Military to Civilian

Transcript

Welcome, everyone, to our live webinar where today we’re going to discuss the military-to-civilian transition and specifically the home buying considerations you might want to have when you are exiting the military. Now, we’re going to give a minute here for folks to get logged in, to get on for the live call here on YouTube.

But overall, just to give you a brief presentation on myself, my name’s Evan Kaufman with WeVett Home Loans. I’m a VA loan originator focusing specifically on working with VA loans. We love working with active duty military; that’s our prime demographic. And what that’s meant is that we’ve had a unique niche develop helping active duty military transition out of the military.

Now, prior to being a loan originator, I was a real estate broker selling a lot of real estate, specifically to active duty military, for the most part. Again, I was stationed out in Dayton, Ohio. I was in the Air Force, got into real estate, started buying real estate myself, investing, redeveloping some projects, and then helped clients start buying and then ultimately started helping those clients move around the country. And initially, I was connecting with good real estate agents and now launching WeVett Home Loans, helping military families utilize the VA loan, the best of their benefits, and conventional loans if they don’t have their VA eligibility remaining.

That’s just a little bit of background on myself. But for today’s sake, let’s get into it. We’re going to what I like to call the M2C transition, military to civilian transitions, and how it relates to home buying. So, let’s look at the objectives that we have here for today.

So, there’s a few key things we’re going to go over. First, we’re going to look at military versus civilian pay changes, things that you just got to be aware of if you’re transitioning out and you’ve been in for only a few years or 20 years. We’re just going to cover over the things you’ve probably already thought about.

What are some of those major pay shifts that we see as lenders and just being a veteran helping other veterans mentor out, know what to expect for some big paid shifts?

Then we’re going to get start to get a little more loan-specific and look at self-employed versus salary W2 jobs and how that can impact you if you’re considering buying a home. So, we’re going to take, for example, look at profit bonus salary, if you own a family business, not all that good kind of stuff, hit on some of those basics.

But then the third piece that we’re going to spend the most time on is understanding some VA loan considerations, and a lot of these considerations also carry over to conventional loans.

That’s the route we got to go, but we’re going to go over some of those details to help explain what a job letter affects your qualification, how Skillbridge does, because I know a lot of folks that we have on here, big shout out to Dee Moore for helping us get things lined up with some of the Skillbridge programs that are helping folks transition out. But I know that a lot of folks are on Skillbridge. I was one of the first people to use Skillbridge out of Dayton, Ohio, back in, golly, applied, I think in 2017, got out in ’18, 2018, so five, six years ago, and I know it’s a very similar process still and how you got to plan for if you want to buy a home.

So, we’re going to hit on some of those struggles and then really hit on a timeline scenario and discuss, hey, what does it really look like if I’m transitioning out right now, be it that I’ve only got a month, or two, or 6 months, a year? What should I start thinking about if I’m trying to look to buy a home?

And we’re going to wrap it all up with hitting on four good takeaways that you can keep. Usually, I say three takeaways, but this one’s got enough good information, I think we’re going to have four good takeaways. Now, if you got some questions, feel free to drop them into the chat, and we’ll get to those as well at the end. And if for some reason we’re missing that or we end up running out a little bit of time, we try to keep this to about 15 to 30 good minutes, then we’ll get back to you as well after we have this presentation, either later this evening or get to you tomorrow. So, thanks again, a lot here we go, let’s get into our first part.

So, the military versus civilian pay changes. What are some of the major shifts that we see for folks when they’re getting out? So, the key here is, know that not all pay is considered equal. I say considered equal because especially from a lending viewpoint, if you’re working with a lender and they’re going to consider the types of income that you’re going to use when you’re getting out to say buy a home, not all pay is treated the same.

So, the deal is, when you’re in the military, it’s very simple, right? I mean, it doesn’t always necessarily feel that simple because sometimes you’re dealing with finance and are getting paid or not paid for going on TD all that good stuff, but your consistent pay schedule of 1 and 15th, getting that LES, knowing what you have on there, I’ll say from a lender perspective when you’re active duty, that’s one of the simplest things we got.

We got so many other curve balls when we’re working with PCS families, you know, doing out-of-state closings, notaries overseas, all that good stuff. Fortunately, LES’s are very consistent, W2s that military folks get right from their MyPay, right, or whatever system they’re now using within the military to pull up pay.

Very easy, nice and easy to see, know that once you’re out, it’s not all treated the same. And the deal is, when you’re in, there’s a couple pays that I touch on really that are very important, those are tax-exempt pays. So, while you’re in the military, you’re looking at certain tax-exempt pays like BAH, BAS, flight pay, and then there’s other kinds of pays, hazard, etc. Those are pays that might look like they’re not too much while you’re in the military, but know on the outside, that’s tax-free money.

So, as lenders, we’ve been able to gross that money up, meaning that we multiply it by 1.25. So, if your BAH is $2,000 a month, here we go doing public math, right? Your lender should be able to do it, if it’s 2,000 bucks a month, that means we can gross it up by 1.25, which would be $2,500, right, add an extra 500, that’s a quarter of the $2,000, so that means we’ve been able to gross those up over time, know that goes out the window when you go into civilian life because there’s not too many tax-free pays, same thing with like health insurance, pension, retirement.

This is a little less loan specific, but a little bit more from when I was in the military. I transitioned out, and the number one thing that I knew would be a tough thing to solve wasn’t necessarily the pay. It wasn’t necessarily how I was going to take care of retirement; all it was, was health insurance. I will say that one threw me a curveball.

So, if you’re going to work for an employer who has wonderful health insurance, awesome. If you’re like me, going out self-employed out the gate that we’re going to touch on here in a minute, know that health insurance can be just a wide-open field, landmines all over the place. It changes dramatically, so just be aware; that’s a big shift as well, as of course, that pension retirement.

Not all places treat retirement the same as when you’re in the military, having that match, but then also having that pension. If you save 20, pretty good benefit. Not always that way outside.

Now, I know some of us have got some really good jobs that are on this webinar and folks I’ve just recently worked with to help walk through these processes. Fantastic benefits, awesome. But just know that that’s going to shift a little bit and how it’s reported on your earnings, your pay stubs.

Right now, we usually start saying just pay stubs versus LES’s. That’s not really a thing in the civilian world. It just comes out a little bit different and looks a little bit differently, even from a lender’s point of view.

So now that we got everyone teed up that not all pay is equal, we’re going to go to the next part where we really hit on self-employed versus W2 salaried pay, because here is where we really get a big difference on being able to qualify for a loan.

So, know this: one, not all pay qualifies the same on a loan when you’re transitioning out of the military. So, if you’ve bought a home while you’re on active duty, you know from the pay perspective it’s relatively simple. I’m asking you, ‘Hey, Johnny, can you get me your last two, your last two LES? Get me your W2’s.’ That’s usually all I need unless you got some random other incomes, and we might need some tax returns.

We often don’t even need tax returns when you’re on active duty for stuff. It’s really smooth and simple, unless you have some variable pays, rental income, that kind of stuff. Really easy process from the documentation of your pay while you’re in the military.

Know that when you’re transitioning out, some curveballs get thrown in there, and the big one when you’re on the outside trying to buy a home is, ‘Hey, is my pay self-employed or am I W2 salaried?’

Now, I know there’s a little caveat out there: you can be self-employed and pay yourself W2, which we’re going to touch on here at the end. That’s considered almost like family-like business, your own personal ownership. So that throws you right back in the self-employed category.

But the deal is, what I’m really talking about is you’re getting a job with a company, an existing company that’s paying you, and they’re paying you as an employee. It’s wedded, it’s salaried, or it’s hourly with a good fixed 40-plus hour rate. Very simple where it’s just with an employer, right?

Versus self-employed, you’re going to go out and you want to be, I mean, loan originator I’m for the most part self-employed, sometimes W2 for stuff. It’s mainly you’re self-employed, you’re on your own to build stuff. You are a real estate agent, you’re going to start your own world, you’re building your own financial advising practice.

I know it’s a common deal for some of these career fields for guys who are getting out of the military. Those are all generally going to be self-employed, or they’re so heavily commission-based that as a lender, we can’t, it’s hard to use that income.

So, here’s the big difference between self-employed and working at, what I kind of say is, an established company.

So, for self-employed, we typically need two years tax returns, sometimes we can get away with less than that, depending on the loan type. VA, though, we’re really hamstrung by that two years that we need for documentation, unless you have some deep history, history of it. But VA, we’re going to need that two-year history of it.

So that means you ideally are showing a couple of years of what you’re already doing. Like for example, if you are in the military and you happen to already be selling real estate as your part-time job or something like that or on the side, I should say, because you’re always full-time on the military.

But if you’re doing that as your part-time deal, I know I had dealt with that, some other guys have done that, then some of that pay could potentially be calculated if you’re showing it on enough tax returns. But for self-employed, it’s a big thing.

So, if you’re deciding to get out, you got to ask yourself, what am I wanting to go do? Because this could drive your home buying decision.

Because if you’re getting out and you know you want to go be self-employed, then know that you either better try to get a home now while you’re still in the military and we’ll talk on some of those stipulations because if you’re already a month out from getting out, the boat already might have sailed.

But you want to start considering, hey, how can I do that now or prepare to get myself in the best position so that when I’m ready if I’m self-employed in the next couple of years, I’m going to have my tax returns ready to buy.

So, know that self-employed, you just generally got to wait, wait that two-year mark and get things on tax returns. Now, if you’re going to be paid by an established employer, this is a big one to know. Salary is treated a little differently than bonus or commissions.

So, like for us when we’re reviewing a job letter that we’re going to talk about here on the next page, the deal with getting commission or bonuses is we can’t really utilize that income unless it’s been documented again on prior pay stubs, tax returns, W2’s. If it’s not on those, we can’t use them.

So, if you’re just getting out and you don’t have a history of that commissions and bonuses get left off. The salary or that fixed hourly rate at 40 hours, that’s something that we can work with and can happen.

So, know that if you’re planning to get out here and you’re like, ‘Oh, I’m getting offered a job. I’m getting offered a really good Tech job at $150,000 a year‘ – but it’s only 120 base and 30, say bonus or 30 commission, right or target commission, right? We’ll see that kind of stuff as a lender. We’ll talk about job letters. But we can work off of whatever that salaried base is documented. So, we could use that 120.

So, know that sometimes when you’re negotiating for jobs, that whole salary commission salary bonus structure of what you decide on and stock options, that’s even a whole another animal. Don’t even count on that one up front. Once you have everything documented, you’re going on for a few years, wonderful.

But as you’re transitioning out of the military, it’s that salary pay that matters most for qualifying for a loan. So yes, you might be getting paid $150, $200,000 a year, awesome, it’s wonderful, but whatever is documented on the salary, that’s what we got to go off of. So, keep that one in mind.

Now, full-time salary, as I mentioned on the slide as well, is the easiest for qualification. But know that if you have ownership in the business, and this is where I went back to earlier saying, yes, you can be self-employed, pay yourself W2, we know folks that do that all the time as well.

Know that then, if you have ownership greater than 25% of the company, now all of a sudden that starts kicking in where it’s treated like self-employed.

Same with family-owned business, and even 10% of that ownership is where you start triggering some of those things. Family-owned businesses is another one that gets a little squishy. You’ve got to make sure, hey, what’s that relationship like? How far apart is that?

Know that if you’re working in a family business, if it’s super small, that can mean that all of a sudden we trigger those same kind of things with needing prior year tax returns to show the income. So, those all have a slight variation to them depending especially on loan type. So reach out and we can gladly go over those.

But just know, if I have ownership in the business or I’m working at a family business, that could also all of a sudden put me a little more in that self-employment category than in just a traditional W2 working for a regular established business kind of situation.

So now that we know that’s a huge differentiator because the whole thing here is if you’re debating on what you’re going to do when you get out, and if you know you’re wanting to, for example, go start a business or you want to go work at that startup that might be a little more comp based on bonus or commission, now you guys are thinking, “Oh well heck Evan how can I go buy that house if I know that’s going to be most my pay?” Great question. So now we’re going to roll into some VA loan considerations that we have.

Why do we talk heavily on the VA loan?

Mainly that’s a product that we utilize all the most all the time if you’re transitioning out of the military. That generally means you’re going to have access to the VA loan and about 80-85% of the time it generally tends to be the best loan product to use.

The only caveats I say where sometimes it’s not always the best to use maybe to look conventional is if you’re putting a very high down payment, 20-25%, your credit is over 780, and you are subject to a VA loan funding fee. That’s a pretty rare scenario to have all three of those line up and if they do then they get to be pretty equal.

So, we’re going to talk heavily on VA loan considerations but know that conventional mirrors it very closely especially for the timeline discussion that we’ll have. So know this for the VA loan considerations if you’re going to want trying to use it as you’re transitioning out of the military, number one, you can close on a home before getting out and before even starting your next job.

That’s something that’s something we get folks coming to us telling it was a showstopper at their other place, they went to another lender, they just said, “Well yeah, we got wait till you get out and you got to get your first pay stub, don’t have to have that.”

Remember this, the VA loan is not funded by the VA, it’s funded by individual lenders. So if one lender is telling you no, there might be other lenders that are open to that. I’m going to tell you what we ultimately have worked with and what we have helped multiple folks do when they’re transitioning out of the military and how that works for us.

So we can close 60 days prior to you starting your next job and we can use the income that’s based on your job letter that we’ll talk on here a second. Plus any indefinite benefits that we can really have confirmed and when I say indefinite here’s the deal, sometimes folks are like, “Evan I got four more months in the military left can I go buy this house?”

Well, one of the hard thing is with especially VA loans, we got to prove continuation of pay, continuation of pay the basics of that means, “Hey, are you going to be getting paid for at least one year, do you not have a ETS, you know estimated time of separation settle or scheduled?”

And on all your pay, we got to make sure you have at least a year’s continuation worth of pay if you’re under that, that severely limits us, we usually can’t utilize the pay.

So, when I say indefinite benefits I mean, “Hey, those things that we can confirm for once you get out.” So, for example, if you’re getting out for retirement and you’re right now you’re at your 20 year mark or 22 year mark and you’re getting out even if you’re buying the home before you’re officially out, we can utilize your retirement benefit estimates for part of your income as well as a job letter.

Same thing with VA benefits, if you happen to file and get your claim early, some folks like that’s not possible, we’ve seen that before you get your rating before you’re out then we can ultimately utilize that rating now if you don’t have your rating you just filed, we’ll talk on how that can actually help you here soon but if we don’t have that official rating we can’t utilize the estimated income for it until you actually get your rating but what most folks are doing when they’re transitioning out is they’re utilizing that job letter and so that’s the next point.

Make sure you have a clear job letter. This is really only usable if you’re closing prior to starting the new job. The whole deal and benefit of being able to use a job letter is that you can essentially buy a home before you start a job. You don’t even need pay stubs or anything else; you can buy a home just based on the letter that confirms you’re going to have it.

Why is that powerful?

Because sometimes while you’re in the military, you might be in all the way up to the last 60 days. You might want to take some time off and start your job in another two months. The good news is, with a job letter rule, we can close on that home as long as we close within 60 days of starting your new job. We’ll talk about this with an example.

If you’re closing on December 31st—or I should say, if you’re getting out December 31st—we can close on that home at the start of November and be okay as long as that job letter is clear. Now, what’s a clean job letter? There are four major components to it:

1.  Full-time Status: It needs to state that it’s full-time or specify 40 hours if it’s hourly.
2. Clear Definition of Pay: It should show the salary, or if it’s hourly, it should show at least 40 hours and the hourly pay for those 40+ hours.
3. No Contingencies: It can’t have anything stating that the job is contingent on something, like completing a certification. For example, if you’re getting out and need to complete some report or certification to change platforms, or if you’re a teacher or nurse needing to do something, those stipulations need to be cleared before we can use the job letter. This also includes things like drug tests or completing degrees (like a bachelor’s degree for the Police Academy).
4. Signed by a Responsible Party: This should be someone like HR, a manager, or the owner. This is important because the letter will be followed up on to verify its legitimacy and that you still intend to start the job before closing.

A job letter is essential if you want to close on a home before starting your next job. This leads us to the next part of the discussion.

Next, the big thing for VA loan consideration is the VA funding fee. It can be waived before you get out. A common misconception is that you can’t close on your home until you get out of the military and receive your first pay stub. Actually, another big misconception is that you have to close and then file for a refund of your VA funding fee later. That’s not the case.

You can file the form 26-8937 yourself or have your lender do it. If you’ve filed a VA disability claim before getting out, and it’s been in the system for a while, we can file this form. The VA will then check your record to see if you have at least a 10% disability rating or greater. If so, they will send an updated Certificate of Eligibility (COE) showing your entitlement and whether you are exempt from the funding fee. This can save you a lot of money; we’ve had cases where it saved veterans around $9,000.

Ideally, you want to file your disability claim at least three to four weeks before closing on your home. This gives the VA time to respond. We usually get an answer within two weeks, but to be safe, file the form at least three weeks prior to closing.

Now, let’s talk about the Skillbridge challenges. I know some of you have been through Skillbridge. I went through it myself when it first started. It was the Wild West back then. I was in Dayton, Ohio, and I was blown away by the process. I got a real estate broker, got signatures from the Education Office and my command, and everything was set. You get to spend six months with an employer to learn skills, which is awesome. But if you’re trying to buy a home while on Skillbridge, there are some challenges.

How long is your Skillbridge program? If it’s a full six months, that’s great for training. But remember, if you’re trying to buy a home while getting out and using a VA or conventional loan, you need to close within 60 days of starting your new job. If your Skillbridge is six months and your new job starts right after, you’re constrained by that 60-day window. If your Skillbridge is five months, you need to wait until you’re within 60 days of starting your new job to buy a home. This can be awkward if you’re not planning to take terminal leave.

Some people adjust their Skillbridge or take terminal leave to start their new job sooner. If you take terminal leave, you might start your new job while still technically in the military. This can allow you to close on a home earlier. If you’re on a long Skillbridge, you might have to rent for a few months before buying.

Let’s go over a scenario to illustrate this. Imagine Captain America has an estimated time of separation (ETS) of December 31st but goes on terminal leave in October. He wants to double-dip for a couple of months. If he has a clear job letter by November 1st, he can close on a home as early as September 2nd. This means he can start looking for homes in July or August, get under contract, and close in September using the income from his future job.

This process allows you to start the home buying process sooner than you might think. Some people wait until they have their first pay stub, but this can lead to rushed decisions or suboptimal home purchases. By planning ahead, you can avoid these issues.

Once you start your job, you need to have your first pay stub to close. This means if you’re using a job letter, you need to close before starting the job.

Here are the four key takeaways:

1. Type of Pay: Your pay type impacts your qualification. Stock options, for example, might not help much with buying a house, but a salary will.
2. Job Letters: Important for closing before your official outdate. Ensure your job letter has the four key components.
3. VA Funding Fee: Can be waived if you apply for VA compensation before closing.
4. Closing Before Getting Out: You can close on a home before getting out of the military. This avoids rushed decisions and suboptimal purchases.

Finally, work with a lender who understands the VA loan process. My information is on the screen; feel free to reach out.

One common question is about job qualifications, especially for roles like police officers. If the job letter states that academy completion is required, that can be an issue. Always clarify if a stipulation is a true requirement.

Thank you for your time. Feel free to reach out if you have any more questions. Take care.