Confusion, Misinformation and the VA Loan

Jennifer Barnhill is a columnist for Military.com writing about military families.

The VA loan is designed to help and protect service members as they buy a home. Don't have enough for a 20% down payment? No problem, the government will back you up. Want to avoid buying a money pit? Department of Veterans Affairs inspectors will help check things out.

But a VA loan isn't always well received or understood. Lenders worry about liability, while sellers fear delays and that VA buyers don't have the money to cover closing costs.

When it's a seller's market, seeing a VA or Federal Housing Administration (FHA) loan may result in instant dismissal of an offer, one more area of life in which service members must convince civilians to support them.

My husband and I just bought our first home after years of life overseas and being stationed in cost-prohibitive areas. For those who have not spent all their free time stalking homes on Zillow, the housing market is insane right now, with low inventory, high prices and soaring interest rates. I reached out to a realtor whom a military friend recommended. Because we were still living at our old duty station, we relied upon her to show us homes via FaceTime and to recommend a lender.

All the homes we liked were flying off the market, ending in bidding wars. When we put together our offer, we wanted to be as competitive as we could afford to be. Our lender told us to make two offers, one with conventional financing and one using my husband's VA loan benefit. Although both of our offers were our best and nearly identical, the sellers requested we go with the conventional loan.

We pushed back, and our lender and realtor convinced the seller's agent to "let" us use the VA loan. We were lucky: It worked, and we closed on time. Had we made different accidental choices, our outcome might have been very different.

"[The VA loan] has been a turnoff for a lot of agents," said Evan Kaufman, an Air Force veteran who has worked in the industry for more than 10 years as a realtor and lender. "They're used to VA appraisals having a lot of issues, and I can totally understand that. ... I like to say, 'VA loans aren't difficult. They're different.'"

He shared that professionals in the industry are often not very familiar with VA loan policies and work off of old information -- often because the VA is regularly updating policies to improve the benefit. However, this leaves many in the real estate industry with outdated impressions that impact their ability to help service members and families, such as that VA loans take longer to sort out.

The average time it takes to close on a house is roughly 40 days nationwide. According to the VA, the average VA loan takes 32 days to close, with some closing even faster. And VA loans are no more likely to fail to close than conventional loans, despite the dreaded VA appraisal process. So why is it that there is a nationwide impression that VA loans are slow?

"[Large VA lenders] had a lockdown on the industry for so long that there's never been anyone pushing them to move faster," shared Jennifer Beeston, senior vice president for mortgage lending at the company Guaranteed Rate, who was drawn to help veterans access the VA loan because her father served in the Navy. "Whereas with conventional loans, jumbo loans, there's always been this competition to move faster. There's always been a lot of rate shopping. That's why, if I'm talking to a conventional buyer, I don't see the huge rate discrepancies that I'll see with VA [loans]."

It may be that these larger military lenders have, because of their sheer size, set the expectation for what it is like to deal with the VA loan, not because the loan is overly cumbersome, but because there is no perceived need for them to pick up the pace.

Additionally, celebrity financial experts like Dave Ramsey have publicly and repeatedly stated that the VA loan is the worst type of home loan because of fees, something that contributes to the way the loan is perceived by civilians.

"VA is such a good loan," said Beeston. "Every single veteran should fight to use it. And if they have a buyer's agent discouraging them from using it, they need to switch agents."

There are any number of benefits built into VA loan policies that can help buyers.

"If the VA appraiser ever believes the value might come in under the price of where the contract is, they actually have to give notice to the lender, which typically gets relayed to buyers and agents," shared Kaufman. If that happens, the agents can essentially negotiate or justify why they have valued the home at that rate and present their case, which can result in an adjustment to the appraisal. "No other loan type does that, and that's a huge benefit."

Unfortunately, when VA loan rules or policies are misinterpreted by industry professionals, it can cost veterans thousands of dollars.

Melissa Wilkerson and her husband were both serving on active duty in the Navy when they bought their first house in 2001. They started their search by finding a realtor. As is common within the community, they asked around to see whether anyone they worked with had any recommendations. One of their shipmates connected them with a military spouse realtor, and they started their search.

"We didn't know anything about interviewing realtors," said Wilkerson. "She told us we both had to request our certificate of eligibility, and we both had to use [our VA loan benefits], and that's definitely not the case."

They assumed because their realtor was military-connected that she understood the rules associated with using the VA loan.

However, the Wilkersons came to understand that only one of them needed to activate their VA loan benefit and, in trusting a realtor who was not familiar with the policies, they lost thousands of dollars in increased fees when they later wanted to use their VA loan to buy their second home.

The military institution relies upon service members following orders and deferring to authority. However, when this mentality is carried over into the civilian world in the fields of medicine and education, where advocating for one's needs and rights is essential, service members may have to navigate a dangerously steep learning curve. When service members defer to authorities like realtors and lenders when buying a home, and don't interview realtors or go rate shopping, they unknowingly put their financial readiness at risk.

"You just blindly assume this is a military connection, they're going to take care of us," shared Yvonne Coombes, Army spouse and director of military outreach for Guaranteed Rate. "And I think that that's kind of how [we operate] with some of those bigger institutions as well, how we blindly assume we've always had our insurance with them and our banking with them, and everything else they've always taken care of us on all these other things. So, we just kind of blindly go with them."

Because the VA loan represents only roughly 10% of all home loans, the VA knows the importance of educating veterans and industry. "[The] VA actively monitors the performance of the VA Home Loan program through data analytics. This information is used to counter the inaccurate portrayal of the benefit and educate both veterans and industry partners," wrote VA Press Secretary Terrence Hayes in an email response to Military.com's questions.

After her buying her first home, Wilkerson continued to encounter professionals who did not understand the VA loan. She ultimately decided to use part of her GI Bill to take a real estate course, so she would be better able to navigate the homebuying process and advocate for her family to be able to use her hard-earned benefit.

Before military homebuyers learn these tough lessons, they do what comes naturally to them. They look to the community for support and resources. Some may do additional research ahead of time; others learn the hard way that they should have asked more questions. Some (like me) just get lucky. But in simply using the benefit and relying upon the "experts" to safeguard their interests, service members may be unknowingly playing a game of real estate roulette, when they think they have found an easy button.

"Part of it is the culture of following orders, but the other part of it is we're tired," said Coombes. "In this military life, there's so much good about it, but it is a constant battle every time you move to get your life smooth and get everything settled and be able to exhale, to then have to do it again two to three years later. I think some of it is that people are tired. So, when it comes to buying a home, they hit the easy button, but the easy button isn't necessarily easy on your bank account."