way they are today. When I was a child, my grandpa warned me never to marry a man in the military, but I did anyway.

When I was 14 my grandpa Charles, or “Pop” as I knew him, came to stay with us for the summer while his wife traveled to her native Whales.  I didn’t know it at the time, but I will be forever thankful for the time I got to spend with Pop that summer. This was a visit that would leave a lasting impression and photographic memory for me, and heavily impact the course of the rest of my life. 

Up until that visit, I knew my grandpa as a quirky outdoorsman. He was just a guy who attended the University of Nevada, Reno, right after high school; a fact I was unaware of when I decided to attend UNR myself. 

During his time at UNR he grew to love the slopes and remained an avid skier for the rest of his life.  He was a lover of wine and dogs; just like me. As an old dude, he got up unnecessarily early every single day and religiously made the same breakfast; a freshly grated potato for hashed browns, two eggs, and toast so hard even the dogs wouldn’t eat it.  He enjoyed wandering around the desert in Moab Utah, photographing the beauty of nature around him, then coming home and forcing everyone to watch slideshows of his photos during the holidays. 

You’d never catch Pop outside without his hat, unless he was removing it momentarily to balance a beer bottle on his head at lunch.  He carried his camera everywhere he went. He always made sure we got to enjoy some ice cream at the end of the day, and let us play in the mud when mom said not to.  He was the coolest; he was my hero.

Aside from his love for nature, dogs, and wine, what I believe he loved the most was jazz; listening to it and playing it.  There wasn’t a wind instrument he didn’t excel at playing, another trait we had in common, but he settled on the trumpet as a favorite and played in a Jazz band out of Santa Cruz for much of his adult life.  He would sit for hours, sometimes the entire day, and zone out to the tune of his favorites.

It was during one of these jam sessions while he was visiting that summer that I decided to sit with him for a time.  For some reason that day, he decided to open up to me; it was the one and only time I ever heard him speak of war.

Pop was a well decorated combat Veteran.  He had been awarded six times over for heroism and meritorious achievement while participating in aerial flight, and extraordinary heroism in action against an armed enemy.  He flew in WWII and the Korean war and went on before he retired to teach the next generation of Navy pilots out of Pensacola FL. 

Something in him wanted to talk about war that day, but not in the way I would have ever expected.  He spoke to me that day with a great deal of sadness in his eyes.  He reminisced of the exquisiteness of Asia in particular; their culture, the craftsmanship and superiority of their goods, the beauty of their people and their art.  He had collected a great deal of art while in Japan, which sadly was all lost with my mother’s home in the Paradise Camp Fire in 2018.  He got emotional talking about war, how it destroys the people who reluctantly become a part of it, both military members and citizens.

I had always known that my grandpa Pop was a war hero, but what I didn’t know about was the sadness he had carried with him for all those years.  I was too young to respond appropriately to him that day, but I figure maybe that’s why he chose me to confide in.  It wasn’t too long after this visit that Pop started to suffer severe complications of Alzheimer’s and Dementia, and we lost him before I finished high school.  As his mental health failed he clung to his jazz and his ice cream. I would like to hope the disease that took him from us helped him to forget some of the sadness that burdened him all those years. 

My grandpa was a very hard working and fortunate man.  He was intelligent and educated and had a successful career during and after his military service.  After retiring from the Navy as a Lieutenant Commander in 1963, he went on to work at Stanford Linear Accelerator and retired comfortably in Aptos CA. 

There are many Veterans that served long arduous careers and were unable to cope with the lasting effects of their war time wounds, both physical and mental.  Many Veterans from Pop’s generation and the next were alienated and ostracized for their participation in war, regardless the fact that many were not there voluntarily.  From my own research, I have come to find many of these Vets to be service resistant, meaning, they do not trust that governmental support services align with their best interests.  The system once rejected them, and they have not forgotten.  Some self-medicate with drugs and alcohol and fall into homelessness to support their addictions.  

I see a piece of my grandpa Pop in every Korean and Vietnam era Veteran I meet, and every part of me wants to help give them a glimpse of the amazing, dignified and accomplished life my grandpa led. They gave everything to make sure I had a safe place to call home, and now it’s my turn to do the same for them.

Is it Cheaper to Rent, or Buy?

I have come to realize that many people believe, in the current real estate market in Reno, it is less expensive for their family to rent a home than buy one.  In fact, Freddie Mac recently conducted a study that revealed 82% of renters believe they are saving money by renting. While everyone’s circumstances are different, in the long run it is usually not less expensive to rent if you are in a position to purchase a home.

Although it may seem less expensive to rent, if you are looking to contribute to your long term net worth, home ownership may be a valuable path for you to consider.  The typical wealth of the average homeowner in the US in 2018 was $231,420, a stark contrast to the $5200 average wealth of a renter.

So, while you may think it is less expensive to rent because you avoid major maintenance costs, taxes, and insurance, the truth is that your landlord has factored those costs into your monthly payment.

According to Bankrate, in cities with the highest populations of renters, home ownership would cost about the same as what they are already paying monthly for rent.  Assuming you have financed with a conventional fixed rate mortgage, owning a home gives you peace of mind that your monthly housing expenses will never increase, you will not be forced to move, and the money you are putting into your investment will stay yours and be returned to you when you decide to sell.  Utilizing first time home buyer assistance to get into a home and putting the same amount you are already paying for rent toward your mortgage, could have you well on your way to financial security.

On average, millennials today are spending a whopping 45% of their income on rent, with 25% spending at least half of their income on rent.  When you own real estate, you are able to grow your net worth by building equity in your home, instead of paying off someone else’s mortgage and maintenance expenses.

It is certainly true that home ownership is not right for everyone. For example, some require the flexibility of moving for their profession every few months.  In cases such as this, real estate may not be the best or most convenient investment.  

It is always wise to speak with financial professionals and loan consultants to get an accurate picture of your financial situation. If you need help sorting through the different options for home ownership, renting, buyer assistance programs, or finding professional financial resources, I am here to help.

Pros and Cons of the Reverse Mortgage

As our population ages and property values and the cost of living continue to rise, some homeowners have taken or may be thinking of taking advantage of a reverse mortgage option.  A reverse mortgage allows the homeowner to take a monthly draw from the equity they carry in their home, increasing their monthly cash flow but reducing the equity in their home.  At the end of the borrowers tenancy in the home, either at death or if they move into assisted living, the mortgage company sells the home to fulfill the remaining obligation of the mortgage.  The amount of the lien against the property, including any fees and interest that has accrued over the years, will be taken from the proceeds of the sale.  Any remaining value from the sale then goes to the previous homeowner, or their heirs.

The reverse mortgage was once considered a loan of last resort.  Intended for the elderly to extend their period of financial independence; helping them to afford the mounting costs of healthcare, or aide in supplementing their retirement savings. 

There are also ‘single purpose reverse mortgages’ offered by some state and local government agencies, which allow homeowners to draw against their property for instances of required home repairs, improvements, or property taxes.  According to the MetLife Mature Market Institute, 20% of reverse mortgage borrowers are between the ages of 62-64, and over half are under the age of 70.

While there are risks in taking out a reverse mortgage, under the right circumstances they can be a good, generally tax free source of income for older individuals.  Additionally, a homeowner will never owe more than your home is worth and the payments will not affect ones Medicare of social security benefits.  The AARP (formerly the American Association of Retired Persons) recommends to its members that if they are in their seventies and have a substantial nest egg, the reverse mortgage may be a consideration to bolster their income and free up their cash savings for other investments.

One caveat to the reverse mortgage is the requirement that the homeowner continue to pay any property taxes and insurance on the home.  Failure to meet this obligation due to financial or other reasons means the bank can foreclose on the property. 

According to the US Department of Housing and Urban Development (HUD,) approximately 8% of reverse mortgages end in default.  If a household is occupied by a married couple and only one spouse is on the loan and the spouse who is not on the loan ends up as the surviving spouse, the bank will still require immediate repayment upon the death or relocation of the borrower.  If the surviving spouse is unable to pay back the loan, the house will be sold out from under them.

If you or someone you know are unsure if a reverse mortgage is the right choice, it is always best to consult with several financial professionals before committing to any major financial obligation.  While I am not a loan consultant, if you need help finding the right person to talk to I would be happy to facilitate the help you or your loved one needs.  

Today is National PTSD Awareness Day

Post-traumatic Stress Disorder, or PTSD, is a psychological reaction to traumatic events that can be experienced by anyone who has been exposed to a life-threatening, violent, or dangerous situation. Common sufferers include combat Veterans and First Responders, who respond to help victims of traumatic events.

According to the Veterans Administration, PTSD is the leading contributing factor to nearly 40,000 American Veterans being without a roof over their heads.

PTSD is also a major contributing factor in suicides and substance abuse. VA statistics indicate that PTSD impacts 11% to 20% of Iraq and Afghanistan War Veterans, approximately 12% of Gulf War Veterans, and 15% of Vietnam Veterans.  In recent years there has been an increase in the number of homeless women who suffer from service related PTSD, whom are often accompanied in homelessness by their children.

It was not until the Forgotten Warrior Project in the 1970s that effort was directed into the identification and treatment of these invisible wounds.  For decades, PTSD was referred to as “shell shock” or “battle fatigue” and was dismissed as general anxiety.  The data from the Forgotten Warrior Project was crucial to the ultimate adoption of PTSD into the American Psychiatric Association’s Diagnostic and Statistical Manual of Mental Disorders in 1980.

The growing acceptance and recognition of PTSD as a clinical diagnosis has led to many resources, including the VA’s Readjustment Counseling Service, for Veterans who suffer from PTSD and other service related mental health issues and traumas.

Additional resources for individuals suffering from service related traumas include:

The National Coalition for Homeless Veterans – a resource that provides emergency and supportive housing, food, health services, legal aid and case management support for homeless veterans

The National Alliance to End Homelessness – a non-partisan organization committed to preventing and ending homelessness which has an array of policy, data and program resources related to homelessness among veterans.

and The Disabled American Veteran’s Charitable Service Trust – an organization that promotes the development of supportive housing and necessary services to assist homeless Veterans to become productive, self-sufficient members of society.

If you encounter a homeless Veteran, or any other individual that you think may be affected by PTSD please, let them know that there is help, and guide them to the resources they may need.

For immediate help, call The National Suicide Prevention Lifeline: 1-800-273-8255

Veterans Crisis Line: 1-800-273-8255, press “1”