When working with VA buyers, you have to understand a few things about their military service. In addition to understanding the basics of the VA loan, you’ve got to understand how different stages of service can impact their home search and loan qualification.
For many of your VA buyers, military service is their first experience with a “real” job. Some enlist straight out of high school, while others attend college before entering service. Still others take their own unique path to service. Regardless of how or when their military service started, it’s very likely that they have learned to follow orders, complete missions and have gained a substantial amount of integrity. Each of these traits also makes them great buyers.
For real estate agents with no ties to the armed forces, military service can be confusing. Understanding which stage of service your buyer is in will help you better serve their needs and set you apart from your competition as a military friendly agent.
New to Service/”Green”
When you gain a client who’s just started their military service, it’s important to understand their eligibility for the VA mortgage guaranty. The VA has outlined the requirements of service before becoming eligible for a VA loan. It’s not necessary to memorize these — instead, ask your client if they or their lender have obtained a certificate of eligibility. If you’re like many real estate agents, you’re also going to want to see a preapproval letter before showing too many homes. By the time the preapproval is issued, it’s very likely that eligibility has been ironed out.
A few considerations to discuss with a buyer who’s been in the service a short period of time:
- Do you intend to make the military your career? If so, do you foresee frequent Permanent Change of Station (PCS) orders?
- Are you looking for a home that you can convert into an investment property somewhere down the line? (VA buyers can use their VA benefit multiple times. If your client intends to convert the home from a primary residence to a rental at some point, due to PCS or upgrading. It’s important to factor this into the home search.)
- How long do you intend to stay in this home?
Also, in general terms, discuss their income. Many start out low on the pay scale as an E-2 or E-3 if enlisted, or as an O-1 or O-2 if they’re an officer. These ranks correspond to a uniform pay scale. Someone just starting out in the military will start at a much lower pay than they will reach in just a few short years. Discuss with them if they’re comfortable with their current purchasing power, or if they want to take a little time to realize a pay increase.
Active duty service members are employed full time in their position. They often have contracts in place that guarantee employment for a specified number of years. Some work within very specialized fields that can restrict the location of employment, while others provide more widespread services that are needed throughout the country. It’s important to talk with your client about the likelihood of a PCS based on their specified field. If they believe they’ll be PCSing within a few years, ensure you discuss and identify properties that can bring good resale or rental value.
Knowing whether they intend to make military service their career or leave after their contract is up is important for a few reasons.
The day a service member’s contract is up, called their Estimated Time of Separation (ETS) date, and is a pivotal point in their career. If they have less than 12 months remaining on their contract, most lenders will require either evidence of reenlistment or a formal job offer before proceeding with a preapproval. If they’re unable to provide either of these documents, the loan process will stall.
Seasoned service members have likely slowed their climb on the pay scale ladder, so waiting an extra year or two to increase purchase power isn’t as important as the types of pay they receive. Certain active-duty service members receive additional pay, such as hazardous duty pay, jump pay or special duty pay. This pay can be tricky, and depends on a multitude of factors. Many lenders want to see evidence that these payments will continue for a specified period of time before using them for qualifying purposes.
Reserves and National Guard
Many individuals serving in the Reserves and National Guard have full-time careers outside of the military. They participate in drill approximately once a month to keep their training up to date in case their unit is activated. When a Reserve or National Guard unit is activated or deployed, they become full-time military personnel until their orders are up. Some are sent overseas, while others assist stateside. It’s important to talk with your client to determine their status.
Reserve and National Guard eligibility can also get a bit confusing. If your client has had absolutely no activations or deployments, they’ll have to serve for six years before becoming eligible for the VA mortgage guarantee. If they are activated or deployed, that six year wait could be reduced to just 90 days, depending on how the orders are classified. Follow up with their loan officer to learn more.
Retired or Disabled
When working with a client who’s already fulfilled their military service, it’s important to know whether they receive service-connected retirement or disability income. If they have a service-connected disability of ten percent or greater, the VA funding fee is waived. They may have access to additional benefits, grants or savings locally or through the federal government. If you familiarize yourself with federal and state disabled Veteran benefits, you’ll be a step ahead of your competition and provide additional value to your client.
Unfortunately, a final disability determination can take quite a while to receive. Ask your client if they’ve received a disability awards letter or if they’ve just filed their claim.
For those clients receiving retirement benefits from the VA, that income, as well as other forms of retirement and social security, can be considered for purposes of loan qualification.
When a service member is in a transitional period, such as upcoming retirement, facing an upcoming PCS or dealing with other grey areas, there’s certain requirements that must line up.
If you have a client who is retiring from the military in the next few months, but isn’t yet retired, they may struggle to document their upcoming income. This can be a hurdle for some who know they’re retiring but don’t have an awards letter in hand stating the amount of retirement they’ll receive or the date of their first check. Some lenders require receipt of the first month’s pay before closing can occur. Be sure to maintain communication with your client and their loan officer in order to set appropriate expectations with the seller regarding a closing date.
When your client is changing duty stations, their whole life is in transition. They may be moving across the state or across the country. Be sure to discuss what qualities are most important in a home: Is it choosing a home in a good school district, a home that will resell quickly or are there other considerations? Each military family is unique. Express your understanding of their transition and support them by providing additional information about the neighborhoods and community as a whole.
it’s also important to note that many lenders will require your buyer to provide transfer orders before closing the loan. This is to ensure the home will be used as a primary residence. I’ve worked with a few service members who were told they’d be PCSing to one state but then received transfer orders for another duty station. Ask your client early in the process if they’ve received their orders or if there’s a possibility their orders could change. If they haven’t received them yet, it may be a bit premature to submit an offer.
In addition to asking each and every buyer “Did you serve?,” understanding the unique characteristics of each stage of military service can win you more referrals and increase your military clientele by setting you apart from your competition as an agent who is familiar with the military.