Understanding the Value of VA Loans

[TONE FADING IN] [DING] 

 

[MUSIC PLAYING] 

 

EMILY BIGHAM: Welcome back to MakingCents, the podcast brought to you by Navy Federal Credit Union. I'm Emily Bigham. Thank you again for tuning in, and remember that you can subscribe to this podcast wherever you get your podcasts. 

 

This week, we're going to be talking about mortgages, specifically VA loans. Service members and veterans often hear about VA loans, but they can be pretty difficult to grasp. And so today, we're going to try to simplify those for you so you can understand and also take advantage of their true value. 

 

So today, we have an expert on VA loans, Kevin Parker. Kevin is the VP of field mortgage here and Navy Federal, which means that he manages the team of loan officers. They're member-facing, they're actually on the ground talking to members and, I guess, get a lot of these hard questions. Welcome, Kevin. Thanks for being here. 

 

KEVIN PARKER: Thanks, good to be here. 

 

EMILY BIGHAM: So I have a little bit of a question to throw you off today, just to start the day. Now that we've been working from home for a little over seven months, how was your morning routine changed? 

 

KEVIN PARKER: Much different. So, I do not have the hour and 50 minute commute that I used to have. So that time, I found that I was spending a lot more time laying in bed. 

 

[LAUGHS] 

 

I also have two little girls, a 9 and 12-year-old. So they're in school. So I'm finding myself to be a breakfast chef, and-- 

 

EMILY BIGHAM: Nice. 

 

KEVIN PARKER: --trying to get them ready for school as well too. So it's definite changed a bit, but, you know, we've all been able to basically manage through and still add value. Whether it's being a part time father or a professional or working in my pajamas at home. 

 

EMILY BIGHAM: Nice. Well, next time I'll have to have you bring me breakfast. 

 

KEVIN PARKER: Ah, sounds good. 

 

EMILY BIGHAM: [LAUGHS] 

 

KEVIN PARKER: Sounds good. 

 

EMILY BIGHAM: So VA loans. I hear a lot about VA loans. In fact, my mother-- shout out to Patty Bigham-- she texted me the other day and she was asking me questions about VA loans. And I was like, first of all, mom, that's not my area of expertise. I'm going to kick you over to the experts in Kevin's department. But, you know, it led me to realize just how complicated they can be. Because my parents have had a few mortgages in their lifetime, and to still be asking questions about VA loans and their benefits just made me realize how confusing they are. So why do you think that there's this perception? 

 

KEVIN PARKER: Yeah, it's a great question. And I think that's a great topic because we're always out there trying to dispel the myth of VA loans and them being confusing or harder and the perception. The reason the perception is out there is because the purpose of a VA loan is to help members get into a property that's viable, a property that's going to hold value. But also, a product that's going to be beneficial to their specific needs. 

 

And by specific needs, I mean more times than not, a lot of our military members maybe can take advantage of not putting down as much money as what a typical non-service member. And by that, we mean, there are a lot more low down payment options when getting a VA loan. So that right there is an instant benefit, meaning more cash. That's cash that you can use towards buying furniture or fixing up the property, things of that sort. 

 

But the overarching point of VA loan is, that loan is there to protect service members and make sure that they're getting into a financial product that can be beneficial to them, specifically. 

 

EMILY BIGHAM: So when you talk about less of a down payment, you know, there are a lot of mortgages out there that don't require a down payment or a large payment. And so if you had to boil it down to the best benefit of a VA loan, what would that be? 

 

KEVIN PARKER: The interest rate. 

 

EMILY BIGHAM: The interest rate. OK. 

 

KEVIN PARKER: Right. 

 

EMILY BIGHAM: Even in a low rate environment like we're in today? 

 

KEVIN PARKER: Even at the low rate. So I should say, lower interest rate. 

 

EMILY BIGHAM: OK. 

 

KEVIN PARKER: Lower than typically your conventional loan, which in layman's terms means, less money, meaning your monthly mortgage payment is going to be a little bit lower than it typically would for other products. So that's a huge benefit. 

 

Two, right behind it, as I just mentioned, the low down payment, meaning that's a lot less cash that you have to put down. And let's kind of touch on that for a moment, just in terms of just the cash aspect of it. When we provide loans to consumers, the more equity you have in the home, the less risk it is for the institution. 

 

EMILY BIGHAM: The more equity. 

 

KEVIN PARKER: Right. And by that I mean, let's say the home was worth $100,000. And you do a loan for $80,000. So the difference of $80 to the $100, that's the equity in the home, meaning cash, liquid in the home. Worst case scenario, that extra $20,000 is there as a cushion in case the lender has to get their money back. So that's the whole thing about why is it such a big deal putting down cash versus not? And for a VA loan, the VA comes in and helps us, basically securitize our loans. Which means that, if anything goes wrong, the VA is going to be there to back up that loan. That's really the benefit of where the Veterans Administration comes into place. 

 

EMILY BIGHAM: And so that's why the lender is able to give a lower interest rate? 

 

KEVIN PARKER: Correct. 

 

EMILY BIGHAM: Got it. OK. 

 

KEVIN PARKER: Because the VA is backing half that loan for us. 

 

EMILY BIGHAM: So is it more difficult to get a VA loan then because you're going through the lender and then also the VA? 

 

KEVIN PARKER: So ironically, it's not. So you would think so. That's a great question. But that's where the benefit of the Veterans Administration comes into place-- that, not only will we secure half that loan for you, but they're also going to give you a better interest rate. So you're kind of get a double benefit of being able to not put down as much money, keep more cash, and have a lower interest rate, keep even more cash. 

 

EMILY BIGHAM: Sounds good to me. 

 

KEVIN PARKER: Yeah. 

 

[LAUGHTER] 

 

EMILY BIGHAM: So then, I guess my question goes back to, then why is there such a perception that they're so difficult to understand? Is that where the eligibility question comes in or what's that perception? 

 

KEVIN PARKER: Yeah, eligibility. And then also, one of the main purpose for the VA loan, once again, is to make sure that we are lending a house that's viable. And by viable, I mean, it's structurally sound, it's not a lemon, you're going to keep that property for a long term. 

 

And so by that specifically, the VA has very specific requirements when they do appraisals, when they do home inspections. And so that's why you're going to get maybe some of the more-- what seemingly can be restrictions around VA loan is because sometimes the VA might require some additional inspections. Or not inspections, but some additional improvements done to the home based off the home inspection. That's where the perception comes from that it may be a little bit harder. But the key-- 

 

EMILY BIGHAM: Just because the-- 

 

KEVIN PARKER: --thing is-- 

 

EMILY BIGHAM: I'm sorry to interrupt. 

 

KEVIN PARKER: No, no. No, no. Not at all. I'll say, but the key thing is working with the lender that's very familiar with the type of appraisals, type of home inspections. Because for us, like Navy Federal, we're specialists when it comes to VA. So we're very used to working with our members and working with the appraisers if anything needs to be done on a property. But more times than not, it's a common appraisal like any other conventional product. 

 

EMILY BIGHAM: So how many times can you take advantage of the VA loan? 

 

KEVIN PARKER: Great question. So the VA allows some flexibility in terms of what you call VA eligibility and we also call subsequent use, meaning you can use it multiple times. But it's really based upon your specific situation. 

 

For example, some will want to get a VA loan for the purpose of an investment property or for a second home. Some would want to get a VA loan-- most want to get it for the purpose of a primary property. And so it really depends upon that person's unique needs, which is why they make you go through the Veterans Administration to actually find out what your eligibility is. And we help our members with that process early, before they even apply. 

 

EMILY BIGHAM: So even if you're eligible for a VA loan, is there ever a right or a wrong time? 

 

KEVIN PARKER: No, I wouldn't say they're the wrong time, because the VA is such a good product. I mean, we really believe in it and think it's a very, very beneficial product. So I wouldn't say there's a wrong time. More times than not, more veterans are going to use it for primary purpose. So that's your overwhelming, I would say, the purpose of getting a VA loan, for primary resident. 

 

EMILY BIGHAM: What are some of the other options that you guys recommend if they're not going to take advantage of the VA loan? 

 

KEVIN PARKER: Yeah, so-- 

 

[CLEARS THROAT] 

 

Now fortunately, we're lucky. From the standpoint of, we are a portfolio lender, which means that we keep some of the loans that we issue on our books, meaning we don't sell them to Fannie Mae. And what I mean sell them, Fannie Mae buys loans to help securitize loans. Well, for Navy Federal, we keep some of our loans on books, which means that we have a bit more flexibility, which means that we can create products very specific for unique needs. 

 

For example, we have a program called Military Choice. It's almost very close to what a VA loan is. The only difference is you're not using your VA eligibility. So if we have a member who does not want to use their eligibility for whatever reason, well, we have a different option of our Military Choice program in which the rates-- almost just as good, it's not quite the same. But it's almost just as good as a VA loan. 

 

EMILY BIGHAM: So to me, that kind of makes sense. You know, you want to have options, especially because military members are moving quite often. And sometimes they don't know if they're going to relocate or if they're going to go overseas. Does going overseas or being here in the United States, does that change anything about the VA loans or eligibility? 

 

KEVIN PARKER: No, because it's based off what the property is. So we lend in all 50 states. So regardless of where the member is, the reasons for their mortgage could change. But as long as it's in the 50 states, it doesn't matter where they are. 

 

EMILY BIGHAM: And can you refinance a VA loan? 

 

KEVIN PARKER: Absolutely. So that's was a great question. So there's a pro product called Interest Rate Reduction Loan, and that's a special program. Because every time you do financing, it cost money. All right? There is an appraisal fee, you have to do title, you have to do title work. And all those are different fees of cost associate with the loan. Well, with the Interest Rate Reduction Loan, those costs are reduced because you're not going to have to do an appraisal, in essence, we're saving money on the expense to do your loan. And it's a much faster process. And so we actually have a dedicated channel just to handle our Interest Rate Reduction Loan for our members. 

 

EMILY BIGHAM: So I'm going to switch gears a little bit and kind of talk about what's going on right now. We're in a recession, but the environment's very different from that 2008 housing bubble recession. Have you seen any change in consumer, I guess, member behavior when it comes to home buying? 

 

KEVIN PARKER: Yeah. So ironically, not as much as you would think. So right around March when COVID really hit, we did see a touch of a decline in terms of homes listed for sale. If you think about it, people didn't necessarily want to sell their-- list their home because they didn't want people maybe walking through and doing inspections. And on the other side as well, people buy homes-- they're a bit hesitant of going out there and shopping for new homes, et cetera. 

 

But after March, we started to see home purchases kind of trend back up to normal levels. If you look today, even the same purchase trend is about the same that historically has been. So we haven't seen a huge shift in behavior. Our production from a Navy Federal perspective, still gonna be on target pre-COVID that what we thought. So no, I mean, honestly you haven't seen a big change. 

 

EMILY BIGHAM: So I assume probably with the low interest rates, you guys are getting a lot of refinancing applications. 

 

KEVIN PARKER: Absolutely. 

 

EMILY BIGHAM: Yeah. 

 

[LAUGHTER] 

 

Well, that's good. 

 

KEVIN PARKER: A huge number. 

 

EMILY BIGHAM: That's smart, right? That's what you want members and consumers to do. 

 

KEVIN PARKER: Absolutely. 

 

EMILY BIGHAM: Is take advantage, when they can, of what's happening. And so tell me about your first home. 

 

KEVIN PARKER: Great question. So my first home was actually right out of college. So I went to Hampton University down in Virginia in the Tidewater areas. So as you can imagine, it's a lot of military members in that particular area. And at 23 years old, a buddy of mine, we wanted to buy an investment property. 

 

And ironically, the person buying that property was a veteran. And they actually did a VA loan on their side. So I got to experience a VA loan as a seller, in which talking about the appraisal and talking about the inspection on the seller perspective. And so that was my very first opportunity of basically buying a home as an investor and then selling it to a VA member. 

 

EMILY BIGHAM: So, you know, from a seller perspective, I assume that's a lot different from being a buyer. What are maybe some, like, old tips that you can-- or I guess things to know about being a seller on the VA side that members should be aware of. 

 

KEVIN PARKER: Yeah. I think that's a great question. I think one of them is understanding, maybe, what some of the red flags might be for the property type or the type of property or just inspections in general, improvement just in general. More times than not, if the home is viable, once again, structurally sound you're gonna be able to sell it regardless of what type of loan that you do. 

 

But there is some in regards to painting and plumbing that, I think, maybe if you're selling it to a VA buyer, it might be helpful to know. But in more times than not, that's going to be on the realtor. The realtors, that's what they there for. We work very closely with our realtors. A lot of voters are very experienced and they're familiar with VA loans. 

 

But one thing we do recommend for our members, our buyers in general is, you want to work with professionals who are familiar with that specialty. And by that I mean, I use the analogy of, when I want a steak, I'm going to go to a steakhouse. 

 

[LAUGHS] 

 

Same thing for if I want seafood, I'm going to go to the restaurant that specializes in seafood. 

 

EMILY BIGHAM: [LAUGHS] 

 

KEVIN PARKER: Certain lenders specialize in VA loans versus others. I think we take a lot of pride, Navy Federal, working very closely with our military members and their families that we are a VA specialists. More than half the loans that we originate are VA loan. So we're very experienced and we're very comfortable in helping our buyers, helping our members. But also, working with realtors, and working with title companies, working with appraisers and working with homes inspectors. 

 

EMILY BIGHAM: There's a lot that goes into the mix. 

 

KEVIN PARKER: Yeah. It's its own ecosystem. And so that's something that we're very comfortable and confident in working through that process for our members. 

 

EMILY BIGHAM: And your loan officers are across the country, right? I mean, I assume everywhere there's Navy Federal branch, that you probably have loan officers. And does that get a little bit complicated, especially in this current environment, do you see the different markets kind of acting differently or do you feel like across the board things are shifting and trending in the same direction? 

 

KEVIN PARKER: That's a great question. Yes, we do see things typically trend differently, different parts of the country. Whether it's the inclement weather, whether it's the market, whether it's the market prices in that area. 

 

For example, in our San Diego market, we tend to see home values-- 

 

EMILY BIGHAM: Patty Bigham, are you listening? 

 

KEVIN PARKER: [LAUGHS] There you go. We tend to see home value is a lot higher in that market versus other parts of the country, whether it's southern Texas or parts of the Carolina's in which the bang that you can get for your buck is actually phenomenal. And so, the trends are a lot different for us, because we also have to go by state laws and all of our loan officers have National Mortgage Listing Registration, meaning they have to be certified to be able to talk mortgages to members. And that's something that we do manage and we take very seriously in making sure that our loan officers are very skilled at really helping our members. 

 

And the great thing about offering mortgages, every mortgage is not for every person. And for us, it's about teaching our members and educating our members. This is a personal finance product. And for us, that's about financial literacy. It's about making sure our members understand because we know at Navy Federal, this is a relationship. And we want them to come back in five years or 15 years and we want to be able to help them for whatever need that they have. And so we take a lot of pride in making sure our loan officers are very comfortable in understanding each member is very specific need. 

 

EMILY BIGHAM: Yeah, and so, if a member moves from market to market, do they stay with the same loan officer or is it typically, you know, you want to talk to the expert in the area? 

 

KEVIN PARKER: So they can. So we actually to give them a choice. We try to let our members interact with us. However they want. So if they want to do it digitally, we have what we call a Home Squad System in which they can apply online. If they want to call on the telephone, if they want to walk into a branch. We want to let them interact how they want interact. And if they want to stay with a loan officer from a different part of country, they can. 

 

A lot of times they might want to work with a loan officer or see a loan officer in person in that market. And we can do it as well too. 

 

EMILY BIGHAM: I'm sure that's shifted a lot too, just given current situation. [LAUGHS] 

 

KEVIN PARKER: Very true. Very true. 

 

EMILY BIGHAM: I don't even want to get into that because I don't even-- that's just a lot. 

 

KEVIN PARKER: Well, the good thing about loan officers too, our loan officers, they'll FaceTime. 

 

EMILY BIGHAM: Oh. 

 

KEVIN PARKER: They'll text members. However members want to interact. 

 

EMILY BIGHAM: Digital? 

 

KEVIN PARKER: Digital, yeah. So we try to make it easy, because we realize we have our loan officers who are part-time teachers and part-time cooks, just as we are. So we try to make sure that we give them the flexibility, and they're able to work with our members, based on what their needs are. 

 

EMILY BIGHAM: That's great. So I have a question back on eligibility. You know, military spouses, would they be in the mix for being eligible? Or how would that happen? Do they have to be on a mortgage with their spouse who is active duty or a veteran? Or can you get into a little bit about eligibility? 

 

KEVIN PARKER: Yeah, so there's two ways to answer that. One, the eligibility is based off the military member, not the spouse, so the military member does need to be on the loan. And certain states require that the spouse is actually on the application. For example, California is a state that if you apply, even in your own name, that military spouse has to be on a loan. 

 

And so it's really state-specific, so that's why it goes back to-- we like having loan officers in different parts of the country, who understand those state-specific requirements, and we can help our members walk through whatever their needs are in their specific state. 

 

EMILY BIGHAM: All right, so we're about to wrap it up here. And I think we've given-- I mean, you've given me, at least, a lot of great information. Do you have any last tips or tricks you'd like to give the audience about VA loans? 

 

KEVIN PARKER: Sure. One, your mom better call us. 

 

[LAUGHTER] 

 

Two, once again, go onto our website, whether it's our website, or you have other websites like the VA. You have the CFPB website. There's a lot of information out there to just help people consume and understand. 

 

We realize that buying a home, refinancing a home, is a really, really big, probably one of the most, important transactions, and so for us, we try to be teachers. And there are a lot of calculators on our website, a lot of great tools that members can take advantage of to make sure that they learn as much as possible about the VA loan. 

 

So when they do find their home, we're going to try to make it as frictionless as possible, so that they can enjoy the concept of, what school are their kids going to go to, and the new furniture. 

 

EMILY BIGHAM: There's so many other things to worry about, too, when you're in the military and you're moving from state to state. I mean, I grew up as a Navy brat and even moving overseas, you have to send half of everything you own six months before you get there. The anxiety I felt as an 8-year-old. I can't imagine how would parents feel. 

 

So I think you cleared up a lot of the perceptions, and, to me, I think action relieves anxiety, so I would say just call. Whatever lender you're working with, just call and talk to them about your options. And a VA loan sounds like a great benefit that everyone should be taking advantage of. 

 

So thank you, Kevin, again, for being on today's podcast. And, for the listeners, please feel free to call if you have any questions, and, of course, subscribe to the podcast wherever you get your podcasts. And thanks again for tuning into Making Cents. 

 

NAVY FEDERAL CREDIT UNION REPRESENTATIVE: Navy Federal Credit Union is federally insured by the National Credit Union Administration. This podcast is intended to provide general information, and shouldn't be considered legal, tax, or financial advice. It's always a good idea to consult a tax or financial professional for specific information on how certain laws may apply to your individual financial situation. 

 

References to, or participation with, the military community does not constitute organizational endorsement. Navy Federal is an equal housing lender. 

 

Navy Federal Credit Union. Our members are the mission.