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We’re making your financial health our mission every week with our personal finance podcast, MakingCents. Join us as we explore ways to help you stay in control of your wallet and make sense of your money.
[TONE FADING IN] [DING]
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.
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.
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--
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.
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.
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.
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.
Episode 3: Understanding the Value of VA Loans
VA loans are a great perk for servicemembers to take advantage of when buying or refinancing homes. In this episode, Navy Federal's Vice President of Field Mortgage, Kevin Parker, makes it clear what to expect when getting a VA loan, including understanding funding fees and navigating eligibility confirmation.
- a discussion of VA loans, funding fees and obtaining a Certificate of Eligibility
- tips on what you should be doing to make the most of a VA loan
GUEST: Kevin Parker is Navy Federal's Vice President of Field Mortgage. A long-time mortgage professional, he has helped Navy Federal members become homeowners for the last 7 years.
[MUSIC PLAYING] EMILY BIGHAM: Hi, and welcome to the podcast MakingCents brought to you by Navy Federal Credit Union. I'm your host, Emily Bigham. And each week I'll be taking your questions to the experts to help you make sense of your money, pun intended.
Hi, and welcome back to MakingCents, a podcast brought to you by Navy Federal Credit Union. Today we're talking to Brittany Mills, the Assistant Manager In Education Lending. Hey Brittany, how's it going?
BRITTANY MILLS: Hey, how are you?
EMILY BIGHAM: Good. Thanks for coming on today.
BRITTANY MILLS: Thank you for having me.
EMILY BIGHAM: A lot of things have changed, and earlier we were catching up about what's been changing in the student loan area. I find it fascinating because, to me, when I was thinking about going to school, going to college, growing up in the United States, it's everyone needs to go to college.
BRITTANY MILLS: Yup.
EMILY BIGHAM: It's so expensive, but also I think a lot of the benefits are actually being on the campus. And you get more than just an education out of college. So I was curious about what's changed over the past year and a half. I feel like that's kind of a loaded question that we can get into. But in general, just right off the bat, what do you think has changed in the past six months?
BRITTANY MILLS: Well, I think the fact of the campus experience has changed. Lots of people, at the start of the pandemic they had to stay home or go back home. Because they went to school, and now they're saying, oh, everything is shut down. Colleges are shutting down, lots of these schools didn't have online programs available, so it's almost like the schools had no other choice but to just say go home and we'll figure this out as we go. So I feel like a lot of things have changed when it comes to, I can't be on campus with my friends. I have to be online in an online virtual environment. And that was hard for a lot of people if they weren't already used to taking classes online.
EMILY BIGHAM: So what's today's headline in the student lending world?
BRITTANY MILLS: Student loan forgiveness. Are my loans going to be forgiven. That's a big question that students have. And rightly so. I do as well. Everyone does that has a student loan. And so Navy Federal, we're waiting to see what will happen in that landscape.
EMILY BIGHAM: What would that decision change for you? I mean, it seems like there's a lot of uncertainty around that. I feel like the hot word is uncertainty. It's like, oh my gosh, what's going to happen in every aspect of everyone's life? But what would that change for Navy Federal or for you in your role?
BRITTANY MILLS: So we've already changed our strategy when it comes to making sure that members are top of mind. So federal student loans, they come with benefits. And when you refinance those as a private student loan you lose those benefits. And so we made a decision to temporarily pause the refinance of federal student loans so that members could keep their benefits and we can make sure that they have what they need and make the best decision for them at that time.
EMILY BIGHAM: How are you supposed to even make a decision as a student or a parent? Do you start saving for college? You have a son. You have a couple of kids, but I know that your super star football son is looking to go to school in a few years. What's the conversation in your household about college and student loans?
BRITTANY MILLS: So as you just mentioned, I travel with him for football. And just this past weekend we went to Florida. And he actually wants to go to school in Florida. So there's a good chance that he might say, hey mom, I want to go to school in Florida. We're going to have to look at all of our options and see what's available. He may get a scholarship, he may not. I can't sit around and wait for that. So of course we're going to save our money. We're going to look at the options that are available to us, either from the schools that he picks, we're also going to fill out the FAFSA when it comes time, which is the free student loan application for federal loans. Just things that we will need to do to help him get ready.
EMILY BIGHAM: So you mentioned federal student loans. And I very luckily did not have to go through this process so I'm a little bit unfamiliar with it. So apologies upfront if I ask a ton of questions about this. But what is the difference between a federal student loan and a private student loan?
BRITTANY MILLS: Sure. So federal loans, they typically have fixed rates and they don't require credit. And then once the funds are granted through the federal loans, grants or scholarships, if they don't cover the full amount, then you'll go ahead and get a private loan which you can apply for through your bank or credit union. They will determine if you qualify for the amount based on your credit worthiness. Lots of times co-signers do increase the chance of loan approval and lower the interest rate on your loan.
EMILY BIGHAM: OK, so that was a lot of financial speak. So even things as small as fixed rates, and determining your credit, and that they determine for you, I feel like even submitting something as simple as a credit card application can be daunting, because it is putting something out there and then seeing if it gets accepted. It's a lot of emotional stress.
Can you walk me through the real bare bones steps of, OK, so I'm a student in high school, and I've already decided what college I want to go to that's best for me, but I can't afford it. So what is your first step? Should you even be thinking about federal versus private student loan? Can you walk me through first things, first steps?
BRITTANY MILLS: Yeah. First things first is to fill out the FAFSA. A lot of people think, my parents have too much money, I can't apply, or I wouldn't get any money. You definitely want to go to the FAFSA which is the Free Application For Student Federal Aid to determine what you would qualify for. We want you to exhaust all your federal options first.
EMILY BIGHAM: OK, so federal number one.
BRITTANY MILLS: Federal number one.
EMILY BIGHAM: And use the FAFSA. So where can you get that? Is that an application online?
BRITTANY MILLS: Yes.
EMILY BIGHAM: Do you go through Navy Federal's website?
BRITTANY MILLS: That is FAFSA online. I can't think of the website right now, but yes.
EMILY BIGHAM: Google it.
BRITTANY MILLS: Google FAFSA. F-A-F-S-A.
EMILY BIGHAM: Perfect. We'll put it in the show notes.
BRITTANY MILLS: It lets you put up, I think, a couple schools that you choose. And then you can compare those offers once they come back to see what makes sense for you.
EMILY BIGHAM: OK. So first things first, use the FAFSA application. And then once you get those back, you consider, OK, is that enough money to cover it or do I need more money. And how are you supposed to know if you need more money than what someone's told you you can have? Does the school provide that?
BRITTANY MILLS: The school will provide you, I guess a gap letter. Not 100% sure.
EMILY BIGHAM: OK, so--
BRITTANY MILLS: I'm pretty sure they will let you know what else is owed on your bill.
EMILY BIGHAM: What else is owed on your bill. OK. And then, so when you then decide, OK, I need to go and get more money in a private student loan, is that when members reach out to Navy Federal? Is that when you--
BRITTANY MILLS: Yes. That's when they shop, which we encourage. Shop for the rates and terms that work for you. Because not every lender is the same. You want to check out that lender's reputation, you want to make sure that-- some lenders require you to pay immediately, so just checking to see what works for you is what's in the best interest for you at that time in your budget.
EMILY BIGHAM: And for some reason in my head I thought that student loans covered tuition and the bulk of those big expenses. But I found talking to people that maybe it covers other things like dorms and books and whatever you need. So what do student loans cover? Or what can they cover? Is it up to the student or is it up to the loan product?
BRITTANY MILLS: It is up to your school. So tuition, dorm room costs, off campus housing, textbooks and supplies, laptops, food, transportation, anything education related expenses that are certified by your school.
EMILY BIGHAM: OK, so the school certifies it. That's interesting. So you have to keep your receipts? This is so interesting to me. How does that work?
BRITTANY MILLS: I think it's up to each individual school.
EMILY BIGHAM: OK. So it's something that you need to talk about with the university.
BRITTANY MILLS: Yep.
EMILY BIGHAM: There's so many things that are involved in student loans that it's really crazy. And is that something that at Navy Federal you guys help people with? Are you kind of the trusted advisor? I know that with mortgages that's something that we definitely, we consider ourselves a trusted advisor. Do you guys do that with covers?
BRITTANY MILLS: We do as much as we can to support the student. But obviously each school is going to be different in what they require. And we also advise them, hey, reach out to your school. Make sure you know what is required of you from them as well.
EMILY BIGHAM: So refinancing. Tell me a little bit about that.
BRITTANY MILLS: Right.
EMILY BIGHAM: Everyone loves a good refi.
BRITTANY MILLS: So refinancing is typically great for someone that have all these loans and they want to consolidate them into one payment, and they want to potentially reduce the interest rate, which in effect will reduce their monthly payment. But at the same time, refinancing, you should also make sure you have the income to support as well as the credit history.
EMILY BIGHAM: So is this after? When are you supposed to think about refinancing? Is it after you're done with school and you have a job? Because I know that your credit matters. In order to build credit and in order to get a lower rate, you typically have to have higher income, or income period. Is that something that you have to wait and do afterwards? Or can you do it when you're in the process, in school?
BRITTANY MILLS: Most lenders require you to graduate before you can refinance. So and at that point you can do it at any time. But again, checking the rates, checking the lenders, knowing what they're being offered is what's in the best interest of you at that time, and making sure that you are getting the rate that you want. Because you wouldn't want to have a lower rate and try to refinance and you would get a higher rate. So trying to make sense.
EMILY BIGHAM: Well, and we're in a very low rate environment right now.
BRITTANY MILLS: Right now, yep.
EMILY BIGHAM: So are people concerned about rates going up and are they looking to refinance?
BRITTANY MILLS: And see, that's where part of the uncertainty is, because of the federal loan component. I believe some lenders are still refinancing federal loans. We are not. I think some people have even stopped considering it for now just to see what happens around--
EMILY BIGHAM: Put it on pause because you just don't know. And I think that's the smart decision.
BRITTANY MILLS: Exactly.
EMILY BIGHAM: Because if loans start going up, or even inflation will probably impact that a little bit. Also there's a lot going on with the job market right now with employment. I think a record number of people have left their jobs. I don't know if that's because-- I mean, there's a couple ways of looking at that data. So it could be like, OK, for the past year and a half, people have been sitting tight in their jobs, not wanting to leave or try to find new ones, because obviously working from home, or trying to go to a new company and manage a new team, or figure out what's going on while working from home is difficult.
So, is it now that because everything is opening up and people are starting to get out there more, is that percentage higher because people are looking-- they've been putting it on hold and now there's a surge. I had to point to that and I can't remember where I was going with it.
BRITTANY MILLS: Hey, listen--
EMILY BIGHAM: Because you know how I am. Analyst brain.
BRITTANY MILLS: No, that's fine. But to piggyback off that point, a lot of people, being home, have considered other options for themselves. The great resignation, right? People are actually considering things that are good for them and trying to understand-- making sure that they have that extra income to support whatever they want to do, whether that's refinance or keep their loans the same.
EMILY BIGHAM: Yeah. And I think also the crazy thing about the interest rates, and how we don't know what's going to happen with that, and there's so much fluctuation, I think that there's a lot of hype about that. Because even if interest rates are changing, it's not going to be so quickly that no one's going to have time to think about, OK, what should I do with my finances. Do you guys have any resources online that people can look at to if they have questions about this? Where do you send members when they have questions?
BRITTANY MILLS: We have a couple articles on our website, MakingCents articles that speak along these lines. Just educating them on the different student loans, and refinancing, things like that. So we definitely have the education out there for our members to look at.
EMILY BIGHAM: When do you start to repay student loans? Is that after you graduate as well?
BRITTANY MILLS: Yes.
EMILY BIGHAM: OK. What are your like--
BRITTANY MILLS: Although, I guess for in school, if you're in school, we allow you to make the $25 payment so that you can help build your credit.
EMILY BIGHAM: Tell me more about that. Because building credit is--
BRITTANY MILLS: It's very important.
EMILY BIGHAM: Well, it's really important, but it's something that people don't really understand that they can be doing while-- there's just a lot of questions about credit. And I think that you know a lot about credit. You were formerly in credit cards. We miss you. But tell me a little bit more about that monthly payment of $25 while you're in school and what that does to help your credit. How does that work?
BRITTANY MILLS: So yeah, you can choose that option where you can pay $25, and that will help you pay towards your loan. And a lot of people don't realize, but those payments are being recorded and helping your score increase little and little over time. So it does help that student, that when they finally graduate, they can maybe refinance on their own without a co-signer. Because most likely if you're a student, you're going to need your co-signer to support you.
EMILY BIGHAM: So it gives you a lot of financial independence. And you need a good credit to move on in your life. To buy a house, to buy a car, you need to have credit.
BRITTANY MILLS: Exactly. All those next steps and all those big milestones that come after school. So I think it's a good thing that we put on our website. We promote that. It's a good step for credit builders.
EMILY BIGHAM: Is it unique to Navy Federal or do other lenders do this?
BRITTANY MILLS: I believe there are some other lenders that do it, in their own unique way, of course.
EMILY BIGHAM: Right. But I mean that $25 monthly payment, that's something that seems very affordable for people.
BRITTANY MILLS: Very.
EMILY BIGHAM: Is it kind of like a set it and forget it type of thing where you can just set it up and it automatically transfers?
BRITTANY MILLS: So automatic payments are an option for all of our borrowers. So yes, they can do that.
EMILY BIGHAM: And can you pause it at any time if you feel like you really need that $25?
BRITTANY MILLS: Absolutely.
EMILY BIGHAM: That's really cool. That's a great benefit. I like that one. Of the best things that my dad ever did for me was give me a credit card when I went to college. And I love saying that because I know he's probably going to listen to this and be like, oh my god, that was a disaster. But that taught me about building credit and the importance of making sure that-- that monthly payment really matters. And just showing on time payments can boost your credit history, or the opposite, which I think that's why it's important that you guys allow people to pause that. Because if you miss payments that's also takes a credit ding. So this is a good learning tool I think. That's pretty cool.
BRITTANY MILLS: Yeah, we offer options. If they ever run into anything they can apply for forbearance. We can help them. So they just reach out, they apply for it, we'd go over their individual circumstances at the time.
EMILY BIGHAM: So what did forbearance look like in the past year and a half? What happened during the pandemic? What kept you up at night?
BRITTANY MILLS: I didn't know what I was doing. My first real world experience.
EMILY BIGHAM: No one did.
BRITTANY MILLS: During the pandemic we absolutely kept our members top of mind. We helped over 1,800 members with payment relief for their loans. And as always, we're going to continue to monitor their needs, and we adjusted as we needed to to ensure that they were OK, that we got their back, that we're doing this for them. So pandemic was a fun time.
EMILY BIGHAM: Yeah, well I think it taught us a lot too, about the importance of making sure that if you put the members top of mind, it's always going to work out. And I think that's pretty cool. So it says here that you guys assisted over 1,800 members with payment relief. That's a pretty high number. How many members do you guys serve in the private student lending world, ballpark? Is this a big percentage? Did you reach out to them or did they reach out to you? How did that work? Did you just kind of know who needed help? Or did they have to request it.
BRITTANY MILLS: They requested it. And I think ballpark is like 30,000 or so that we have in our student and refi space. So they reached out, we gave them the help that they needed, either online or maybe some called by phone.
EMILY BIGHAM: OK. So I have some questions for you that came from my sister.
BRITTANY MILLS: Sister!
EMILY BIGHAM: Shout out to Caitlin Bigham. Because she and my older brother both went and got their MBAs a couple years ago. And I know for her it was a huge stressor because she had to take out student loans. This was the first time that she had to go through that process. And I just remember it was very stressful and emotional. Not to mention that she's also going to school and figuring out what her internship's going to be in the summer. And she moved from San Francisco to New York City to go to school. And that was a whole thing. I mean New York City, as we know, the prices are really high.
So some of the questions that she had, which I think we already answered, were, do I shop around for student loans and see what rates I can get? And you said, absolutely. So I think that that's a big thing to mention. She asked about refinancing loans after graduation, which you also said, yes. And then something that she mentioned I thought was interesting was, when you are paying off your loans, how do you manage paying off loans versus putting your money towards other investments like retirement accounts, property, stocks.
BRITTANY MILLS: So I believe there's some knowledge out there that I've read, that anything over 6%, your student loan rates, you're better off paying those. Because you would save more money just by paying those. If it's less than that, pay those and you can invest a little here and there in what you're interested in. So I think that's the general guidance that I've seen when I've looked into this.
EMILY BIGHAM: OK. And is that something that Navy Federal money managers can also help with? I'm sure that's something they could help with.
BRITTANY MILLS: I'm sure.
EMILY BIGHAM: At this point, when you look at student loans and how long it's going to take people to pay off your student loans, how daunting to think that you would never actually be able to invest any of the money that you make. I mean, you have to figure out, what are we doing here? How am I going to set up myself for financial success?
BRITTANY MILLS: Especially because right around the time you're graduating you're also thinking about, what does my retirement look like in the future? What does that look like? So I think, yes, finding a financial advisor if you need to, Navy Federal has them. That can help you figure out what the right balance is.
EMILY BIGHAM: What about students who go to trade schools or unaccredited universities? Is there anything different there about the process they need to go through?
BRITTANY MILLS: They can still apply for loans. The advice I would give is just determine what the value is. There may be other options out there for you to take advantage of. There's a lot of online learning, but at the same time people do want that certificate or that completion. So it's really up to each individual person whether they want to take the loan out or just save the couple thousand dollars to pay for what they want.
EMILY BIGHAM: So transitioning a little bit to military, since that is a big part of Navy Federal's audience and membership. The GI Bill. What do you know about the GI Bill?
BRITTANY MILLS: Hey, if you have access to the GI Bill you should definitely use that for your education. If then additional funds are needed, then you can apply for private loans. But at the same time, a borrower's or co-signer's income would be required at that point.
EMILY BIGHAM: OK, so if you can take advantage of the GI Bill, you should do it.
BRITTANY MILLS: Absolutely.
EMILY BIGHAM: Awesome. OK. And I assume that's something that they also just go to the website and kind of--
BRITTANY MILLS: Mm-hmm.
EMILY BIGHAM: I don't know if it's similar to VA loans in that sense. Is a GI Bill financed through an institution or is it just through the government? Question for Google?
BRITTANY MILLS: Yeah.
EMILY BIGHAM: OK. Well I mean it's a big thing. So I also see some facts here. 9 in 10 borrowers aren't ready to resume federal loan payments in October. That's a high number. That's 90%. What does that mean? Aren't ready to resume? Does that mean--
BRITTANY MILLS: Well, because of the CARES Act, zero payment, zero interest, nobody is paying. I think I saw something where maybe 1% of borrowers are actually paying their federal loans. We still are doing our $25 payments and people are still paying our loans because we're private lender, obviously, we're not federal. I guess that would be something that they would have to determine on how they would handle.
EMILY BIGHAM: Yeah, so I think that there's still a big emphasis on the importance of college and I think that's also what's so frustrating, is you don't want something like financing to keep you from reaching your potential and getting you to the point where you're so stressed out that you're like, I'm just not going to do it because I don't understand federal versus student versus the uncertainty of forgiveness. What is your advice for people who are on the fence about going to school because of financing concerns?
BRITTANY MILLS: I would say, again, apply for your federal funds. Because you don't know what you will get at that point. After that, then you can look into what other options you have out there, and what's available. You may find that there's a family member that's willing to help you co-sign just to help you further that education. So don't be afraid to go to school because of financing. Apply and then see what happens from there.
EMILY BIGHAM: Apply and see what happens. And also I love the $25 monthly payment to help boost your credit. So I feel like right there there's a positive that you get immediately from doing something like this. When in the process should they start looking into it? When do you have to apply? So if you go to school in the fall, say school starts in August or September, when do you start this process?
BRITTANY MILLS: So I believe the FAFSA opens October 1 of each year.
EMILY BIGHAM: So for the following year.
BRITTANY MILLS: Yeah. So as early as you can, you've got to check the federal timelines, you've got to check your school timelines, states sometimes have guidelines. So once you know, OK, this is what I'm doing, start researching the schools, your state timelines, and all of that, so that you can go ahead and--
How I want to do it when it's time for me and my son, go find out what school he wants to go to, find out what their timelines are-- keep saying deadlines, I'm sorry, but they're probably the same-- deadlines and timelines, and then from there, I can organize my steps based on what we're going to do. So I can tell him, look, this is what needs to be done, blah, blah, blah, blah, blah. Hopefully he'll take some initiative, we will see.
EMILY BIGHAM: Even if he does, I'm pretty sure you're going to be like, oh, no, no, no, no, thanks honey, but here's what we're actually going to do.
BRITTANY MILLS: Yep, exactly.
EMILY BIGHAM: Good luck to him.
BRITTANY MILLS: You know how it is.
EMILY BIGHAM: I wish him the best.
BRITTANY MILLS: We still like to see it though.
EMILY BIGHAM: A for effort.
BRITTANY MILLS: But that's pretty much the timeline I'm going to be on, is once I know for sure what schools he wants to go to, start getting those dates written down so that I can organize what we're going to do.
EMILY BIGHAM: So a lot of preplanning.
BRITTANY MILLS: Yep.
EMILY BIGHAM: And then, is it ever too late to apply?
BRITTANY MILLS: That, I guess, would be up to your school.
EMILY BIGHAM: Not everyone is Brittany Mills and--
BRITTANY MILLS: That would be beautiful.
EMILY BIGHAM: --was ready when your child was 8 years old.
BRITTANY MILLS: I'm sure they'll make some exceptions based on what happened in the past year.
EMILY BIGHAM: Well, also because there is some uncertainty. You just never know. So you never know what you're going to get back from your application, and then you never know what exceptions they'll make. But also, what if you're in school and then your situation changes and you need student financing, loans.
BRITTANY MILLS: You can apply.
EMILY BIGHAM: You can apply?
BRITTANY MILLS: Mm-hmm.
EMILY BIGHAM: At any time? So it's never too late any time?
BRITTANY MILLS: You can apply and see.
EMILY BIGHAM: OK. That's awesome. Well, is there anything that we haven't covered that you would like to talk about?
BRITTANY MILLS: I would just want to say that, this is to the students and to the parents as well, but we've all been through our own personal challenges this past year. And I would say, please take care of you. Take care of yourself. Whether it's through meditating, creating, connecting, caring for yourself, I think all of that is very important. And if you don't know how or what to do, your school might have resources. There might be resources in your area that you can use. But keeping your mind healthy is just important. And I feel very strongly about that.
EMILY BIGHAM: That's great. And I think the emotion, the stress that comes with debt and financing, reach out to your trusted lender and talk to someone about what you can do to help ease that. Because if we can at least relieve some of that stress, I think that's a big win too.
BRITTANY MILLS: Absolutely.
EMILY BIGHAM: All right. Well, I can't wait for you to circle back with me and tell me what's going on with student loan forgiveness.
BRITTANY MILLS: I know. Maybe I'll be back. Maybe I'll be back.
EMILY BIGHAM: Who knows? You never know. Thanks so much Brittany. It was great to talk to you and I hope you have a great weekend.
BRITTANY MILLS: You too. Thank you.
EMILY BIGHAM: And good luck to your son.
ANNOUNCER: 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 and participation with the military community does not constitute organizational endorsement. Navy Federal is an equal housing lender. Navy Federal Credit union are members on a mission. Insured by NCUA.
Episode 11: Student Loans 101
No matter when you're navigating the student loan journey, we want to make sure it's as simple to understand as possible. In this episode, we're joined by Brittany Mills, Assistant Manager of Education Lending at Navy Federal. Listen as we dive into all things student loans-from choosing between loan options, to meeting loan requirements and to creating healthy financial habits as a student. Tune in to get a closer look at what the changes this past year has meant for student loans and what to expect going forward.
EMILY BIGHAM: Hi and welcome to the podcast making sense. Brought to you by Navy Federal Credit union. I'm your host Emily Bigham and each week, I'll be taking your questions to the experts to help you make sense of your money unintended. Welcome to making sense.
Today, we're talking with real estate agent Josh Chapman, he is a local agent here in the D.C., Maryland Virginia area. Josh comes from a military family and has a lot of experience helping service members and veterans find their dream homes. Welcome Josh, how are you today?
JOSH CHAPMAN: I'm doing well, thank you for having me.
EMILY BIGHAM: Thanks for being on. So today's headlines said we are in a housing crisis and not to start off with a dramatic question but are we in a housing crisis?
JOSH CHAPMAN: So do you want me to answer that, yes or no? Because I could make an argument for both.
EMILY BIGHAM: I think maybe that's the point.
JOSH CHAPMAN: Exactly. So let me go with the yes answer first because if people see that headline and I'm sure you know anybody listening who pays attention to real estate probably has seen that. But the way that people interpret that of course, can be very, very different. And I would say yes, in the sense that we need more inventory.
And so it being as much of a seller's market as we're in, where buyers have to get and do just outrageously competitive things to win, yeah, I think one could probably call that a crisis. It depends on how you look at it. Of course, if you're selling that would be the opposite of a crisis, but yeah, it could be perceived as that with low inventory and the fact that it all started with COVID, and has been slowly getting better, but we're still not actually, we're still well below pre-pandemic inventory levels. So why don't we if I get specified inventory crisis. How about that?
EMILY BIGHAM: Yeah, I mean, I think that that's a good point that you bring up too because I think a lot of the focus is on the buyers. The first time home buyers. The fact that millennials happen to have a lot more cash than they used to and they're trying to find their first home but there isn't anyhow no homes for them to buy. What are some of the challenges that people are facing in today's market?
JOSH CHAPMAN: Well, so I think to touch on what you mentioned the specific age group, millennials being well enough capitalized to buy homes probably for the first-- at least the last few years, we've been seeing many more millennials than ever before buying. But because the inventory is so tight, one of the challenges is just being competitive from a financing standpoint. And I go into this later on and talking with your lender, getting that stuff lined up, but even just I'd say eight or seven years ago when I was first getting into real estate, when it was-- it's a competitive area.
Around Northern Virginia, D.C., Maryland, it almost always is but it was nowhere near as competitive as it is now. And you could have a client go out. You could take them to see five, six homes and they could say, all right. I'm going to speak with my lender now or Monday morning I'm going to call my lender, I'm going to get my FHA 3.5% debt which by the way that was how I bought my first home so there's nothing wrong with that loan product. But if you go and do that now, well, all right, half the homes you saw probably are already gone because the deadline was Sunday night or Monday at noon.
You didn't talk to a lender already, the house is already gone. All right. And then the other challenge is being able to be competitive without having overwhelmingly strong finance, but it is still possible. And that's kind of what the news doesn't touch on very often is that even if you're not somebody putting down 20% 30%, you can still compete with all cash buyers.
You compete with people putting down tons of money. You just have to be even more prepared. And I think that's what a lot of people are missing right now and maybe that's the biggest challenge is realizing just how much and how prepared they really need to be.
EMILY BIGHAM: Well what if you can't be prepared? What if you're a service member and you're told that you need to move in x amount of weeks and you have to find out I guess I'm selling my home, am I going to buy a home in the next place and I mean what if you don't have that time to prepare?
JOSH CHAPMAN: That's a good question, too. And I would say to anybody because actually I had a client recently that exact same situation. They were moving here from California, they're getting stationed here, and they were worried about that exact thing. They wouldn't have enough time to figure it out, but the reality is how it is. You can get prepared so fast. If you just spend 15, 20 minutes talking to your lender, you get the docs submitted, you can get a preapproval very quickly, then you talk with an agent in that area, and they're going to be able to tell you, OK, this is what you're pre-approved for and this is what you need. Maybe minimum bedrooms, maybe you have x amount of children or maybe you have to get a yard for your dog or whatever it may be.
All right. Here's the areas we can look at, if these are your minimum criteria and then you go from there. And it can happen in as quick as 24 or 48 hours. I mean, that's exactly what we did with this client he had to move very quickly. So you can still do it and I know that can be a little tougher sometimes if people are overseas or literally on if someone's on the water might be a little hard to gather financial documents while you're traveling or anything like that, but that's the good thing about how quickly things can move is if you at least just start the process early or as soon as you know. It can get done surprisingly fast. It's just you don't want to it once you've already found the home because it might not be that fast.
EMILY BIGHAM: Well, that's a really interesting point that you bring up because I think I don't know maybe 10, 20 years ago people were trying to find their dream home and now it's like well you're going to have to probably build your dream home. So let's think about what's really important here. First of all do you need to buy a house? Is this your first house or second or third, is this your nice to have, if so, maybe not a good time to buy a house. But you know I think that service members specifically are really good at this. It's like, all right. We-- I mean, they're good at managing a crisis.
So if there's a housing crisis but they need to buy a house, they're going to find a way to buy a house. And maybe it's lowering your expectations for what that home is going to be, perhaps it's lowering your expectations for a location, I mean, it can happen. And I think that people tend to forget how different parts of different cities become nicer, become less nice, I mean, there's always going to be fluctuations like this. And I think it's like kind of just setting aside the anxieties about like well what if and more like let's just do it.
JOSH CHAPMAN: That's key though, especially for the demographic you mentioned before. I think we're-- and this is something I talked to a lot of my-- I wouldn't even say millennial clients. It's just what makes up the majority of folks who might be buying their first home, but that could be anybody. I mean, I ultimately buy their first home this year and they were in their 60s. So it can be any age range and I think it's still-- I think the goal going into it can still be the same thing across the board and I think especially with folks who are military and what I always tell folks is look, we might be able to find something maybe it's a brand new home although these days brand new homes are hard to find, but everybody wants the brand new shiny object.
However, normally, if you focus only on the house, as opposed to the location, that's where I see the challenge is down the road. Come up and people are maybe a little more unhappy about the decision later on but most importantly, if you focus on the ability to grow in that house but also the ability for that house to not only be something you live in, but a great investment and you look at it as something where, all right. This is a home I could go into, I could live here right away, but it's also something where maybe I could redo the cabinets. Maybe I could redo the kitchen. Maybe-- any kind of cosmetic updates, things like that.
If you go into it and you find a house that has the opportunity to do those things and let's say a year later, two years later, you thought you were going to be in that area for five years and then you get stationed somewhere else, you get moved. Or if you've got a home that isn't completely remodeled or completely done, you don't have the ability to invest in that house, you could put whether it's 10, 15, 20, $1,000 into it really quickly, sell it, and now you have an exit strategy.
So if you buy a home that has a little bit of work that's still needed, you're buying something that's a little safer for yourself. Because you have the ability to increase the value of the home and get out of it and either make money or potentially just break even as opposed to if you buy something where you can't do any of those renovations. You are essentially waiting and the market is only going to dictate the value of your home.
And so I think military, folks first time buyers, anybody like that, if they look for something like you said lowering expectations is certainly one way to look at it or even just knowing like hey, maybe we don't need to search for the shiniest object or the most new home. Let's just find something that's in the most incredible location that we can find, that's going to make our lives better and our lifestyle will be a lot better. If you focus on that, everything else falls into place and I think that's the way to really, really look at it when you're just getting into first into home buying.
EMILY BIGHAM: So switching gears a little bit talking specifically about loan products, we have a lot I think the VA loan here is our number one loan. It may be federal but I've heard that potentially when you're putting in offers in this competitive time, is it difficult to win with the VA loan?
JOSH CHAPMAN: So that's like the first question. That's like the crisis question. I could say yes.
EMILY BIGHAM: Yeah, it is.
JOSH CHAPMAN: It's like an argument for it. And then I could say no and I could make an argument for that as well.
EMILY BIGHAM: How about yes, it's hard to win but there is a way so--
JOSH CHAPMAN: Yeah, exactly. Yes with the caveat. So I-- the majority of my clients are military. I think after this week, I think the majority of my buyers that I've closed this year I think it's going to be like over 65% VA. And so it's definitely still possible and it's been the majority of my business and so it is challenging yes, but also still possible and a lot of times have people come to me and they're almost defeated before they even start.
And actually I have a client like that that I'm going out with this weekend, who he's retired Air Force and he and his wife have wanted to look for homes for a while but they keep hearing all of these stories about their friends who are also military, who can't get their VA loans accepted. And what it really comes down to is the way that the sellers perceive them. Or well and/or the listing agents. And so it's very challenging because of all of the misconceptions that are going to surround VA loans, and listing agents who don't know much about them or owners, which they're not real estate professionals so they shouldn't know all about VA loans.
I think it falls more on the agents than anything. They think that if they go with that over a conventional, maybe it's because they're 0% down, or maybe it's just because of things they've heard on the news, that's not going to close. Or it's going to be more challenging. And the way to get those offers accepted though and that's-- we can certainly go into that in greater detail, is to just have an agent as well as a really good lender, who both understand the VA loan and all of the intricacies of the differences between VA loans, conventional loans, FHA, and then being able to explain them to the listing side.
And that's where it all starts is being able to just say, here's why my client is put in 0% down, they're approved for way more than they're buying for. Yes, this home is 650 and they're putting zero down. This person's approved to 900. They are probably even better. They're even more-- you know, these people could probably buy a more expensive home than some of the other people they're competing with, but the listing agent, if they don't understand the differences, they might look at somebody else and go, well, I don't know. I mean, they're putting 10% down. That seems, you know, that seems more secure. And just being able to explain why that's maybe not always the case. That's where it starts.
EMILY BIGHAM: So it's having a relationship with your lender but also having a relationship with your real estate agent who knows the area and who understands what your needs are. I want to talk a little bit about affordability because when you are talking about the 5% to 10% over, let's talk about rates for a little bit because I think that the affordability goes back to the housing rates, and they're so low. So if you think back to when the housing rates were high and home prices were low, that all evens out.
And another thing that I kind of want to get into a little bit is how the mortgage rates do not match what is going on in the economy, necessarily. It's pretty much tied to home buying, right? I mean, for example, the credit card rates, that does not match what's--
JOSH CHAPMAN: Right.
EMILY BIGHAM: --happening with-- like, the prime rate, I guess is what I'm saying. So if we talk about affordability because you're throwing out high numbers, that seem scary, but people can afford that. They might just know it.
JOSH CHAPMAN: Well, right. And that is kind of one of the other, I think, surprising things I see so much, and it's almost the opposite of what you would think. That's the generational thing that I do see more often. A lot of times, some of my older clients, if it is their first home and they were-- let's say the price is like the one that was just thrown out there. They might look at that and just think, that is so insane.
That's also because even if they didn't own a home, they still remember what prices were 10 years ago, 15 plus years, whereas millennials, a lot of times they're looking at it, and they're looking only at the monthly payment, which, frankly, is-- that's kind of the way you should approach it. You should look at your monthly payment because that's what--
EMILY BIGHAM: [INAUDIBLE]
JOSH CHAPMAN: Affordability. Exactly, and that's where rates do come in. And you're right. The rates right now, it is kind of detached a little bit from what you see. It's been fascinating to watch for the last year and a half, and don't want to try to-- if go into that too much in the relationship with the bond market, I think-- if anybody's made it this far in the podcast, they'll probably turn off, but--
EMILY BIGHAM: Or you might attract some different type of listeners. I don't know. I want to talk about the bond market. You know me.
JOSH CHAPMAN: Yeah, let's talk about the 10 year and how that-- yeah, but the reality is it's what we've seen over the last year and a half is just so unprecedented. And I know people are probably tired of hearing that in every aspect of life, but it's so incredibly true when it comes to real estate and lending. And if we go all the way back to March when this first started, 2020, right, when things started getting pretty crazy, right, March, April, and we saw what was almost one of the greatest liquidity crises as far as mortgages go, and rates were all over the place.
Well, then the Fed starts buying mortgage-backed securities. They don't buy enough of them, so then they buy too many of them. This causes rates to go up and down way more than they normally would. This causes huge issues for banks that, again, I'll try not to go too far into, but that-- then once we finally got out of that and banks were able to start lending to people again, restrictions were getting lifted, then rates were so low to really get everything-- getting the economy stimulated. And they're able to have these low rates because of how many of these mortgage-backed securities are being bought as well as some of those other things we mentioned.
And then all of a sudden, you have such a high demand of people who want to either buy or refinance their homes that banks were able to actually increase the rates for mortgages strictly based off of demand, which is insane. That almost never happens, at least to the extent that we saw. It really is mostly correlated with the bond market and some of those other things.
And so that now has started to taper off a little bit. The ginormous backlog of re-fis is getting worked through. At this point, the cat's out of the bag. People know, like, hey, rates are low. If somebody has wanted to lower their rate, at this point, they've probably done it. And if they haven't, the banks at least have the capacity to handle it now.
So then what you see is a lot of people who just want to buy it because of how low rates are, and it's making it really, really affordable. And your-- and I'm blanking right now. You had somebody on your podcast to talk about VA.
EMILY BIGHAM: Kevin [INAUDIBLE].
JOSH CHAPMAN: Kevin.
EMILY BIGHAM: Yeah.
JOSH CHAPMAN: Yeah. Yeah. Yeah. So Kevin made a really good point about how the benefits of the VA loan are-- the biggest benefit is rate, and it truly is the greatest loan product out there for veterans because you can get the lowest rate without having to do crazy things like having to buy points, or mortgage insurance, and all these other things that the general public does not have access to. And it's a great benefit for veterans, right?
I mean, they should have access to this, and that's what we're seeing in a lot of markets just like ours, right, the DC metro area and just places where there's kind of a heavy military population. The buying demand is just through the roof because a lot of VA buyers are looking at it, and they're going, these homes, even with prices going up crazy numbers like we just talked about, are still so affordable because they could go, all right, sure, if I-- and I'll use 500,000 because that's more of-- I think it's still closer to the median across the country. But if somebody looks at a $500,000 house, and it's increased 10% over the last six months, and now it's at $550,000, even if someone is putting 0% down, their monthly payment from $500,000 to $550,000-- even though $50,000 sounds like a lot of money, and it is-- the monthly payment difference has probably moved around $300 to $350, right?
It's not that much. A lot of people go, oh, well, $50,000 sounds like a lot, but I could stomach an extra $300 to $400 a month. That's manageable, and we have a lot of people saying that all at once. Then we go back to the very beginning of a potential inventory crisis because there's just not enough homes for all of these people who want to buy to buy.
EMILY BIGHAM: Yeah, I mean, and I have a lot of thoughts about the inventory, but I do want to go back to-- I have two questions for you. So refinancing, if you have a mortgage and you're thinking about refinancing, what rate would you say is high enough that you should refinance?
JOSH CHAPMAN: So that depends on-- and now I wonder if Kevin is going to come back and listen to this podcast because he's going to, hm, I wonder if he gets this right, but-- [LAUGHS]
EMILY BIGHAM: We can ask him.
JOSH CHAPMAN: No. No. No. No. So when you say high enough, do you mean-- if you have a rate that is a certain amount, at what point do you think you should take advantage of a lower rate, something that's lower than what you're currently at?
EMILY BIGHAM: I mean, how would know if-- like, say you bought a house, like, three years ago and your rate's a little bit higher than what mortgage rates are right now, like in my mind, I would just talk to my lender. And I would be like, hey, if I were to refinance, what amount of money would I save because I do know that there are some additional costs involved with refinancing, so I just didn't know. If someone had that question, what would you point them to? Would you say go talk to your lender? Are there online resources?
JOSH CHAPMAN: Yeah, so absolutely. You're correct. You talk with your lender, and what you really want to do is-- because hypothetically, if the rate is even the smallest amount below where your current rate is, like, what you could re-fi into is even just a hair below, there's still a situation that exists out there where that could make sense for somebody, right? And that's if somebody is going to have their home for a long time because if it only drops your payment by, like, $10 a month, well then what you have to do is go, all right, if this is going to cost me in closing costs because a lot of people don't realize that when you re-fi, you do have to-- there's title. There's all that.
You're basically closing again, and you can-- a lot of times, you can roll that into the loan. There's ways around that, but, still, it's going to cost money and-- most of the time. And so let's say you only make your monthly payment better by $10 but it costs you $10,000 to do it, OK, well, that'll basically take you 1,000 months to get to the point where that might be worth it, right, whereas if you look at it and you go, OK, this is going to drop my monthly payment by hundreds of dollars, right, and I know I'm going to be in this house for 10 years, all right, it's probably worth it.
But if you say, oh, I'm going to sell my house next year, I just want to drop my payment by 50 bucks until that time, well, your true out-of-pocket costs there is probably not going to make sense there. You're probably going to spend more refinancing your house than you'll actually save in monthly payments, so it all depends on what the lender tells you you can get versus what you're paying. And then you factor in, all right, how much is that going to cost, and what's my short and long-term goals for this home? And if you know kind of how long you want to be in the house for, then you can calculate your break even and figure out, all right, is this good or bad?
EMILY BIGHAM: Another question that I had was related to 30-year versus 15-year mortgages. And if the rates are low, are more people going for the 15-year mortgage because the rates are low, and that would mean your monthly payment maybe is less than what it might be if rates were high?
JOSH CHAPMAN: So I would actually take the opposite angle, and some people would be, right? And I think this is kind of an older generation thing that I see much more often. It's typically my clients who are older that do the 15 years because they're well capitalized enough to handle that larger payment. But if somebody takes a 15-year on a $500,000 house but they could also do a 30 on something at $700,000, most people say, it's around the same, and I'm getting a house that's a lot nicer. I think I'm going to go with that 30 because the rate is so low.
And so that's one of those other things where it's like if it's someone's forever home and they're putting 20%, 30%, 40%, just an absurd amount down, it's all the house they could possibly ever want, and they can afford a 15-year, totally. They're doing it, and it makes sense. But if somebody is just starting out buying or maybe it's their second home, third home, maybe it's-- it's not their forever home, they're still trying to get everything in a home that they really, really want but maybe they're not quite there yet, that's typically somebody who's going 30-year because the rate's low enough, they're not having to pay a ton of interest to the bank, and they're getting closer to not only getting the house they want but they're also-- they're able to get more leverage, right? And the more leverage you can use in a situation like that, by buying a home that's maybe $750,000 instead of $500,000, that's pretty huge because that then sets you up for greater success in the future. That's how you get to that point maybe 10 or 15 years away where then you do get to go do a 15-year mortgage on a forever home.
EMILY BIGHAM: Right, and you can refinance. So, I mean, we've talked a lot about what's happened the past couple years and what's happened within 5, 10, 20, some of the generational gaps and-- but where do you feel the real estate market is going? What's the future?
JOSH CHAPMAN: So this is one of those ones where it's so location-specific, right? And so I can-- I definitely have opinions about-- well, I got opinions about everything in real estate, right, but-- as you know because we talk about it all the time. But I think for the broader market, we're in a really good spot now, and I know there might be some people listening who are probably thinking like, oh, I mean, of course, the real estate agent thinks that it's a good time to be in the real estate market, right? I mean, yes, of course, I am biased.
However, because I am in this, and I do pay attention to it so much, and I enjoy looking up various data points, and information about the housing market, things like that, it's-- what we're seeing right now is so wildly different from what we saw in 2008. And I think that's-- I think you have to almost go backwards a little bit before you can start thinking about the predictions forward, right? And so in 2008 and everything that led up to it, you had a ton of people buying homes they couldn't afford. They were getting loans for homes that nowadays they couldn't even come close to buying.
It wouldn't even be a consideration. They couldn't even write the offers on these homes because no lender would give them a preapproval for it. So you had prices that were going up. It was very artificial. The prices were only going up because they were getting pushed up by fake buyers, essentially.
EMILY BIGHAM: But then really quickly by 2008, you mean the 2008 housing crisis, where there were a lot of subprime mortgages, people basically allowed to buy-- I just--
JOSH CHAPMAN: Yeah.
EMILY BIGHAM: For those who aren't aware of what happened in 2008, we're a little older now than we pretend we are.
JOSH CHAPMAN: Yeah. Yeah. Well, and so you had a ton of people buying homes that they couldn't afford, and there was very little equity in these homes.
EMILY BIGHAM: Right, but they didn't know they couldn't afford them.
JOSH CHAPMAN: Well, you'd be surprised.
EMILY BIGHAM: I mean, lenders--
JOSH CHAPMAN: Yes, it was-- well, it's almost like with-- and you can still find this with auto, and auto loans, and stuff. You could just call somebody, and, I mean, we're talking no doc loans. You're not giving any documents or very, very little. You're basically just saying, yeah, this is my income, and, yeah, this is-- yeah, I mean, this is what I make.
Sure. And the lender says, OK, here's your money. And everybody was doing that because they saw home prices going up and going up quickly, which is why I get this question a lot because home prices are appreciating quickly right now. It's very, very different.
And so they're thinking, whatever. If I can't afford it, it doesn't matter because I'm going to make money off this in a year or two years. Everybody thought they were going to be a house flipper, and everybody was buying multiple homes, investment properties. Everybody had these grand ideas of just making tons and tons of money off of every house they bought, so they didn't really care about over-leveraging or buying homes that they truly could not afford.
And now we have the complete opposite, right? Now we're seeing some of the most competitive situations across the country that we've ever seen, and a lot of times the folks who are winning these competitive situations are the folks who have the most capital. They are able to afford these homes 10 times over, and you have a lot of equity. And so the-- I know that in the country, I think in the US, 38% of all homes right now are owned free and clear so no mortgage, right? That's a wild-- that's a very, very high number.
And then there's almost 18 million residential properties that were considered equity-rich, meaning at least 50% equity. And so there are more homes with more equity right now than ever before. So even if prices were to fall 2%, 3%, 4%, 5%, these people aren't hurting.
These are not people who are going to have to scramble to sell and foreclose on their homes because if they sell them, even if it's at a lower price than what they might get today and they sell it for 5% less six months from now, they still make money. The bank doesn't have to take their house. They didn't make as much money as they could have, but the bank doesn't take their home. And if you don't have a ton of these foreclosures and stuff like that happening, it-- the market is a better place for it.
But the other thing is that there is-- we have had decline in inventory for years and years, and that's why prices are going up. They're not going up because you have these basically nonsense loans being given to anybody with a heartbeat. They're going up because of supply and demand. I mean, it's the purest example of that kind of basic economics lesson of supply and demand.
And so that is-- I think that things are going to keep going up. I think that the best way to look at it is very location-specific. Again, talk with a good local agent and lender, but things would-- the amount of homes that would have to hit the market all at once to have any impact on price right now, because of how incredibly high demand is and how wildly low supply, is just almost unfathomable, and so I think that predictions for at least our local market, very, very strong.
And then I think for the country as well with people being able to work from home a little bit more than before and being able to move to a lot of these places that have more affordable cities and things like that, it's going to probably be pretty strong for a while. And what I'm hoping-- this isn't so much as a prediction as it is a hope. I just-- I hope that we're just going to start seeing homes selling for maybe 2% or 3% over ask in some places, instead of 10% over ask almost every time, and competing with just a handful of offers, as opposed to 15 or 20. And I think we're actually already seeing that a little bit, and so I think that's going to continue. But I think it will still very much be a seller's market.
EMILY BIGHAM: So sellers market. So basically, as far as predictions, because sometimes you'll read we're in a housing bubble, or people try to compare to 2008, or they talk about inflation, this and that, so what you're saying is, I mean, it's supply and demand. So there isn't as much supply. The demand is still going to be high.
However, maybe it'll be less of-- the spikes and the rises and falls, it'll be less dramatic and more just, OK, yeah. So, I mean, what advice do you have for any service members or veterans out there who want to buy a home? They need to buy a home. They have a VA loan. What should they do today?
JOSH CHAPMAN: All right, number one thing, and this goes for whether you're using a VA loan and anyone. If you are even considering buying a house, speak with a loan officer immediately, right? And this is not just--
EMILY BIGHAM: Talk with a loan officer.
JOSH CHAPMAN: Yes, and it's not me trying to plug NFCU. I'm not trying to push people. I'm not saying, hey, call NFCU right away. The reality is that is what you have to do. You have to do that because if you don't do that, you have no way of knowing if the homes you're looking at online, on whatever website you choose to look at homes on, you don't know if you might actually be able to afford those.
And either one of two things is going to happen. You're going to get to the point where you want to go see them, and you're going to see it, and what if you can't afford it? All right, well, that's never a great feeling, or you might go out and look homes, and you might get very disappointed in the homes you see because they're not homes that you want to buy. And then you might say, oh, never mind. I'm just going to give up, but you might actually be able to afford more.
And so it's important to just know where you fall on that price spectrum and what you're comfortable with because once you know what your monthly payment can be and what you're good with as far as monthly payment goes, then you can really start looking. You bring that monthly-- you bring that preapproval to an agent in your market and you say, OK, here's what I'm comfortable with. Here's the type of stuff I want in the house. Where do we start looking?
And I think specific to veterans, though-- and I know I touched on this before, but I think it is really important. I think when it comes to using a VA loan, the really important way of thinking about it is not so much first thinking about the benefits on your side, right, on the buyer side of things. Try to first understand why the selling side might look at it as a disadvantage right up front. That's what your agent has to communicate to the other side. And if they do it from the beginning, that's how you'll set yourself up for success. It's the only way to win is knowing what the other side-- knowing what your competition is doing and knowing how the other side is going to think about it when you present your offer.
EMILY BIGHAM: Well, I mean, that's classic how to win.
JOSH CHAPMAN: Yeah, but you're a very competitive person.
EMILY BIGHAM: You've given such great advice, and I really appreciate you going into detail and really explaining how everything leads up to this really pivotal point in a service member's life. And I think just understanding the background, just you can kind of cut out the noise that you read in the media. You can cut out the noise that you hear from people who think they know everything but they don't. But also that's a lot of stuff to have to think about constantly, and with the market changing as much as it is and how you have to just be ready to jump on houses when they come up, I think it would be best to just find a real estate agent.
JOSH CHAPMAN: I will add one more thing too. This is something I tell every veteran that I work with. We talk about the financing, appraisal stuff. If you know going into it that you are going to be making the best offers you possibly can, that you are the most comfortable with, and there might still be agents on the other side who just don't get it, right, and you know that that's out of your control, and that it might happen, you're going to be a lot happier going through the process because, eventually, you are going to get through. Sometimes it's the first house. Sometimes it's the third or fourth house.
And as long as you know that what you were doing, and the agent you're working with is rock solid, and they understand the VA loan, and how to convey it to the other side, even if you don't get the first few, you are going to find a good agent on the other side who does get it and who will understand why your loan is not the disadvantage that maybe some of the previous ill-informed agents-- maybe what they did not get. So don't be discouraged. It's still very much possible. Definitely don't avoid getting into the market because of stories you hear about VA loans. Don't avoid trying to make offers just because of the potential for issues. Definitely still get out there and just find a good agent who will make it happen, and it will happen.
EMILY BIGHAM: I like your optimism. It makes me happy.
All right, last question.
JOSH CHAPMAN: That's part of my job.
EMILY BIGHAM: Last question before I let you go, and it's rapid fire. You can only answer with one word. My condo-- rent or sell?
JOSH CHAPMAN: Sell.
EMILY BIGHAM: [GASPS] Great.
JOSH CHAPMAN: I know I'm going to get-- see, but what a real estate agent thing to say though, see, because without being able to explain why.
EMILY BIGHAM: I don't want to hear it. I don't want to hear it. I don't want to hear it.
JOSH CHAPMAN: I know you don't.
EMILY BIGHAM: I don't want hear the why.
JOSH CHAPMAN: Sell.
EMILY BIGHAM: I trust you.
JOSH CHAPMAN: Sell.
EMILY BIGHAM: Oh, OK, well, that just-- all my anxiety just left and I'm going to sleep well tonight. All right, well, thank you so much, Josh, and, again, I really appreciate you spending time with me this morning. And as always, talking real estate, I love it. It's awesome.
You just know so much about the military and veterans, and you do so much for them. I really appreciate all of the hard work that you do and put into finding them homes, so thanks so much.
JOSH CHAPMAN: Thanks [INAUDIBLE]. No, thank you so much for having me on, and that's really kind of you. I feel like it's always one of the most rewarding things for me, being able to help veterans get into homes. And with parents who were veterans and having to move around so much as a kid, I know how important it is to have a place to really call home, so it's the least that I can do to try and help in any way I can. So hopefully this was good, and if-- I would love to come back on if anybody has any good questions later because real estate's always changing.
MAN: 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 and 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.
Episode 10: How to Place a Winning Offer on a Home in 2021
Buying a home for the first time can seem like a daunting task, especially in today's market. In this episode, real estate agent and military family member Josh Chapman joins us to discuss his history of working with servicemembers during their home-buying journeys. Emily and Josh will cover home-buying tips, VA loans, today's market and common mistakes to avoid when searching for your dream home.