While the Department of Veterans Affairs oversees the VA loan program, it doesn’t actually lend money. Instead, a number of VA-approved banks, credit unions, and mortgage companies originate these loans. As such, we’ll use this article to provide an overview of the USAA VA loan.
Specifically, we’ll discuss the following:
- VA Loan Overview
- USAA Overview
- USAA VA Loan Information
- Final Thoughts
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VA Loan Overview
The Department of Veterans Affairs doesn’t lend money. Instead, the VA guarantees a portion of each VA loan made by lenders (e.g. banks, credit unions, etc.). This guarantee protects these lenders from default. That is, if a veteran stops paying back his or her VA loan, the government will reimburse a portion of the outstanding loan balance to the lender.
Due to this VA backing, individual lenders face far less risk with these loans. And, they pass this reduced risk on to veterans by offering outstanding terms for VA loans. In particular, VA loans:
- Do not require a down payment
- Offer extremely competitive interest rates
- Do not require private mortgage insurance, or PMI
- Allow for a streamlined refinancing through the IRRRL program
And, United Services Automobile Association, or USAA, serves as one of these VA-approved lenders. While the VA provides overarching guidance on the VA loan program, USAA dictates specific terms regarding loan applications, approval, and processing. As a result, we’ll use the remainder of this article to discuss both USAA and its VA loan product.
USAA Overview
As its name suggests, USAA began as a military-focused auto insurer, forming in 1922. In that year, 25 Army officers met in San Antonio and decided to insure each other’s vehicles. Fast forward to the present, and these 25 officers “couldn’t have imagined that their tiny organization would one day serve millions of members and become one of the only fully integrated financial services organizations in America.”
By fully integrated, USAA means it offers a variety of insurance, financial, and lending services – not just auto insurance. Broadly speaking, the organization offers the following product categories:
- Insurance (auto, property, life)
- Banking (checking/savings, credit cards, auto loans)
- Investments
- Retirement
- Mortgages (VA loans)
Additionally, USAA offers full financial planning services related to the above products. Of particular note, USAA recently partnered with Charles Schwab to offer a total suite of financial planning services. From opening your first brokerage account to complex estate planning and everything in between, the USAA-Schwab team can help.
From a military perspective, USAA also remains true to its roots as an auto insurer for service members. Its mission is: To facilitate the financial security of its members, associates, and their families through provision of a full range of highly competitive financial products and services; in so doing, USAA seeks to be the provider of choice for the military community. In that vein, the organization offers benefits, products and discounts for U.S. military members and their spouses, as well as children of USAA members. We’re committed to providing our members with exceptional service.
Bottom line, as a military-focused organization, USAA intimately understands the unique situations and financial needs of its military members, making it a great option for a VA loan.
USAA VA Loan Information
About the USAA VA Loan
While a multitude of VA-approved lenders exist, very few can claim the VA-specific lending experience that USAA does. According to the Department of Veterans Affairs Lender Statistics, in 2020, USAA Bank originated the 2nd highest total of VA purchase home loans and the 5th highest amount of VA loan volume. And, this loan volume relates directly to specialization. That is, USAA only offers VA loans (fixed-rate, ARM, and jumbo), meaning its loan officers have intimate understanding of the VA loan process.
Loan Application Process
USAA allows members to begin the VA loan application process online or over the phone. And, after the initial application, members continue to work through the application process with designated loan officers and underwriters. Broadly speaking, the application process consists of the following steps:
- Step 0, Confirm Potential Eligibility: The USAA website offers a convenient tool to help members determine whether or not they are potentially eligible for a VA loan (your loan officer will confirm actual eligibility later in the process). After completing this step, you continue with the loan pre-approval process.
- Step 1, Apply for Loan Pre-approval Online: Members sign into their USAA accounts to begin the VA loan application process. This includes submitting basic information about themselves and their financial situations.
- Step 2, Loan Officer Contact and COE Confirmation: After you complete your initial application, USAA will assign a mortgage loan officer to you. This individual will walk you through the remaining steps of the loan application process, to include validating your VA loan eligibility via a Certificate of Eligibility, or COE (NOTE: Your USAA loan officer can pull your COE on your behalf). This step concludes with the applicant receiving VA loan pre-approval.
- Step 3, Make an Offer on a Home: Before completing the VA loan process, your USAA loan officer will require a signed purchase contract between you and a home seller.
- Step 4, Underwriting and Due Diligence: Next, your loan officer will serve as your primary USAA point of contact as you go through underwriting, which will include validating all of the financial information you submitted on your initial application (e.g. reviewing paystubs, tax returns, bank statements, etc.). Additionally, part of this due diligence period will include getting a VA appraisal on your desired home, a requirement for all VA-approved lenders during the application process.
- Step 5, Closing: After the USAA underwriters remove all the conditions on your loan application, to include those related to the VA appraisal, you will be cleared to close on the loan. This final closing process will involve signing all closing documents with either A) a settlement company, B) a real estate attorney, or C) a notary on behalf of one of the first two options. Once you close on the loan, USAA will release the loan funds to the seller, and your home purchase will be complete.
Pros and Cons to the USAA VA Loan
- Pro 1, Integration with Other USAA Products: When you purchase a home, you also need to purchase insurance for that home. As a full-service provider, USAA makes selecting its home insurance a seamless process during the VA loan closing process. And, when you have multiple products (e.g. insurance, loans, banking, etc.) with USAA, you can receive a multi-product discount.
- Pro 2, Military-friendly with VA Loan Experience: Unfortunately, many VA-approved lenders don’t understand the military and veteran experience. As a military-focused institution, USAA loan officers are intimately familiar with the unique needs and situations of its military borrowers.
- Pro 3, VA Loan Specialization: Many VA-approved lenders offer a variety of home mortgages – not just VA loans. On the other hand, USAA only offers VA loans (fixed-rate, ARM, and jumbo). This focus on VA loans allows USAA loan officers to develop specialized skills and knowledge pertaining to the VA loan process.
- Con 1, Must be a Member: The first major drawback to USAA VA loans is that, to get one, you must be an USAA member. Generally, USAA membership is open to active, retired, and separated veterans with a discharge type of “Honorable” from the U.S. military and their eligible family members. If you believe you fall into one of these categories, you can call USAA to confirm.
- Con 2, Not Many Brick and Mortar Locations: USAA has embraced a remote-service approach for its members, meaning that it emphasizes online-, phone-, and smartphone-based banking. It only has a handful of brick and mortar branches to have face-to-face discussions with a loan officer. But, USAA’s outstanding remote service lets you complete the entire VA loan process without setting foot in a branch.
- Con 3, Uses a Third-party Mortgage Servicer: USAA, itself, does not service its VA loans. Instead, it uses Nationstar, a third-party subservicer. When USAA began this relationship, it faced numerous complaints about the customer service, professionalism, and competence of the Nationstar staff members. However, as a result of these complaints, USAA has implemented far more direct quality control over the VA loan application and servicing process. (NOTE: This article’s author had a terrible experience with a Nationstar loan officer while refinancing a loan in 2017. After lodging a complaint directly with USAA, a new loan officer was quickly assigned, and the remainder of the process went smoothly).
Final Thoughts
Overall, USAA offers an outstanding VA loan product and application process. While certainly not the only VA-approved lender, USAA does stand out as one of the better ones.
Maurice “Chipp” Naylon spent nine years as an infantry officer in the Marine Corps. He is currently a licensed CPA specializing in real estate development and accounting.
