VA Loans
VA guaranteed home loans benefit veterans because they do not need to make a down payment and there is no upper limit or required cap on the income of the borrower. Without a down payment as security against foreclosure, lenders receive a certificate of guaranty from VA. In essence, as gratitude for honorable military service, the government is vouching for the veteran’s trustworthiness to repay his/her debt.
To determine eligibility, a military veteran, active duty person, or a member of the National Guard or selected reserves, must submit a VA Form 26-1880 along with proof of service (DD Form 214, a statement of active duty, or proof of participation in the national guard or reserves) to the VA Eligibility Center, P.O. Box 20729, Winston-Salem, NC 27120. Based on the applicant’s length and type of service, VA issues a certificate for each person determined eligible to apply for a VA guaranteed home loan.
The seller can contribute up to 4% of the home price for their non-recurring closing costs and impounds.
Veterans must qualify on full income documentation. PITI plus all other debt (second ratio) must be under 43% of their gross monthly income unless they meet the VA residual income qualifications. Current service members receive an allowance for housing and food and those figures can be “grossed up” 115% for income qualification.
Appraisers are assigned by VA and the lender orders the appraisal. Many lenders participate in a delegated underwriting program but some opt to let the VA underwrite the appraisal.
VA doesn’t have a minimum required credit score though some lenders might have a minimum. A 12-24 month history of decent and reasonable payment history is required.
Underwriting: All loans will be submitted to DU. Approve/Eligible decision is required. If refer/eligible, the brokers will submit the full credit package to the lender for underwriting.
Minimum FICO for manual underwriting will vary from lender to lender.
Maximum LTV:
Purchase 100% + funding fee
No cash out refinance 90% + funding fee
Cash out refinance 90% + funding fee
IRRRL(interest rate reduction refinance loan): maximum mortgage calculated based on unpaid principal balance & costs of refinance
Most lenders and mortgage brokers are easily approved to originate VA home loans; sponsorship by a VA-approved lender is all that’s required.
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With the new Good Faith Estimate requiring that all broker and lender fees go on line 1, together with the VA requirement that the loan originator can only earn a 1% fee, it is highly likely that when LOs originate a VA loan, their profit margin is tight if non-existent.
Should the VA allow for a higher percentage amount to be charged to the Veteran on line 1. of the new GFE?
How much would be a reasonable amount? Please break down your estimation with a math example. For example, loan amount is X. What are the standard fees typically charged with originating a loan that includes ALL lender AND ALSO all broker fees?
What percentage does that come to?
Do you believe VA will approve a change to allow for the higher amount shown in your math example?
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Comment by Teresa Gallaher on 4 December 2009:
Well, If the average loan amount is 250K, the broker would be able to charge 2500 max according to the VA. Does that have to include any processing fee as well. If so, we would normally charge 595 processes and the lender usually will charge an underwriting fee of about 600 and fax/misc fees of about 200.
2500-595-600-200= 1105.00 this equals .4 percent, less than one half a percent.
If I did this correctly, I would hope the VA would make the change or else many lenders will not offer the VA product due to the slim margins and the possibility of actually lossing money.
Comment by richard martin on 9 December 2009:
If we take 200k loan charging 1% loan origination fee that would be $2000 minus processing, bank and office fees approx.$1000 leaves about .5% for the broker, not a lot and not very attractive for brokers at this point. Note: I work with marketing and promotion so my estimate may be off the mark but lets see.
Comment by Ken Ritter on 11 December 2009:
I think that since the margins are so small that the VA should allow for a slightly higher percentage amount to be charged to the Veteran on line 1. With a loan amount of X and the fees being 595, 600 and 200 (1395), this makes the margin so skinny, about .5% for the broker, not much incentive for the broker to do these loans especially with all the work that must go into them.
Comment by Jan Mundt (Henriksen) on 20 December 2009:
A loan amount of $183,500 would have have approximately $2975 in charges which includes the 1% origination fee. This equates to 1.6%, which does not leave a lot left after the broker takes his percentage. It would be good if the VA would allow for at least and additional .5%. As far as approving a higher amount; I’d say not likely. The VA loan guarantee program is a benefit to our veterans. VA does not allow the veteran to pay the escrow fee, which is a 3rd party fee, I just don’t see them increasing the amount a loan originator can make.
Comment by Launce Macomber on 21 December 2009:
The responses thus far have demonstrated that the return for work involved is barely worth the effort. .5% or so doesn’t make for a great incentive. On the other hand, as these foreign conflicts wind down (hopefully) and returning servicemen who have opted for civilian life start looking for affordable housing, the VA may well face the reality of needing to allow an increase in the fee structure to insure a responsive mortgage community.
Comment by Jerrod Goode on 28 December 2009:
Allowing for a little more profit to brokers would be the right thing to do. If the incentive is not there for brokers to offer this product it will only hurt the sevicemen who are trying to take advantage of one of the few perks they get. This small margin is very tough to get excited about.
Comment by Jason Brock on 30 December 2009:
VA Loans:
Wow… working for .5%… let me see $1,250 on a 250k loan… how many hours did the LO work on that file? More importantly how many bullets did that lazy LO have to dodge? Base pay for an E3 in the air force is less than $1,100 month to make the rank of E-3 it takes 3-4 years of hard work… no cozy office… that is dodging bullets and serving our country proudly. Anyone who does not want to work for that to serve our armed forces please feel free to send that referral my way and I will gladly do my part to help. PS. I did my 6 years USAF. NO PAY RAISE
Comment by James Haechler on 30 December 2009:
I worked for a VA company for 2 1/2 years. Working three states. They made 3-4% on every loan. Every VA qualified for refinancing. Good, bad credit didn’t matter. Drive by appraisals. Everything was bundled and sold to investors with the VA guarantee. We provided a great service for all Veterans. To see the origination fee at 1% would hurt the Veterans. Brokers and LO’s wouldn’t touch them at 1% less fees. Maybe a middle ground with a mim origination fee of $2500 and a max fee of $4500 depending on the loan size.
Comment by Kelly Fiscus on 30 December 2009:
My though is you do the VA loan and hope for referrals or repeat business when the client buys the next house and doesn’t use VA. Keep in mind these are people who served in the miltary protecting all of us.
Comment by Chris Yanke on 30 December 2009:
If I am seeing a Loan Amount of $280,000.00 and can only charge a 1% loan fee, the next question I have is rather than just summarizing the underwriting fee and the remaining lender fees that usually come to about $895.00 with a loan amount of this size that is about .31 it’s my opinion to agree with some of the other comments above that a .500% variance should be allowed WITH ITEMIZED EXPLANATION. I believe that VA will in time make this exception but again the motivation of this product is to create a benefit for those who’ve risked all they were gonna have for everything we have.
Comment by Kelly Fiscus on 30 December 2009:
I think it is a choice to do a VA loan or not. If you choose to do the loan you know up front what you will or won’t make. And in our econmy .5% is better than 0%. Also these are vets who have served our country and they deserve the break.
Comment by Harold Burton on 31 December 2009:
I have no problem doing VA loans at a 1% broker fee. I also agree that there needs at least a .5% increase to cover operating cost an so forth.
If the loan amount is 300K and above there really isn’t a problem. Home values $150K and below makes it hard for companies to operate with a 1.0% broker fee. I’ve always said that volumne solves a host of cost related objections.
Comment by Karen Tuff on 31 December 2009:
I would hope to make more than .5% due to the fact I work this business part time and have another job focus. I would be more inclined to do VA loans if the time and energy could result in a better commission. Half my family is military and I respect everything they do for the country. However, I am fighting to regain my financial footing during this downturn in the economy and it would have to make economic sense for me. I hope there is an improvement in compensation to provide more incentive for more LO’s to work these loans.
Comment by Kimberly Peterson on 31 December 2009:
I agree that the VA should allow for a higher percentage then the 1%, I could do the math but I see plenty have already provided it. It definately does not provide much incentive after the other fees are deducted.
Comment by Elisa Wu on 1 March 2010:
The VA loan sound very reasonable; however, the incentive from bank not very attractive.
Comment by Bryce Zimmerman on 22 May 2010:
They probably should allow lenders to charge additional fees. My experience has always been that most brokers are trying to obtain 2%, but i’ve always thought that is odd. 2% on 100k isn’t much income, yet 2% of $500k is substantial. Instead of using a percentage, they could limit it to a dollar amount, or a combination, 2% not to exceed $8000.
Comment by Angie Williams on 27 May 2010:
I don’t see how this is any different then the WSHFC loan which caps what a lender can make for this specific product.
Again, I don’t have experience in brokering loans but some of the blogs are correct.. they want you to make 2. I agree with Bryce’s comment above as our market area does have a higher price point. Monetary cap would be best.