VA Home Loans: Loan, sweet loan

Gene Parker and his family needed to relocate. A game warden assigned to a new region, in eastern Tennessee, he and wife Susie agreed on just the kind of place they wanted: a house large enough for their family of four, office space for Gene, with some acreage around it. They did not want to be sandwiched into a subdivision.

They had a price ceiling. No more than $150,000. On top of that, they needed to move quickly. The couple, along with daughters ages 3 and 6, had been staying temporarily with relatives. That situation meant an hour-long commute to work for Gene, a 33-year-old former Marine Corps reservist.

Their search was difficult. "There aren't that many houses with land for sale," Susie explains. But once they finally found what they were looking for, Gene's VA Home Loan benefits helped them move quickly to close on it.

Susie had taken on the task of searching for their home. Each day for more than a month, she checked listings. When she found a few that seemed promising, she looked at them with a real-estate agent. Some were foreclosures, but they still weren't bargains. Many were in bad shape. She soon decided it wasn't worth the trouble to search the foreclosure market.

Houses that looked promising online often had undesirable characteristics when she inspected them in person, she explained. For instance, she liked a log house that was featured on the Web. The photo, however, failed to show how close it actually was to neighboring homes.

Susie visited at least 20 houses without finding what she wanted. "I'm very particular," she says.

In desperation, she started looking for rental houses they could live in until they found a home to purchase. Their older daughter, who was just starting first grade, had already been going to school for about a month. They wanted to get her enrolled in a new school as soon as possible.

Then Susie found a listing that seemed reasonable and decided to take a look at it. When she pulled up to the house, she was pleased to find an unexpected welcoming committee: three young deer standing in the yard. The inviting front porch, a fish pond and fountain on the house's 1-acre lot, along with the woods in back, added to the outdoor allure.

Delighted by the home's exterior, Susie ventured inside and discovered an interior that was anything but a disappointment. "I fell in love with it from the time I walked in," she says. "Whoever lived here really loved their house." The place had hardwood floors, brand-new appliances, paint colors and a style that she liked. Other than fixing a grout problem in the bathroom and staining the front porch, the 11-year-old home was in fine shape. "We were so glad to finally find a place," Gene says.

The 1,600-square-foot house had three bedrooms and 2-1/2 bathrooms and provided enough room for Gene's office. It even had a shed where he could store the state-owned, all-terrain vehicle he used on the job. A nearby stream provided a launch site for the boat he also used as a game warden.

The price was $139,500, well within the Parkers' range. They made an offer to the homeowner and were able to negotiate a final price of $134,500, with the seller paying $5,000 in closing costs.

However, in the midst of the subprime mortgage crisis, when lenders had become wary and credit was tight, could the Parkers move quickly and arrange the needed financing? They soon discovered that they could, thanks to Gene's military service.

With help from their real-estate agent, the Parkers explored the option of using the Veterans Affairs Home Loan Guaranty program, which provides lenders an added level of security against default, in the form of a federal guarantee. Many lenders, as the subprime mortgage problem has evolved into a full-blown economic crisis, are more than willing to work with veterans who use the program.

The Parkers needed to secure the required documentation to prove Gene's eligibility for the loan benefit. The process seemed easy enough; all they had to do was produce a copy of his honorable discharge certificate from the U.S. Marine Corps Reserve.

They did not have it readily at hand and had to order it. "They were slow in getting us that certificate," Susie says. "We had to extend our close date." After nearly two weeks, it arrived.

The couple also ran into a stumbling block when they tried to find a broker to arrange for a lender who would provide a VA-guaranteed mortgage. Their first attempt was unsuccessful. "She didn't want to do it," Susie says, leaving her to wonder whether some brokers are uninformed about VA home loans. But their real-estate agent led them to mortgage broker Dan Hall, an Air Force veteran who knows the program's ins and outs and helped them through the process.

The Parkers had to provide proof of their income. They rounded up check stubs and bank statements. It took about two weeks to get everything together. But once they had gathered all the necessary materials and completed all the paperwork, they were approved for a VA loan within one day.

The process also called for an assessment of the property's value by an appraiser selected by VA. The evaluation showed that they were not over-paying for the property. The appraiser set the value at $139,500.

Hall arranged for a 30-year-fixed mortgage with Chase at a 6.375-percent interest rate. With the help of the VA benefit, the Parkers received the loan with no down payment or need for mortgage insurance. Their broker also helped them successfully apply for a waiver of the $2,995 fee Gene would have had to pay to VA for use of the loan benefit. He qualified for the waiver because of service-related problems with his feet. He says he wouldn't have been aware of the waiver option without their broker's help.

He especially appreciated the broker's assistance in dealing with the paperwork. "I think he did an excellent job in helping us to get it done in the time frame," Gene says.

"He was my miracle worker," Susie says.

Three weeks after they made the offer, the deal was closed. They had a VA-guaranteed mortgage and the home they wanted. "It went really fast," Susie says.

Today they are all moved in, delighted with their purchase. "We got what we paid for," Susie says. "Our house is very nice."

"If you can get a VA loan, I would recommend anyone getting it," she says. "But it all depends on finding a good mortgage broker who is willing to help you."

VA Loans. Air Force veteran Nelly Cooper faces the possibility of losing her home in a working-class neighborhood of Oceanside, Calif., where she has lived for five years.

Cooper says she got into her mortgage quagmire after she was poorly advised by financial representatives, who told her she was ineligible for a VA-guaranteed loan and urged her to get an adjustable-rate mortgage she thought had a fixed rate for three years. Instead, it started rising after about one year.

Like many others in the midst of the subprime mortgage crisis, she has struggled to make payments as the adjustable rate has soared and the value of her house has shrunk. "I couldn't possibly sell the house now," she says. "I would walk away with nothing."

Few of her fellow veterans in California have been getting VA-guaranteed loans. With the maximum loan amount for a no-down-payment VA loan generally set at $417,000 in 2007, many borrowers in that state couldn't use the program. Only about 140 California borrowers got VA loans last year, compared with more than 3,000 five years ago, says House Veterans Affairs Committee Chairman Bob Filner, D-Calif.

Nationwide, guaranteed VA loans plummeted from about 490,000 in 2003 to 133,000 in 2007 for several reasons. The increased availability in recent years of conventional loans with low initial interest rates, no required down payment and less stringent eligibility standards offered what might have appeared at the time to be an attractive alternative to VA loans in many parts of the country.

As California mortgage broker Pete Ogilvie sees it, the inability of many borrowers in his high-cost state to use government-guaranteed loans has contributed to the increase of subprime mortgages. "People turned to the other alternatives because they couldn't get VA loans, they couldn't get FHA (Federal Housing Administration) loans," he says. "They would have to resort to subprime kind of loans."

Ogilvie, president of the California Association of Mortgage Brokers, says the VA home-loan ceiling is so far out of line with California that he has seen the program go from a major part of his business to nearly complete disappearance.

Many reasons for lack of interest in the program have also been suggested, including what many view as an onerous fee charged to most veterans for use of the benefit; a misperception by real-estate agents, lenders and borrowers about the red tape involved in the process; and lack of awareness of the benefit.

Cooper and other panelists explored VA home-loan issues at a November public forum conducted in Chula Vista, Calif., by Filner. He got an earful.

The VA loan benefit is "irrelevant," charges Filner, who was struck by how little it is used. "Nobody has really made a deal out of it," he says. "It's just as if the program disappeared." Soon after, he introduced legislation to address his concerns.

Judith Caden, director of the VA's Home Loan Guaranty program, would also like to see some changes. "I don't think veterans should have to pay to use the benefit," she says. She notes that the VA loan service does not have the authority to change the fee requirement.

VA has addressed one nagging past concern of borrowers, lenders and real-estate agents: the slow application process. "There is a lot of misconception," Caden says. "We've done a lot to streamline the program. Other than having to get a certificate of eligibility, it's really no different than getting a conventional loan."

Since being enacted as part of the 1944 GI Bill, the program has guaranteed about 18 million loans totaling about $935 billion. For many, it has proven the only route to financing. A 2004 report evaluating the program said 82 percent of first-time VA loan borrowers could not have qualified for a conventional loan.

During the recent tumultuous times in real-estate financing, VA has helped veterans with guaranteed loans to avoid foreclosure. In fiscal 2007, foreclosures were prevented by VA interventions in about 8,500 cases.

Still, in November, there were about 3,000 foreclosed homes financed under the program on the market. The numbers were highest in Colorado, Georgia, Illinois, Indiana, Michigan, North Carolina, Ohio, Tennessee and Texas.

Many veterans struggle to pay their housing costs. A 2006 American Community Survey by the U.S. Census Bureau found that the median monthly house cost for owners with mortgaged homes was $1,402, while median annual veteran income was only $34,437. "The average veteran can't afford the median monthly cost for housing," says Ronald Chamrin, assistant director of The American Legion's National Economic Commission.

VA home-loan representatives realize the risk and the reason the program exists, to give veterans a leg up in return for their service, and to give them a sense of security, in case things don't work out. In this era particularly, it's a benefit no veteran wishing to buy a home should ignore. Says Caden, "I would encourage all veterans to consider it, because it's a good program."

Margaret Davidson is a freelance writer living In Wisconsin.