V.A. Loans, those guaranteed by the Veterans Administration, work. That’s the short of it. See the graph of seriously delinquent mortgages by loan type:
Note the blue line for VA loans. See how those have been the best performing loans in the industry at least since 2005 through the 3rd quarter of 2010? Guess what? V.A. loans do not require any down payment whatsoever! In fact, V.A. loans are a lot like the sub-prime loans of 2004-2007!
You see, V.A. loans do not require a down payment. V.A. loans do not have a minimum credit score in order to be financed. V.A. borrowers can have a bankruptcy discharged within the past 2 years. In fact, sellers can even pay down a veterans debt in order to help the veteran qualify. These are very flexible loans. Perhaps the move to require larger down payments and higher credit scores isn’t the answer. Maybe improving our loan performance has more to do with underwriting practices. You see, a VA underwrite is different from the others. Let me explain how I would fix the nation’s lending problems by detailing some of how a VA loan is underwritten.
1) Let’s consider why a person’s credit score is low instead of only looking at the numerical score. If the story makes sense and/or if reasons for negative credit can be proven to be beyond the borrower’s control, let’s proceed to an approval.
2) Let’s consider how much money the borrower will have to spend after his or her home maintenance, social security, and state and federal taxes are paid. And then, let’s consider how many people are in the household. If they have residual income of a certain amount after the above is considered, let’s move forward with an approval.
3) Let’s have all appraisers selected by one single entity just like V.A. appraisers are selected. Let’s not farm out our appraisals to the lowest bidder. Let’s not use appraiser’s who are outside of the subject property market area. And let’s make all appraisals also include an assessment of the property condition. If the local appraiser being paid a fair wage, selected via a random process, gives a satisfactory condition report and a substantiated opinion of value that supports our purchase price, let’s move forward with an approval.
I have closed hundreds of V.A. loans, and the experience has taught me a lot. In fact, I consider myself to be somewhat of a V.A. expert, and I’ve always thought V.A. underwriting just made more sense than conventional or FHA underwriting. I don’t suppose I have all the answers, but when I see data like that in the chart above it makes me think that perhaps we should learn from the data and then make decisions instead of the other way around.
If you, or someone you know needs a V.A. loan, contact me via the link above my picture. I’d love to put my experience to work for you!