Episode 73: Free Money for Homebuyers: Unlocking the Hidden Power of VA Loans

Ever wondered if your military benefits could do more than just help you buy a house? What if your VA loan could actually eliminate your personal debt while getting you into your dream home? This eye-opening episode reveals a powerful, legitimate strategy that transforms how military members approach homebuying.

We dive deep into the secret weapon within VA loans – seller concessions that can be used to pay off personal debt. Unlike any other loan program, VA loans allow up to 4% of the home's value in seller concessions that can be directed toward paying off credit cards, car loans, or other debts. For a $300,000 home, that's potentially $12,000 to eliminate financial burdens! This strategy works whether you initially qualify for the loan or need the debt reduction to improve your debt-to-income ratio to meet qualification requirements.

The episode breaks down exactly how this works through the VA Lender's Handbook, walking through real-world scenarios and calculations. You'll learn what counts toward the 4% limit, how to calculate potential savings, and the critical differences between using concessions for debt payoff versus interest rate buydowns. We even explore how this approach differs from conventional and FHA loans, highlighting why the VA loan truly stands as the most powerful mortgage option available to service members.

Whether you're actively house-hunting or planning for the future, this knowledge gives you a financial advantage that few military members fully understand. Share this episode with your fellow service members – this information could literally save them thousands while improving their financial future. Remember, you don't have to embrace the suck if you've got the right tools in your ruck!

Chapters

• 0:00 VA Loan for Paying Personal Debt
• 6:49 Understanding Seller Concessions Explained
• 11:05 Buyer's Market & VA Loan Advantage
• 15:54 VA Handbook & Concession Rules
• 19:40 Calculating Points & Interest Rate Buydowns
• 23:39 4% Rule & Final Tips

Transcript

Speaker 1: 0:00

Let me get this thought through. This works a couple ways. You have the optimal scenario, which is you go to purchase a house and you qualify, it goes through underwriting, it comes back, you're good to go and you just ask for a concession. Then you have the scenario of you go through underwriting and they kick it back because your debt to income ratio isn't good, and that's the scenario that you don't want. However, with seller's concession or concession list, this is how you can use this to get into the home that you particularly want to get into.

Speaker 1: 0:41

Welcome to the Roger Sarnt Podcast, where we talk all things Army and I'm your host, sarnt Cruz. And today we are going to be reacting to a video that I found on TikTok, and this is specifically in reference to the VA loan, and this individual talks about how the VA loan can be used for paying off debt, personal debt and the reason why I want to react to this video is because a long time ago, I purchased this house that I'm in. Well, almost two years ago I purchased this house and I did the same thing he's talking about, so I know firsthand that this works. So he's specifically, he's going to be a realtor, he's getting out the military and he's putting people up on game. So when I purchased this house in particular, I had made a significant purchase, maybe a few months earlier. Now I knew what I was doing because I had heard about this and, as I'm making payments on this significant amount, I asked for the concession and when I asked her about it she was like the worst they can say is no. So she asked, they gave it to me. I pretty much got a free item and it's, it works.

Speaker 1: 2:00

So this, this is it. Here he is. He's on TikTok. Let me share my screen there. Yeah, so you guys can see who I'm talking about and he gives some good game. Let me see where it is. His name is KhalifaTheRealtor27. Khalifatherealtor27. And the initial thing that you see on the screen is use the VA loan to pay off personal debt and let's just let it roll.

Speaker 2: 2:34

So I told you all this last week, but it looks like I didn't hear it, so I'm just going to say it again. You can use the VA loan to pay off personal debt. I'm going to say that again you can use the VA loan to pay off personal debt. How it works, listen real close. When you're buying a house, we can negotiate something called seller concessions and I'm saying we, because I'm getting out and I'm a realtor now, but anyway, we can negotiate something called seller concession and that's basically money that the seller is basically giving back to you to help you with, like your closing costs and some stuff like that. You know, now the hack is we can negotiate as much as possible for those seller concessions. Now the real hack is you can use up to four.

Speaker 1: 3:13

Now what I want to do here is he's talking about seller concessions. Now, when you are purchase a car, purchase a house, you, anytime you purchase something or you get into a realm in which you're not familiar with, there's going to be certain lingo, jargon, words that you may not understand, and because of that, I am going to go into the VA lender's handbook and I will walk you through exactly what he's talking about, because it's in there, right? So we're going to have a scenario. We're going to talk about the pages, because there's two pages in which cover what he's talking about. We're going to give you a scenario on what the VA loan itself is in four steps on the seller concession and the other percentage that he's going to talk about in a second 4%, 4% of those seller concessions towards whatever you want personal debt, car payment, a down payment for whatever else, it don't matter.

Speaker 2: 4:19

Up to 4% you can use for anything. Just imagine that for a second You're buying a house and you're still getting money from the seller to actually pay off your credit cards. Let's say, Can you imagine and it's one of the reasons why I- love it.

Speaker 1: 4:34

He says can you imagine and it's true, right yeah, think about it. If you're in a bind I'm in a bind, nate If you're in a bind and you have a certain amount of debt, because this works a couple of ways. Let me get this thought through. This works a couple of ways. You have the optimal scenario, which is you go to purchase a house and you qualify, it goes through underwriting, it comes back, you're good to go and you just ask for a concession. Then you have the scenario of you go through underwriting and they kick it back because your debt to income ratio isn't good, and that's the scenario that you don't want.

Speaker 1: 5:18

However, with seller's concession or concessions, this is how you can use this to get into the home that you particularly want to get into, and that's the beauty of this perk. We can call it a hack strategy perk, whatever you want to call it, but that's the advantage of it. If you qualify, you can ask for more money and pay off debt. If you don't qualify, you can ask for more money and pay off debt. If you don't qualify, you can ask for more money and pay off the debt that's holding you back, and then, hopefully, that's enough and you qualify. So that's the biggest deal. And, just like he said, it's free money. But yeah, they're paying you to get into a house, that's it.

Speaker 2: 6:01

Y'all got to use your VA loan. It's a beast, it's a cheat code. This is the most powerful loan and the only loan that's going to allow you to do something like this. Nobody else can do this. He's right.

Speaker 1: 6:13

You can get into FHA loan. You're going to give three, three and a half percent. You can get into a conventional loan. The more than likely thing that you're going to have to do is pay 20% in order to not pay PMI, which is mortgage insurance. It's the bank's way of insuring their loan. So if you don't give 20%, you're going to pay PMI. If you do give 20%, if I'm not 300,000, 20% is probably like 60,000. And let me know how many of us are just hanging out with 60,000 to put down on a house, on a $300,000 house? This house is 299. I put nothing down on it. Yes, you put the 20% down, your mortgage payment will be lower. That is correct. But there are ways or scenarios in which, if the mortgage payment is lower because of the money you put down, you have to live at a certain amount of money or time in order to get that money back. But I digress, let's go back to what he's talking about.

Speaker 2: 7:19

You're not just buying a home, You're getting paid to buy a home. I hope if I say it like that it will make sense. I hope so. It does not get better than that, Can it no? And right now we are in a buyer's market, which means we can negotiate as much as possible. Right now is your best time as a buyer especially if you're in the military to buy a house, because we can negotiate as much as possible off those seller concessions.

Speaker 1: 7:44

Now he's right. I mean the percentage. The interest rate is what keeps people from buying right Because it's so high. Even if you do an assumable loan, you're going to assume the amount of that mortgage at a cheap rate, but you still have to find another loan or come up with the equity or the rest of the amount. So let's say, for instance, a house costs $200,000. The person paid down up to 180, but the assumable would be 180, but they're selling it for 250. Now you got to come out of your pocket $70,000 or get a second mortgage or loan, whatever it is Right. So it can be a buyer's market, depending on how you do it, even with high interest rates. Even with high interest rates.

Speaker 2: 8:37

And if you didn't know, now you know, now you know.

Speaker 1: 8:42

I love it. And if you didn't know, now you know, all right. So let's, let's go into the VA lenders handbook. Let's get in there real fast. Yeah, we're, we're in there. And this is talking about borrower fees and charges and charges for the veteran borrower and charges for the veteran borrower, right? So the policy is the seller, lender or any other party may pay fees and charges, including discount points, which we'll talk about. What points are on behalf of the borrower? Va regulation limits charges made against or paid by the borrower. They do not limit the fees of the payment of fees and charges by other parties, right, and a lot of times they'll tell you and I'm not going to get into this, but a lot of times people put down on a VA loan and you really don't have to. The only exceptions are excessive seller concessions are prohibited. Like, if you're trying to OD on the concessions, it's just not going to work out, right, we're going to go into the next chapter, chapter five.

Speaker 1: 9:47

Let's go here we go Seller's concession. So what's the definition of the seller for the seller's concessions? For the purpose of this topic, a seller concession is anything of value added to the transaction by the builder or seller for which the buyer pays nothing additional and which the seller is not customarily expected or required to pay or provide. An example of that can be the closing costs. Right, you're expected to pay a closing cost, it is what it is. So, whatever that percentage is, you pay it and then you move forward. Seller's concessions right here. Bravo. I don't know why it keeps doing this. You see that every time I click All right, seller's concessions include, but are not limited to you know this is military or department of defense related. When we're talking, it says included but not limited to the following that right there, that annoys me Payment of the buyer's VA funding fee. So you can pay the VA funding fee and like, for instance, this I think this was almost $9,000. If I knew what I knew now, I didn't know this at the time. I just knew concessions and this is why, going into the VA lender's handbook, you can just type this in online VA lender's handbook and you'll get it and you can read through it and get to know what they're talking about. But if I knew what I knew now, I would have got that in there too. We're talking about prepayment of buyer's property taxes and insurance, so you can have concessions to the point that you'd be like, hey, what I want to do is I want to pay the property taxes for next year and I want to pay the insurance for the year as well Whatever insurance you get and that'll be part of the concessions. They'll cut you a check Once it's time. Boom, you get that.

Speaker 1: 11:36

Gifts such as television sets or microwave ovens. Now both of my homes are new builds. I'm not flexing, but it is the situation in which I found myself. So for some reason since COVID, apparently, builders have lost the art or the connection to getting a refrigerator put in. I don't know how they did it, but they did it. They can give you a microwave, they can give you a dishwasher and they can give you a stove, but for some reason they just lost the connection. So that could have been an example of that had that refrigerator in there.

Speaker 1: 12:15

Then we have the next thing is payment of extra points, provided permanent interest rate buy downs, and that's a lot of times what people do. A good thing, a good rule of thumb, is to make sure that it's a permanent buy down. Some buy downs are only a year long. So you say you're at a 7.5% because we're going to talk about the example in a second. You're at a 7.5%. You buy down only a percent. Let's say, for instance so it's six and a half percent, but it'll only be a year. So now let's say you're paying $2,000 for mortgage for that year and you didn't calculate because you didn't read it or you forgot about it. And now we're talking about it bumps up to $2,600 and you didn't plan for that and you're like oh my God, and this is how a lot of people default. So make sure that when you buy down, if you're going to buy down, it's a permanent buy down and not a temporary buy down Life hack.

Speaker 1: 13:15

Then the next one is provisions of escrow funds to provide temporary interest rate buy downs, and then we'll talk about the last thing. So provisions for of the escrow funds is what kind of like? Let's think of it as a kitty. If you've never purchased a house, um, every month you're going to pay the, the balance and interest, the payment and interest. Then you're going to have an escrow included in there, let's say $200. And that's the forecasting of how much your property taxes are going to be on that house. And with new builds, per person, for instance and I only talk about new builds because that's all I know because I've only purchased those. It's hard to forecast a property tax on a property that has never existed. So it's a lot easier if you buy an in-place home, because they already know that you can look at previous years and get an estimate of how much it can be. So that's the difference, that's one of the benefits of buying in-place homes.

Speaker 1: 14:18

And then the last thing, which is what he is talking about paying off credit card balances or judgments on behalf of the buyer. So that just means everything he was talking about is asking for a concession. You got $10,000 worth of accrued debt. They cut the check to each individual lender that you owe. Now let's keep going.

Speaker 1: 14:45

Seller concessions do not include payment of the buyer's closing calls, which I mentioned before, or payments of points as appropriate to the market. And we'll get into that Example. If the market dictates an interest rate of 7.5% with two discount points, the seller's payment of the two points would not be a seller concession. Now, if the seller paid five points, three of these points are going to be considered a seller's concession. Now it says right here if the market dictates an interest rate of seven and a half with two points, with two discount points. So that means that you can purchase up to two discounted points in order to get it down to a different amount, right, so? And then it talks about what the problem is that builders offer concessions as a competitive tool and sometimes the concessions may entice unwary and unqualified veterans, which is what I'm talking about. What is that temporary buy-down? And then you're going back up, right? And then it says right there, because at the end of the day, you're going to be buying a home that you can't afford. And if that temporary buy down goes up to $2,600 and you only budget it, or your allowance is only $2,000 because you just don't make no more money, then you would default and they can qualify you with the buy down. All they want to do is sell the house. If you default on the house, they'll take it and they'll sell it. They're going to get their money regardless.

Speaker 1: 16:19

Okay, so let's look at an example. We'll talk about this 4.0% in a sec, these 4% limits in a second, but what I want to do is I want to share my screen. Here you go. So we're going to be looking at the cost of five points in this example. Okay, so you're going to go purchase a house. We're going to talk about the cost of five points, how much interest rate might drop if you purchase those five points. Because we're going with the example that's in the book Monthly payment differences, just the principal and interest P&I. And then we're going to talk about a break-even point if you decide to buy those points. Because if you're going to spend this money you got to be able to at least break even so you can say you got your monies out of it versus in the negative. But we'll talk about it. So we're going to say one point equals 1% of the loan amount. So if we have a loan that's $300,000, what you're going to see is that 1% of the 3,000, I'm sorry, 5% of the 300,000 is going to be 15,000, because 1% is $3,000. So three times five is 15. Okay. So if you put in a calculator and you say $300,000 multiplied by 1%, it'll give you3,000. So three times five is 15. Okay. So if you put in a calculator and you say $300,000 multiplied by 1%, it'll give you 3000.

Speaker 1: 17:47

Step two how much interest rate might drop? This is just a rough estimate. I'm not a loan officer, I'm just going off of quick maths. Put it on a PowerPoint and plus or minus $100 or $200, okay, or a point of 0.25% or so. So the rough rule is one point is going to take 0.25 off your interest rate and, like I put in there, varies by lender. You're not going to hold me accountable to this, okay, it depends.

Speaker 1: 18:16

Now, five points times 0.25 is a total of 1.25 off the rate, right, a reduction. So if you take 7.5% and you take away 1.25, you're going to be at 6.25%. So if you bought down, if you gave them $15,000, you bought down to 5%. You would be from 7.5% down to 6.25%. Now, at the end of the day, you go into the third step and you can negotiate this. Right, If you go into the third step, which is the monthly payment, it's going to be at 7.5%. You would be paying $2,098 a month. If you are at 6.25%, it would be $1,847 per month and that's a difference of $251.

Speaker 1: 19:11

Is it worth it? Let's see you paid $15,000 upfront, which is going to take you, which is going to take you 60 months or five years to break even, to say I got my $15,000 worth. So if you stay in the house for five years or longer, you're going to be at a net positive net savings. If you sell or refinance before that, you will lose money. That's it. So, for instance, if you PCS and this is the deal that you get, you get $300,000 house. You want to buy five points down, you want to give them $15,000. Down, you want to give them $15,000. You cannot PCS if you got here now, in 2025, until 2030, if you want to break even, you cannot refinance and you cannot sell. If you do so, that $15,000 upfront you're going to lose and depending on when you sell, that's how much you're going to lose. Okay, that's number one.

Speaker 1: 20:10

Now let's go back into the VA lender's book. Let's go back in there. Where are we at? We're going to read the 4% limit. Any seller concession or combination of concessions which exceed 4% of the established reasonable value of the property is considered excessive and unacceptable for VA loan. For VA guaranteed loans Do not include normal discount points and payments of the buyer's closing costs and total concessions for determining whether concessions exceed the 4% limit. So the closing costs, if it's $8,000, that does not go into the factor, okay. And the normal discount points, which are the 2%, don't worry about it.

Speaker 1: 20:56

Now let's go back and look at an example of that. Let's look at an example of the 4%. So we're going to do this in four steps as well. Step one we're going to figure out the 4% limit. So the VA seller says concessions cannot be more than 4% of the home's value. What's 4% of the home's value? $300,000 times 4% and that's going to give you $12,000. That's the maximum concessions allowed that you can do on that house, because it's 4% of that.

Speaker 1: 21:28

Now step two is what counts towards the limit, the $12,000 limits. We have to figure that out right. It's the extra perks that are beyond that normal cost. So if paying more points than typically given like seven points, eight points, that's too much because it's going to put you over Giving furniture, that's still part of it. You got to take how much the amount is, and paying off debt. You have a certain amount. Up until what debt? So we'll talk about what the cap is for this.

Speaker 1: 21:57

Well, $12,000 is the maximum. So normal discount points it's what's standard in the market and the closing and normal closing costs do not count towards the 4%. So what was the example? It was 7.5%, with a market dictated of two points. So those two points don't count, but we're going to keep going.

Speaker 1: 22:19

Number three we're going to be applying the same scenario. Normal market rate of two points equals $6,000. Remember, 1% of $300,000 is $3,000. I almost forgot. Seller pays five total points. The extra three points are called concessions. Two points dictated by the market, three points extra as we talked about in the previous example. So extra three points is a total amount of nine thousand dollars. Step four checking the rule, because that's the criteria. We found what the criteria was, which was the $12,000. And now we're talking about the concessions. The concessions counted are $9,000. Those are the extra points. Limit $12,000. $9,000 is under the limit, so it's acceptable for the VA loan and that's it.

Speaker 1: 23:15

These are things that we gotta take into account when we're working with the VA loan, because many of us we just don't know, like we literally just don't know. We live and we learn, we listen and we don't judge. I was wondering why can't I see anything? I don't have my glasses on. My glasses are right here. This whole time I'm like why can't I see anything? I don't have my glasses on. My glasses are right here. This whole time I'm like why can't I see anything? It's because I don't even have my glasses on. What a weirdo, all right, cool. So, yeah, watch this video a couple of times.

Speaker 1: 23:44

Go on his page he is giving he's giving some good information. You just have to understand that the VA loan it's not just like a regular loan. Like I told you earlier, it's a hack, it's a benefit, whatever you want to call it, but it can be used for more than one benefit. Well, for more than one benefit, right? Because you're going to buy the house and you're going to qualify for the house. You're going to not have to give a down payment and then you could potentially get paid for that by what Seller's concessions.

Speaker 1: 24:13

So do me a favor share this with your team leaders, your squad leaders, anybody that you know that's eligible for VA loan. Also, drop a comment if you found this information helpful. This is where that's. That's my whole goal. That's my calling to help every junior troop out there, even seniors. But my goal is you guys, the junior troops, like, subscribe and follow for more Army content and remember you don't have to embrace the suck if you got the right tools in your ruck. I'm Sergeant Cruz and I'll see you in the next one, peace.