Links & Resources Mentioned:
https://www.directorsmortgage.com/loan-officer/adrian-schermer
Episode 17 Transcript
Intro 0:02
Welcome to the get-rich, slow podcast. This is the stuff our expert guests and we wish we knew a decade ago to get the most out of our financial life will provide you with insight into wealth-building activities and practices that can expand your net worth exponentially. Get insight from top professionals who will reveal how to build wealth the long way, work smarter, not harder, and identify your financial blind spots with over 25 plus years of experience as licensed real estate professionals and a long track record of winning for their clients. Robin Adrian will teach you what it takes to be an everyday real estate millionaire.
Adrian 0:42
Hello, future millionaires, and welcome back to the get-rich, slow podcast. We are your co-hosts, Adrian Schermer and Rob Delevan. How’s it going today, Rob?
Rob 0:51
Wonderful. Thank you for asking.
Adrian 0:54
Today, we want to take some time to talk about a specific type of loan product; we’re going to take some time to kind of park on different ones. But we spend a lot of time talking about conventional. We have a planned future episode for USDA Rural loans; look out for that popping up. But today, I want to talk about not wanting to bite my tongue because I don’t want to give too much bias. But this is truly my favorite type of loan to do. Okay, when I get a client who says yes to the question, Are you a veteran? Yes, the first thing out of my mouth is to thank you so much for your service. Right. The second thing is we are about to have some fun, because short of a few minor, you know, cons to all the pros, that the scale is tipped deeply heavy in the pro side and I grew up with my grandfather held the highest enlisted rank in the Air Force. He was a chief master sergeant in the Air Force, and as a mechanic, I have a lot of pride in the military and what they accomplished for this country. I know there are things that people have to say that are negative, but those that serve to make a choice to do so. And I think that there’s a lot of good that has been done. And that a lot of good comes back out of it too.
I talked to veterans who feel like, you know, the military was a stepping stone in their lives. And of, unfortunately, the negatives that we hear when we talk about the military from military members is that the VA tends to drop the ball in certain areas. And you know, you know, people who work at the VA hospital. Right? Right. And you know that there are some things that I think we could do better as a country, but there are some programs that are very, very good. And one of the best ones has to be the VA home loan, the
Rob 2:46
VA loan. So before we jump into more of the particulars of the VA loan, let’s just spend a minute or two on the fact that you aren’t in. I believe this has been the case for you. But for myself, I have family members. I have close friends who have all served. And they were just a lot of them. Almost all of them have this story of Amen. You know, I was 1819 years old, grew up, didn’t know what to do, and made that choice went into the military service for, you know, for six years. Typically now it’s six, popped out on the other side as like just ask kickers, these, they just go through they are production specialists in whatever they do. It doesn’t matter what they did, typically, in the military. It’s more about the attitude and the giddy-up that is provided going through that life-altering situation. They’re rarely considered themselves, you know, the victimhood mentality, these guys are just they go out there, and they kick butt. And therefore, they’re some of my favorite people, as friends and family members, but also as clients because they’re demanding, they know what they want. They want results, all of those sorts of things. They want to know what’s going on; they will ask questions. You see, they’re the best type of college students, right, the 23, 24-year-old, that just blast through college, it’s been paid for it usually through the GI bills and that sort of thing. But it’s just that they’re fun. They’re direct people. They’re not the wilt under pressure type of person. These are, and frankly, they’re also incredible referral partners because they network, and you start working with one vet, and you end up working with, you know, that vets, friends, family, everybody else, and I’m there just incredible if you take care of them,
Adrian 4:42
if you take care of them. I will say that one of the things that I’ve noticed the military gives us people, in my personal experience, is the ability to recognize hard work when you see it. There’s a lot of respect that is gained by people who are willing to make things happen, and that are willing to do so only with the knowledge about it you’re not, you know, I can only imagine in training for a battlefield, you can’t just kind of know what you’re doing, you either do or you don’t, or you don’t do that task, they’re not going to have you, you know, they’re going to hand you a rocket launcher, if you haven’t been trained on it, you know. Hence, there’s a lot of that concept of, you know, little skill set with immense expertise down that bandwidth. And I think that that’s, they recognize it out in the world, I won’t tell people how to, you know, price a house, you won’t tell people how to apply for, you know, qualify for a loan, we know just about enough to push each other. Right? So you know, that’s, that’s kind of my, my, my expertise, better, I get you with the right person, right, and try to be a jack of all trades, master of none.
Rob 5:50
Right. And I love that about, you know, vets, they’re just, they’re just, generally speaking, incredible people to work with. So the quick rundown, let me run you down from a real estate, you know, the brokerage side? Yeah, of what I know about a VA loan. And I’ll start with all the positives, and then we’ll well, we’ll discuss it, and then we’ll drop over to the negatives. The positive is the number one thing it’s a 100% loan, that vets can qualify as long as they have finished their service and been honorably discharged. Yeah. So what we’re talking about is okay, you have a $550,000 purchase in the Portland metro area; that’s roughly the limit of what a conventional VA loan is; you can literally make an offer for $550,000 if you can get into a contract with that. You will have zero down payments and no mortgage insurance, which is incredible. You also will pay the VA will discount and subsidize basically, depending on your service level, yours, if there is a disability, different things like that, they will also subsidize and minimize your cost for escrow title fees, other things like that, closing costs, and so on. The highest tier of like a disabled vet can pay almost no closing costs, and it’s subsidized through the VA system, which is pretty cool. You know, the so zero down other than that, it’s a regular loan, fixed rate, 30 years, typical interest rates, sometimes it’s a little bit less because they have their interest rate. So it’s often a little bit less if you correct me if I’m wrong. And it’s no more difficult underwriting-wise for the person than any other loan. Now, the property’s a little different issue. But for the person, it’s typically, you know, no different. And that’s in there. Okay, so, poke holes into that, and, and flesh the rest of that out.
Adrian 8:07
Yes, most of what you’re saying is true. Some of the complications that come up are the degree of service someone has. The VA does charge an upfront funding fee. This is the portion where there’s room for a gap. So the program’s first use can be up to 2.3% of the loan amount if the loan is 100% or down to 95% of the home’s value. Some tears go down from there. But this is all weighted by your entitlement as a veteran, so you have your DD 214. If you’ve exited service, or we have a few different other service documents that we use, we submit these back to the VA, which is confusing but always makes sense. I love
Rob 8:47
Yes, my eyes, my eyes just glazed over your DD. What?
Adrian 8:52
What am I, my just statement of service, a history of what you did while you served? Whatever you did, one of my favorite things is I’m always like, yeah, I need you to give me this form from the VA. And then I’m going to go to the VA with that form. And then they’re going to give me another form. And they go, Yeah, that makes sense. And everyone outside is always just like, what do you what? Why don’t you just get that thing right away? And they’re like, No, that’s how it works. And there’s logic to it; I swear to you, a lot of it is private security. You know, there’s a famous quote out there that the American military is so hard to fight against because they even they don’t know what they’re doing. Which is it’s a joke, and it’s not a joke. It’s, you know, you can’t have everything in one place. Ease of Access is not, you know, that’s a whole aside, but either way, there’s a bit of a process upfront, but we find out eligibility, and you touched on it a little bit. You got one extreme which is someone who maybe was in for only two years, saw little to no active duty, maybe no disability to speak up or anything like that. The mildest end of just getting qualified for this is going to pay a greater funding fee, But it’s added to the loan amount. So the loan amount is 100. And let’s say, in this case, 102.3% of what you’re buying the house for that 2.3% goes to VA, though, so you don’t get to use that for your closing costs. But we can chew into why you can get credit towards closing. On the other extreme end would be, yeah, a disabled vet, I’ve worked with tons of disabled vets, and they end up getting the full entitlement, which means 0% is added on. And the VA loan can even be used multiple times. And there are different ways that that can apply. If you are selling and buying, you can definitely do that. That’s really, really easy. But in some cases, you can use only part of that entitlement. And then you can use it again, we have one vet who is under contract right now, more than a third house, but they are gonna go conventional on that. But those first two, they were able to both squeeze under the window of the
Rob 10:50
the limit was 550, basically, and he had a $200,000 loan on one and a $300,000 loan on another.
Adrian 10:56
Yeah, he basically filled out and got full use out of it; you can only use it on primary properties, yep, for purchase. But then once you’re in that first one, if you want to go to the second one, this is what this Fed did, you can reuse it and still keep the old VA loan; you mentioned rates, the rates are the best rates a 30 year fixed VA loan cost for cost will be at a lower rate than USDA, FHA or conventional lending. By a stretch, it’s a decent stretch. And usually, what that can play in order, I would say about a quarter to half a percent below what a conventional loan would be, it’s much more forgiving to for lower credit scores, lower credit scores are usually brutal, if you got a 620 score, you wanna get a conventional loan, you might pay four plus percent right now, where someone with an 800 score plays three 2.99. Right, to give you an idea, this is relative to right now, the day that I’m saying this, it’s going to shift by the time this even hits the air, but the VA loan is still going to be down in the high twos at this point. Right. So which is incredible, cool, just a little spread very forgiving in that respect, and it makes that loan easier to qualify for. And it does mean that you can utilize the tiered pricing system, so you get a higher rate, you get a credit towards your closing costs, you get a lower rate, and you can pay for that lower rate, this applies to all those loan types I just said, but in a VA loan, since that baseline is so low to start with, if you go up and you get to 3.25, you should have a credit. Using these baselines that I’m using right now, that’s gonna move every day, your results, your mileage may vary. But all that said, Yeah, that makes it a great point of entry; the VA does do a couple of extra things that can sometimes make it tricky. If you’re a real red line client if you are truly trying to get a loan that is at the highest percentage of your gross income, the VA loans are also very flexible. They’re one of the most, maybe the most flexible systems; I’ve seen approvals up into the high or into the mid 50% of gross income.
Rob 12:58
I make 10,000 a month; they’ll qualify me for all my debt, maybe as high as 5500.
Adrian 13:04
Yeah. Which is I have seen it’s not the baseline, it is trickier. You need compensating factors. And that is a piece of another longer conversation that really, you know, like a lot of things here, right? We always talked about these are the general concepts, you need to find out for yourself. But if you’re a veteran out there listening right now, you’ve you’ve got to have this conversation with someone because the power that you have borrow at a crazy low rate, if you’re gonna live somewhere anyway. Yes, owning gives you that power, you can build equity, you know, the community, in my mind owes you a debt of gratitude. And this is one of the most effective ways that it is paid back. And it is a win across the board. Yes. So that sounding fee can vary a little bit that gets tacked on the other portion. And I’m this is one of these super long rabbit holes is that the VA wants to ensure that based on cost of living and expected costs of maintenance for your house, you can live there and afford it. It’s I have a very small handful of times that I had this be an issue for vets. And one of the examples was I had a vet who was buying a house that was unusually large, it was something like 3500 square feet. And they were pretty tight with their ratios. They had a few kids as well, they will factor in the cost of having children in your house is the only loan type that does that. There is no load for how many people are in your house with a conventional loan. The only of the ones I’m talking about, I’m sure there’s some weird lending out there, you know, again, disclosures here but the VA normally this calculation does factor How many members are in the household as well, which is unusual for these type of lending products. But the big thing is they want to make sure the vets can afford to live here. They can afford to eat they can afford to feed their family with medical costs they can afford to maintain the property there is a per square foot measurement in there to ensure that there is enough money For the expected maintenance on a 3500 square foot home, because if I have two homes that are the same price, one’s 3500 square feet, and the other one is 1100. Obviously, I’m going to have different costs of maintenance. conventional lending doesn’t dip into that for lots of reasons that we could rabbit hole. But VA does. And this is where it’s a catch 22. But I really like the VA loans for this, because there’s a lot of practical thinking that goes into, let’s make sure we never default on VA loans, right? Let’s make sure these people are safe beyond just Can they afford this, and then it’s up to them if they want to eat ramen every day. And that’s where we kind of dip into what you mentioned earlier, right? The appraisals? Yes,
Rob 15:45
so there is no stigma from a broker side, or selling a house, you get offers exactly, I get five offers. And it’s all let’s say it’s a $500,000 range, right? Right in there, we get five different offers or two offers or you know, whatever the case may be, or maybe 20, depending on the day in this market and what it is, but it’s a $500,000 property. And we have somebody with 20% down conventional, right, just straightforward. And then we have a well, and then we have a VA that zero down with, you know, normal inspections, and you know, everything else is the same. But it’s a VA with zero down. So part of me would say, Well, let’s look closely at this VA person because they’ve served and, you know, maybe there’s some intangibles that because we don’t know the quality of the buyer, if they’re flaky, if they’re solid, how graded that sort of thing. But we do know that vets, frankly, are less, in general, those negative things. So let’s look at but there is a downside to the seller. And the seller. The downside is the VA will look at they have to do a basically a VA approved pest and dry rot appraisal above and beyond that stamped and approved by the VA bureaucracy above and beyond a regular appraisal. So a couple of things. Number one, it’s slightly more expensive, was that
Adrian 17:12
they have their own appraisers as well. Yeah, exactly. And VA loan, we are ordering it through the VA, right, it is a little clunky of a process, I will be transparent about that.
Rob 17:21
And they have to be they have to be licensed with the VA law. So it’s another license on top of a normal appraisal license. And then the last piece is just that it’s it’s a little bit stricter. So those appraisers instead of maybe poking their head down into the crawlspace, they may actually usually they don’t, but they can go down into the crawlspace and make sure there’s not
Adrian 17:46
go. That’s the crawlspace cool. Right. FHA USDA heads poked flashlight. Yep. Va Va,
Rob 17:54
he might drop in
Adrian 17:56
on this. No problem. I’ll get under there don’t sweat.
Rob 17:59
Exactly. And same thing in an attic. And, you know, in generally attics and crawl spaces, it’s mold, mildew, water, creepy crawlies, you know, just different things like that.
Adrian 18:11
So now we’re gonna ask that question, is that a bad thing? Well,
Rob 18:15
and that’s the piece, right? Is it a bad thing? Not necessarily. Now, for a seller, a seller is going out? Well, if we passed it, say it was competitive, and there was some water in the cross, yes. Right. And the buyer said, I’ll take that on, because I want the house and it’s worth it. The buyer was VA, it’s going to get called out. So the seller is going to have to fix that. Right. But via the by the appraiser versus in a conventional situation, most likely, it’s still going to get approved, and so on. So there’s limited scenarios for less than ideal condition properties, basically, properties that have more long term, deferred maintenance, that will, you know, you might cost the seller a little bit more to work with a VA buyer. If you have a turnkey property, and it’s ready to go. And there’s there’s no deferred maintenance. This is my personal opinion. But if everything else is regular, and it’s turnkey, and my client is on board with it, I’ll say if it’s exactly the same go with a VA buyer all day long, just if for no other reason that they served our country. But, you know, it’s it’s still a case by case situation. And I will talk through with my client as you will also, because we’ve done that many, many times with clients that we’ve served together, the pros and cons of this. Exactly. So that’s the negative. I would I would leave is there any other negatives, Adrian that that other than just that appraisal issue?
Adrian 19:46
It’s it’s the so for the buyer, it’s the funding fee, and then it’s also this hypothetical weakness of offer, and just what is frankly plain ignorance I talked to within the last few years I talked to a woman who had been in real estate for over 20 years, and it was just because she remembered this from the past, there was a time when the seller had to pay some fees for VA loans, which sounds insane because it is right. Why would you want to create a bias against veterans? If you can avoid it, I totally understand checking for mold and mildew is a win for everybody in my book, I, and frankly, the gap has shrunk as well. So this is part of that mistake here. Conventional Loan appraisal requirements have gotten harsher, and VHF stayed the same. And same with FHA, the gap is much narrower than I think it ever has been. And that’s, and that’s because the reality is, if you don’t check the crawlspace, and the, you know, this is like walking around a car, and then never opening the door to me, you know, you got to look in these places, where you got to look under the body, you got to look for the frame rust or whatever, you know, this is where it’s easy to do a touch up job and patch and cover problems. Looking underneath is often, you know, a more telling story. So on just like a personal level, I’m for it. But I understand why sellers are. I don’t know, and I guess it’s like, you know if you got pulled over by a cop, you got nothing to hide, you haven’t broken the law, I don’t really want to talk to a cop that was I wanted to figure out some reason to charge me. So I think that’s where a lot of that fear comes from. It’s just like, well, what if I don’t know about something down? Right? What if I, you know, I’m not trying to lie, but I’m also not trying to stir up an issue that I didn’t know existed and wouldn’t have been a problem immediately for the buyer? So
Rob 21:31
overall, it’s a minimal hindrance. Yeah, you know, from a brokerage. But you know, I will admit, I’m biased, in that I’m pro, you know, pro vet, and, and just want to give them as much opportunity as possible. The last thing I want to cover on this topic is that there is a product; we don’t need to go into the ins and outs of it. But traditionally, VA was limited to, you know, in our area, roughly 550 in the Portland metro, but there is a product that is VA that goes to at least a million bucks. Is that right? Yeah, you
Adrian 22:04
can get up into the seven-figure range pretty quickly. I know my company is offering a million dollar, at least right now. And it’s called high balance; the rate is higher, but not by much. When you compare it to jumbo rates, it’s very reasonable. And it’s it’s up to 100% financing, and VA loans, like many other loan products, this isn’t unique to VA. But we’re gonna chew into this in a later episode where we talk about multi unit properties in depth. But let’s say you’ve got a duplex and the other side rents out for 1000 bucks, we can use 75% of that we take 25% out for assumed vacancy and repairs. And, you know, if the mortgage payments are going to be $2,000, you now only have to qualify for a $1,250 loan payment, because we’re going to subtract 75% of the market rent of that extra unit. So and this scales up to four-unit properties. So while those are expensive, yes, you could, in theory, get a million dollar property on a VA loan that has two or three other units that you’re going to be renting out and end up in a place where other people are essentially paying your mortgage you’re taking on the risk. This is a valuable service, we need someone to own these buildings. But the risk is spread because you have more doors to rent to. And so this is a this is an idea that, you know, this is one of the things I love working with Rob, because we flesh this out, we spent hours. Yes, looking at example products playing the game and going, what would it look like if someone did do this, and the numbers work pretty damn well. And this is, especially if you’re a single vet, I think we we talked about, you know, not a lot of married couples necessarily want to get into one of four units for whatever reason. There’s some psychology there probably too. But if it’s, you know, your first property or second property and you’re selling it to equity already, you’re rolling it into the second property, not the wildest idea to get something that’s a multi unit. If you’re not gonna live there forever, and that you’re buying thinking this is going to be an investment property. I’m buying this with the intention of moving out and turning into a rental. Multi-units are a great way to increase the number of doors which there’s risk as a rent
Rob 24:16
ratable Hack, life hack for vets. And frankly, I’m blown away the more vets don’t don’t put this into place, but it’s just it’s just kind of a it’s a weird thing that you’d have to wrap your head around. It’s also one of those things that there’s not a whole lot of properties that are 234 Plex and are on the hunt. It’s definitely the biggest single reason I think where people don’t do it more often is because they’re just not that common of a property. And that’s where you and I ran into with some clients we ran into. In theory, it was all good, but actually finding the property that would actually work. We haven’t been able to do it, but man, I can’t wait until we find that perfect situation and and get it done. So let’s end it there. Adrian, I appreciate all the information. I’ve learned all
Adrian 25:05
out to all vets, oh, your veteran friends, tell them thank you going to house right now, we have worked with, you know, a number of groups trying to even just get in contact with more vets spread this knowledge, please, if you know someone, let them know, even if you don’t send them our way, just let them know that they should really look into this, run the numbers and see if it makes sense. No one’s gonna force their hand. But when you look at the numbers, and you play it out, it does make a lot of sense. And I’ve just known a lot of vets who, yeah, they built that equity out of this, this VA loan without having to take money out of pocket. Initially, you know, and and eventually build something that they can really lean on. And if you’re looking to help vets, and you want to continue along this idea, I’d love to recommend you over to a group that we have partnered with in the past, which is do good Multnomah. Do good is a local charity in the Portland area, they specialize in helping veterans. They’ve got some great, I’ve met a ton of their staff. They’re just awesome, compassionate people. They do a lot of unique things. They are a lot more flexible with everything from folks who have dogs, which, if you’ve ever tried to help, you know, in the homeless situation, that’s one of these things, a lot of people with dogs, for example, and a lot of vets have dogs, for good reason for support animals that can’t take them with them. That was one of the big things they pushed for. And then also, you know, taking in people who may be turned away for other reasons, I’m not going to get too far into it. But you know, there are there are facilities that closed doors to people who are basically not in the right, the right mindset and digital nomad does a great job of providing resources to people that are unique to that and the the unique type of problems that seem to be common within those communities. So check out do good Multnomah. If you want to support an awesome local charity that’s doing good things. And if you know Yvette, tell them to look into owning a home. Yes. And
Rob 26:59
and thank them and just love on them. So absolutely. It’s awesome. All right. Thank you, Adrienne.
Adrian 27:05
Thank you all so much for your time today. We’ll catch you next week on the get rich slow podcast. Have fun out there. Thank you.
Intro 27:11
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