Christopher Shank NMLS 2562885

I became a homeowner in October of 2022. At the closing table, I walked away with the keys to my new castle, and a check for some fifteen thousand dollars, which came in very handy for furnishing my house, as the only piece of furniture I had to my name by that point was a mattress. In terms of a down payment, I paid nothing. In terms of closing costs, my builder covered those. For the first time in my life, I secured myself a big win that would only be surpassed in magnitude twice since; once when, a little over a year later, I welcomed my wife into our home for the first time, and just last week, when we welcomed our baby daughter into the place where we’ll watch her grow up.

I attribute my success wholeheartedly to my realtor, loan officer, and builder. At the time, I simply thought that I had won the professional lottery when I made them my team. Once I took my first steps in the lending industry, however, I realized that those professionals weren’t merely just good at their jobs, they were also knowledgeable with the VA loan that I used to finance my dream home.

This second fact cannot be overstated because as great as the VA loan program is, it’s also (in my opinion) the most misrepresented loan program in the industry due to the prevalence of misinformation that is out there. To stand against some of these myths, I’ve dedicated this article to debunk some of the worst of the misinformation I’ve encountered from clients, realtors, and even fellow loan officers.

In order to debunk these myths with facts, I will be heavily referencing the VA Lenders Handbook – VA Pamphlet 26-7 (found here). The VA Lender’s Handbook establishes the minimum guidelines and processes that lenders must adhere to in order for their specific loans to be backed by the VA.

Myth 1: VA Loans Require a Minimum Credit Score

Going to put an arrow into the knee of this myth right off the bat. Chapter Four (Credit Underwriting) of the VA Lender’s Handbook, Topic 7, Section B, states clearly “VA does not have a minimum credit score requirement.“

Now, keep in mind that although the VA does not set a minimum FICO score for VA loans, they have not prohibited FICO scores from being used for eligibility consideration, which means that each lender is free to set their own FICO minimums, as appropriate to their own risk appetites. One of the larger VA lenders in the nation has historically set the minimum FICO score for their VA loans at 620. By the same token, earlier this year, I worked with a lender who was comfortable working with a client whose FICO score was 508.

All that said, credit consideration is definitely a part of the process of determining eligibility for a VA loan in the first place. In fact, the VA specifically charges lenders to “determine whether the borrower (and spouse, if applicable) is a satisfactory credit risk based on a careful analysis of the credit report and other credit data.” For example, the client I mentioned last paragraph with a 508 credit score was approved because the major hits against him were all related to an ongoing dispute between him, his medical provider, and a collections company. Per the Lender’s Handbook, these specific hits weren’t allowed to be used against him in regards to VA loan eligibility. Still, because his credit score fell below the acceptable thresholds of many lenders, our options when it came to finding him a suitable financial backer were slimmer than they would have been, had his score been higher.

Myth 2: VA Loans Don’t Compete Well Against Other Loan Programs

This myth has actually done a serious bit of damage. Let’s break this one down a bit. Say you’re trying to sell your house for $400,000, and you have two purchase offers on the table. Buyer A wants to buy your house for $400,000, and Buyer B wants to buy your house for $408,000. If all other financial variables on the sale (seller concessions, seller-paid closing costs, etc.) are identical, which offer do you think is more likely to be accepted? It should be simple, right?

Unfortunately, just this year, a situation like this played out down in Nashville, except in this case, the seller’s realtor advised their client to accept the offer for less money, simply because the folks who offered to buy the house for more were backed by a VA loan, and that realtor was worried the loan wouldn’t go through.

As we’ve identified here, each VA loan is guaranteed by a government entity (the Veterans Administration). Unfortunately, there is a bit of a misbelief out there that because the government is getting involved with the administration of a loan, the loan in question is sure to be drawn out over months and the buyer is sure to get drawn into a messy process. Folks, I’m happy to report that this is simply not the case.

When it comes to VA loans, the “slowest” part of the lending process, in my experience, is the appraisal. This is because the VA specifically prohibits the lender from contacting the appraiser for at least ten business days after the appraisal has been ordered for the subject property. The VA does this to protect buyers by preventing lenders from harassing appraisers. Makes sense too- I mean, If I’m about to drop several hundred thousand dollars on a house, I certainly want the person assessing that property to take their time to do the job well.

Now, just because I can’t relentlessly poke an appraiser to get their report finished, doesn’t mean that the lenders backing VA loans get to take a ten day vacation. In fact, of all the VA loans I’ve worked on this year, each and every one of them had been conditionally approved before the appraisal report came back, which means its very likely to secure a loan approval and even clear to close within three weeks of a loan submission.

When it comes to the availability of funds post-sale, most reputable lenders are going to ensure that the seller receives their funds either the day of, or the first business day after the date of closing.

All that said, I will note that the speed and ease of the loan process is entirely dependent upon the processers and underwriters who work your loan. It is entirely reasonable to expect that some VA loans will take longer than expected, but the same is true about any loan in this industry. The thing to remember is that this isn’t caused by something inherent to the VA loan itself, but by other factors instead (such as the buyer deciding to go out and buy a bass boat three weeks before closing on their home purchase…).

Myth 3: You Can Only Have One VA Loan at a Time

Up until I was a Staff Sergeant, I was led to believe that you could only have one VA loan active at a time, with a two VA loan per lifetime limit. Thankfully, this is not the case. Instead, each eligible veteran (to include the surviving spouses of deceased veterans) is allowed to borrow up to a specific (county and case specific) amount of money at any given time, under the VA loan program. So long as the veteran’s existing VA loan(s) is/are in good standing and they can afford to take on more debt, there usually isn’t a reason why a veteran cannot have more than one VA-backed loan.

The real sticking point here is the veteran’s ability to successfully handle simultaneous mortgages. Handled correctly, this can actually be used to leverage the beginning of a pretty nifty real estate empire, but I’ll address that a bit more in the next myth.

Myth 4: VA Loans Are Only For Personal Use

Okay, this one is a bit sticky. Technically it’s true, in the sense that “The law requires a Veteran obtaining a VA-guaranteed loan to certify that they intend to personally occupy the property as their home.” (Chapter Three (The VA Loan and Guarantee) of the VA Lender’s Handbook, Topic 5, Section A). This means that in order to secure VA financing, you have to intend to live in the property you’re about to finance. However, Section B goes on to state that “Occupancy at a date beyond 12 months after loan closing generally cannot be considered reasonable by VA“, which means that past twelve months, the VA usually doesn’t care where you live. This means that you can simultaneously use a VA loan to finance your personal residence and an income-generating rental, so long as you lived in each house for at least twelve months immediately after financing.

Most commonly, this enables the following scenario. A veteran gets stationed at Fort Campbell, where they decide to purchase a house. Three years later, that veteran gets stationed in California. Knowing they’re likely to return to the Fort Campbell area, the veteran decides to rent out their house and purchase a new one to use while they’re on the other side of the country. Both houses can be financed simultaneously using VA loans. Neat, huh?

Now, say that instead of returning to Tennessee after California, that veteran instead gets stationed in Georgia. So long as their eligibility holds up (i.e. they’re not trying to finance multiple mansions), that veteran is likely to be able to keep their California home and their Tennessee homes to use as rentals, and acquire another home in Georgia using a VA loan.

Myth 5: The VA Limits the Amount of Money a Seller Can Contribute to 4%

Oh yeah- here comes the meat and potatoes of this whole article. Fun fact: of ninety-five realtors interviewed in June about the specifics as to this bit of misinformation, ninety-four did not know the right answer. That’s understandable though, because the guts of this issue lie squarely within the realm of lenders and loan officers. What is not alright, though, is that of fifteen loan officers interviewed in June about this piece of misinformation, ten did not know the right answer. Of the five who did know, only three actually knew why they got the right answer.

For the sake of transparency, the question I asked was this: “Given a purchase of $500,000 with no money down, what is the maximum amount of money that a buyer can ask a seller to pay toward closing expenses?”

Of the ninety-four realtors and nine loan officers who answered incorrectly, three quarters answered $20,000, citing that 4% of $500,000 is $20,000. But wait- where am I getting 4%?

Chapter Eight (Borrower Fees and Charges) of the VA Lender’s Handbook, Topic 5, Section D, states “Any seller concession or combination of concessions which exceeds four percent of the established reasonable value of the property is considered excessive, and unacceptable for VA-guaranteed loans.“

Okay… but what are seller concessions?

The National Association of Realtors’ website defines seller concessions as “seller cover[ing] certain costs or fees associated with purchasing a home. These concessions can make home ownership more accessible for buyers by reducing upfront expenses. Seller concessions can take various forms, such as covering part of the buyer’s closing costs or other expenses involved in the purchase… Seller concessions may cover a range of costs associated with buying a home. The specific fees that seller concessions cover will depend on the agreement between the buyer and the seller. Some of the most common costs or conventional seller concessions may include appraisal fees, title search fees, loan origination fees, inspection fees, homeowner association fees, real estate taxes“.

In layperson terms, a seller concession is where the seller agrees to contribute an amount of money toward the buyer’s purchase. This is usually done to offset the immediate costs of the loan, or to cover a material defect in the home that the seller does not want to go through the effort of fixing themselves.

What’s interesting is most of the items listed in the NAR’s definition and training (appraisal fees, title fees, loan origination fees, HOA dues, and taxes) are all considered closing costs or closing expenses.

When it comes to Conventional, FHA, or USDA loans, NAR’s definition of seller concessions is right on the money. When you get to VA loans, however, the VA actually has something important to say- “Seller concessions do not include payment of the buyer’s closing costs” (Chapter Eight (Borrower Fees and Charges) of the VA Lender’s Handbook, Topic 5, Section B).

Yikes- I bet that got confusing fast. Please bear with me for one final reference. “VA regulations limit charges “made against or paid by” the borrower. They do not limit the payment of fees and charges by other parties.” (Chapter Eight (Borrower Fees and Charges) of the VA Lender’s Handbook, Topic 4, Section A).

What this all boils down to is that, according to the VA Lender’s Handbook, there is no limit to the amount of money that a seller can contribute toward a buyer’s closing expenses. How does this affect you, you might ask? Well, let me hit you with a real life example. I have a client right now whose agent successfully negotiated for the seller to contribute 4.5% of the value of the loan toward closing expenses. Because of this, that client is able to approach the closing table with no money down and expect a check for over $1,500 to use as they please.

Proper Advocacy

I began this article by highlighting the actions of my realtor, loan officer, and builder. Folks, I literally could not have purchased the place that my family and I call home, had it not been for the expertise of those three wonderful people. I’m also not blind to the fact that I really hit the lottery with my entire homebuying adventure. I’ve worked with plenty of veterans this year, and while some have been able to “make money” off of the purchase of their home, some have had to come to the closing table with a few thousand dollars.

Searching for a good home, like life, often comes down to a battle of give and take. Say you find the perfect house for yourself and your family. If the seller isn’t willing to negotiate as much as you would like, are you comfortable with continuing your purchase, even if that means you’ll have to pay out of pocket for some of your closing expenses? On the other side of the coin, are you willing to lower your expectations as to the quality of your next purchase if it means finding a home where the seller is willing to negotiate fully?

For me, my loan officer knew the VA loan process off the back of his hand and was able to communicate the specifics of this loan to my realtor. My realtor, equipped with this knowledge, asked the right questions of my builder, to ensure that my final purchase not only met VA guidelines, but was structured in such a way as to allow me to make the most of my purchase.

The difference between 4% and 4.5% of a $500,000 purchase is $2,500. Because I communicated the above information to my realtor partner, he was able to ask above what most misidentify as the “asking limit” on VA purchases. Because the seller accepted, rather than having to come to the closing table with $1,000, my client is walking away with a check for over $1,500. Knowledge is power, folks!

Phew- time to vacate my soap box- I feel that’s enough math and references for at least a day. If you have any questions, comments, or concerns, please feel free to reach out to your trusted Mortgage Advocate. I’m loving this whole new fatherhood to a one-week-old, which means I’m available at all the odd hours of the day. Feel free to call, text, or shoot over an email and I’ll be happy to help!

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