Shatter Your Myths About VA Loans

November 1, 1997

It’s been five years since the Department of Veterans Affairs streamlined its loan process. But Keith Pedigo, director of the VA Home Loan Guaranty Program, Washington, D.C., believes there are thousands of veterans who could be homeowners but aren’t because of misconceptions about the program.

That means there are potentially thousands of prospects waiting for you.

With Veterans Day right around the corner--Nov. 11--now may be the time for you to incorporate vets into your marketing plan and find out how the VA program can help fuel up your business.

The VA program hasn't always been light on red tape, but in recent years it’s been revamped to make it more user-friendly.

Like a lot of people in the real estate industry, Matt Kochman doesn’t have many fond memories of his early dealings with the VA Home Loan Guaranty Program. “VA used to have a requirement that the seller had to pay the buyer's points. That was a deal killer, plain and simple,” says Kochman, a longtime broker who operates Century 21--Coventry, Seldon, N.Y. “They also used to bust your chops over silly stuff. But that’s all changed now.”

Rules changed in 1992. Among other things, the seller is no longer required to pay the buyer's points, which has made the program very attractive to veterans. “But I know many people who still have a bad taste in their mouth from the way it used to operate,” Kochman says. “I’d bet that in every market across the country there are dozens of brokers and lenders who don’t know about the change or don’t want to know.”

VA Now User Friendly

That’s a notion not lost on Pedigo. “There has been, and continues to be, a misconception that the VA program entails a lot of red tape and is costly to the seller,” Pedigo says. Probably the most vexing misconception is one involving interest rates on VA-guaranteed mortgages. Before the rules changed, the VA set the rate on the loans.

“You'd have the VA set the rate, say, at 9 percent, but the market would be volatile, and the market rates were 10 percent,” says Patricia Boyd, president of Patricia Boyd Seminars Inc., a real estate industry training organization based in Arlington, Texas. “Then the seller had to make up the difference by paying discount points. That cost thousands, and sellers would back out,” says Boyd, whose career has included work in both the selling and the lending ends.

“Once the VA realized that it wasn't doing vets any favors and stopped setting rates and requiring sellers to pay points, the program got as easy as any conventional loan program.”

Even though vets are now free to negotiate rates and points, Pedigo still has work to do. “It’s very difficult to eliminate a misconception once it sets in,” he says, “and we’ve tried to get the word out to the real estate industry that the VA program of the ’90s is not the program of the ’70s and ’80s.”

“Brokers and salespeople who won't take the time to understand this program will miss a few deals every year,” says Robert Green, a mortgage banker at Smith-Haven Mortgage Corp., Melville, N.Y. “We're talking about $10,000, maybe more, over a few years that would go into their pockets. There are vets out there who don’t know much about the VA program. These are people who probably could buy a house if they did know more.

“Real estate practitioners ought to include something about VA loans in their advertising. They could generate some traffic in their businesses.”

The advantages of veterans using a VA-guaranteed loan to buy a house are many, Pedigo points out:

  • No downpayment in virtually all cases
  • No monthly mortgage insurance
  • Loan amounts up to $203,000
  • A debt-to-income ratio as high as 41 percent
  • Reduced up-front costs to buyer
  • Loan is assumable

Scott Locke, who recently retired after 20 years in the Navy and used a VA-guaranteed loan to buy a three-bedroom house in Marysville, Wash., says that when he began his search for financing, “some banks flat turned me down when I asked about a VA loan. They said, ‘There's too much paperwork,’ but I eventually went to a bank that said, ‘No sweat, it’s a piece of cake.’”

You Can Make Some Money

John Ellis formed his company, VA Homes Inc., Burlington, Wash., in February primarily because he felt that veterans were not getting enough information about the VA loan program from the real estate industry. “I just had this feeling that real estate practitioners weren’t doing enough to help vets looking to buy their first homes,” he says. “They can truly help vets get into a house and can also make themselves some money if they take the time to learn about the VA loan program.”

Ellis, who, with Helen Stanosek, coauthored VA Home Buyer's Guide and has established a Web site (, suggests that practitioners ask all potential buyers whether they’re veterans. “When you're doing your prequalification, just ask,” he says. “If they’re vets, they might qualify for a larger house, and they can cut costs. But if you don’t ask, you won't know.”

“Those who don’t ask probably haven't done enough research into the loan program's provisions,” says Patt Combs, a broker at Cutler/Marting Realty--Better Homes and Gardens, Stow, Ohio. “Almost invariably, in dealing with the co-broker, I get a lot of questions. It’s a shame, because I really believe there's a whole, untapped market out there.”

Pedigo estimates that VA loans account for about 7 percent of the national mortgage market.“That’s a small but significant share,” he says. “But it could be higher than 7 percent.”

He also thinks that, to some degree, those who are the first point of contact--the salespeople--have the best opportunity to help the VA increase the share.

The numbers offer testimony that the word is getting out. The 10-year average, from 1987 to 1996, of VA loan volume is about 260,000 a year, Pedigo says. But in 1996 there were 320,000 loans made. What’s more startling is that while loan volume is increasing, the pool of veterans is declining, because the majority of veterans are from World War II.

Green, the Melville, N.Y., mortgage banker, has a suggestion about how to spread the word. He says that when salespeople have local seminars, they should invite a representative from a regional VA office who has a background in the loan program. “It all starts with a little ingenuity, and then you make connections,” he says. “Once you do that, you add some income and get a vet into a house.”

Make Web Your First Destination for VA Info

If you're looking for facts about the Department of Veterans Affairs Home Loan Guaranty Program, here are a few Web sites with easy-to-understand information:

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