VA Loan Frequently Asked Questions

VA Loan FAQ's, Getting answers to some of your most common frequently asked questions regarding VA home loans can feel like a hassle at times. Here at Low VA Rates, we want to make it as easy as we can for you to access the answers you are looking for.

VA Loan Basics

What is a VA loan?
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A VA loan is a home loan that is guaranteed (not offered) by the Veterans Administration. VA loans are obtained through VA-approved lenders who choose to offer them. The VA guarantees a portion of the loan amount to the lender in case of default to lessen the risk and enable them to offer veterans more favorable loan terms than they could otherwise qualify for. Because of the VA guarantee, VA loans do not require a down payment or mortgage insurance.

 
Who is eligible for a VA loan?
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Most current or former members of the full-time military are eligible for the VA loan program. There are time-served requirements, but they are relatively short and vary depending on the years during which the veteran served. Those who are currently serving or retired from the National Guard or Selected Reserves are generally eligible for the program after 6 years of service. Surviving spouses of veterans who died during service or from a service-connected disability are also eligible for the VA loan program.

 
What can you use a VA loan for?
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VA loans can only be used to purchase a property which the borrower intends to occupy as his or her primary residence. In special circumstances, a multi-unit building can be purchased with a VA loan as long as the borrower intends to occupy one of the units. A property being purchased with a VA loan cannot under any circumstances have more than four residential units and one commercial unit.

 
Are there closing costs on a VA loan?

Yes. The VA specifies which charges the veteran is allowed to pay for and which are the responsibility of the lender or the seller. The VA Lender’s Handbook offers the following explanation for closing costs:

  • Those payable by the veteran are limited by regulation to a specific list of items plus a one percent flat charge by the lender.
  • Any other party, including the seller, can pay any costs on behalf of the veteran.
  • Closing costs cannot be financed in the loan except on certain refinancing loans.
 
How long do VA loans take?
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A general rule of thumb for the length of time it takes to do a VA loan is 45 days. However, it is very possible to do a VA streamline in as fast as 10 days and a VA loan for a new home purchase could take 90 days. We suggest asking your loan officer this question as he/she will have a better understanding of all of the details pertaining to your individual situation and loan.

 
Can I get cash back at closing on a VA loan?
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Yes. There is a catch to this answer though. On a VA loan used to purchase a new home, you can only get cash back in the amount of your earnest money that you put down. On a VA IRRRL or streamline loan you are not allowed to get any cash at closing except for two situations. 1. If doing an EEM loan (energy efficiency loan) then you can get the cash for the improvements. 2. You can get no more than $500 at closing for mathematical or computational differences not foreseen prior to the loan closing. On a VA cash-out refinance you can get as much cash at closing as you were approved for and the VA has no rule on the amount of cash or what you do with it.

 

VA Refinance

What can a VA refinance be used for?

VA refinances can be used for a variety of different purposes. The most common is to secure a lower interest rate. Refinances can also enable the borrower to make a large, additional payment to take a chunk out of the remaining principal of the loan - this is called a cash-in refinance. Many borrowers use a refinance to use the untapped equity in their homes to finance improvements to their homes, buy a car, or consolidate debt. These types of refinances are called cash-out, or debt-consolidation loans. So a VA refinance can be used to get a lower interest rate, put cash-in to bring the remaining principal down, take cash-out for any purpose agreeable to the lender, including consolidating other debt.

 
How do I qualify for a VA refinance?

Qualifying for a VA refinance is very similar to qualifying for a new purchase VA loan. You must have a Certificate of Eligibility, and already have the type of loan that the VA refinance you are pursuing requires. For example, the VA streamline refinance option (IRRRL) can only be used on existing VA loans, not conventional. Normal refinances can be used to change conventional or FHA loans to VA loans, or from VA loan to VA loan. Depending on the type of refinance, there may be other requirements. For example, in a cash-out refinance, you will generally be required to explain your reason for getting money out, and that reason will be evaluated by your lender.

 
How many times can I do a VA refinance?
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Theoretically speaking, there is no maximum number of times that a borrower can refinance their VA loan. However, there are plenty of practical restraints that will limit most borrowers to two or three refinances throughout the term of the loan. The VA has a rule for refinancing - that a refinance cannot be approved unless the interest rate on the new loan is lower or there is a substantial net benefit for the borrower.

There are only so many situations where a refinance provides a sufficient amount of net benefit, and therefore only so many situations in which you’ll be able to do a refinance.

 
Do I have to get an appraisal for a VA refinance?
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It depends on the type of refinance. For an Interest Rate Reduction Refinance Loan (IRRRL), the VA’s streamline refinance option, no appraisal is required. However, for the cash-out refinance option, an appraisal is required. Why the difference? Because in a cash-out refinance, the amount of cash you are eligible to receive out of the loan is determined by the amount of equity you have in your home; calculating this relies on the current value of your home.

Equity is calculated by taking the real value of your home (appraised value) and subtracting how much principal you still owe on the home. For an IRRRL, the main goal is to get a lower interest rate, so the appraised value of your home at the time of the original loan is sufficient for underwriting purposes.

Are there closing costs on a VA refinance?
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Yes. However, in IRRRLs, most of the closing costs can be financed into the loan amount. The Lender’s Handbook says the following about IRRRLs:


The following fees and charges may be included in an IRRRL:

• the VA funding fee, and

• any allowable fees and charges discussed in section 2 of chapter 8; such as all allowable closing costs, including the lender’s flat charge.


However, There Is One Limitation

While the borrower may pay any reasonable amount of discount points in cash, only up to two discount points can be included in the loan amount.

Although VA does not require an appraisal or credit underwriting on IRRRLs, any customary and reasonable credit report or appraisal expense incurred by a lender to satisfy its lending requirements may be charged to the borrower and included in the loan.

The lender may also set the interest rate on the new loan high enough to enable the lender to pay all closing costs, as long as the requirements for lower interest rate and payments (or one of the exceptions to those requirements) are met.


Cash-out refinances are very similar to new purchase loans in regards to their allowable closing costs.

 
How long do VA refinance loans take?

A VA refinance loan (not streamline) takes on average 30 days from start to finish. You have the ability to speed this process up or slow it down. The sooner you get all your required paperwork and documentation to your loan officer or processor, the faster the loan process can take. If you struggle to gather information or send in the required documents then the loan process is going to take much longer. As stated, expect around 30 days.

 
Can I get cash back at closing on a refinance?

Yes. On a VA cash-out refinance you can get as much cash at closing as you were approved for and the VA has no rule on the amount of cash or what you do with it. There is a slightly different answer on a VA IRRRL or streamline loan. You are not allowed to get any cash at closing except for two situations.

1. If doing an EEM loan (energy efficiency loan) then you can get the cash for the improvements.

2. You can get no more than $500 at closing for mathematical or computational differences not foreseen prior to the loan closing.

 

 
What does my credit score have to be?

VA does not have any written or specific requirements for a minimum credit score. Here at Low VA Rates, neither do we! VA loans look more at your overall credit history and take a more “human” approach to approve loans. Many other lenders have hard fast rules and do not take into consideration your history. Suppose you got injured in combat or suffer from military-related injuries and your medical bills are hurting your credit score. We take that into account.

The mortgage industry has some general rules. If you have a score under 620 then it becomes very difficult to find financing or VA loan approval at many banks and lenders. Again, here at Low VA Rates, we do not follow that industry standard.

Your credit score can affect your interest rate or closing costs, however. We can many times get someone with a low credit score the same rate or fees that we can someone with a high score. There could be occasions where someone with higher scores has more loan opportunities or better rates available.

Here is a range of credit scores and what they indicate. 580 or lower (Poor Credit) 580-620 (Ok Credit) 620-660 (Good Credit) 680-720 (Great Credit) 720 plus (Excellent Credit)

 

VA Streamline (IRRRL)

What is a VA streamline?
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A VA streamline loan is a refinance option that allows the underwriters to reuse a lot of the same information from the original loan. The official name for the VA streamline is the Interest Rate Reduction Refinance Loan (IRRRL).

Only an existing VA loan can be refinanced with the VA streamline refinance option. At closing, IRRRLs allow you to roll most, and sometimes all, of the closing costs into the loan amount, including up to two discount points.

 
How do I qualify for a VA streamline?
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To qualify for a VA streamline loan, you must:

  • Already have a VA home loan
  • Be current on your loan payments
  • Have made at least 6 full payments
  • Wait at least 210 days from the first payment on the loan you'll be refinancing

In addition, the refinance must meet its own set of conditions, called the net tangible benefit (NTB) test. Basically, the refinance has to benefit you in the following ways:

  • You must either receive a lower interest rate or be moving from an ARM to a fixed-rate loan
  • You must either receive a lower monthly payment or a shorter loan term
  • You must recoup the closing costs within 36 months of closing

 

 
What are the benefits of a VA streamline?
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The main benefits of a VA IRRRL are the reduction in your interest rate and a lower monthly mortgage payment. Another benefit could be moving from an adjustable-rate loan and into a fixed-rate loan before your interest rate starts to rise.

Some other benefits you might experience are dependent on how your IRRRL is set up. These include:

  • Getting a refund from your current lender for the balance remaining in your escrow account at the time of the loan refinance
  • Potentially deferring up to two mortgage payments

In terms of the actual loan process, IRRRLs also have some advantages over other loan types, including the fact that there's no need to verify your income, assets, or employment and you don't have to pay for an appraisal.

 
How many times can I do a VA streamline?

Technically, the number is unlimited as long as both you and the loan being refinanced meet all of the conditions, including the net tangible benefit test.

 
Do I have to live in my home to do a VA streamline?

No. The occupancy requirement for VA streamline loans is different from all other types of VA loans in that you do not need to currently occupy the home. Instead, you simply must have occupied it at some point in the past.

 
Are there closing costs with the VA streamline?
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Yes, but they tend to be less than for other loan types because we can reuse a lot of your original loan information.

Closing costs you can expect include the VA funding fee, which is required on all VA loans, and any allowable fees listed in chapter 8 in the VA Lender's Handbook.

For a VA IRRRL, the funding fee is quite low at only 0.5% of the loan amount. As for the allowable fees, the lender can charge a flat 1% fee, plus any itemized fees that are reasonable and customary. Finally, a lender may also charge you for discount points.

The good news is that, most of the time, you can roll all of the closing costs into the loan amount. The only exception is for situations where there are more than two discount points. Any points above two cannot be rolled into the loan and will need to be paid out-of-pocket at closing.

 
How long do VA streamline loans take?

In general, it's best to expect a streamline loan to take 30 days. However, they can be done in less than 10 days. Your loan officer will be able to give you the best estimate for the timeline of your specific streamline refinance.

One of the reasons for this accelerated timeline is that streamline loans are much faster to process because we don't need an appraisal or home inspection, and we also don't need to verify your income or assets.

 
Can I get cash back at closing of a streamline?
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The main answer is no. VA streamline loans are sometimes referred to as no-cash-out refinances. However, you could get a refund of any existing escrow balance from your original lender, though some lenders may simply subtract this balance from your payoff amount.

Another way you might get some money out is if you bundle an energy efficient mortgage (EEM) with your IRRRL. EEMs can provide up to $6,000 to make approved improvements to your home's energy efficiency.

Finally, if there were calculation errors, some states will allow you to get up to $500 at closing to make up the difference.



 
Does my credit score matter for a VA streamline?
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As with all VA loans, there is no minimum credit score requirement set by the VA, nor do we have an internal one at Low VA Rates. However, while other types of VA loans may still require a credit check, VA streamlines don't even require that. As long as your loan is current at the time of closing, and all other qualifications are met, you can do a VA streamline loan.

Here is a range of credit scores and what they indicate. 580 or lower (Poor Credit) 580-620 (Ok Credit) 620-660 (Good Credit) 680-720 (Great Credit) 720 plus (Excellent Credit)

 
How many payments must I make on my loan before I can do a streamline?

Based on recent changes to federal law, VA streamline loans must meet certain seasoning requirements:

  1. 6 full payments must be made on a loan before it can be refinanced
  2. 210 days, or more, must have passed since you made the first loan payment
 
Is it true you should drop your rate 1% minimum in order to do a refinance?

The short answer is no. Sometimes even dropping your interest rate only 0.25% or 0.5% can have a huge financial benefit.

Despite the benefit, these lower interests rate might have, you can only get a streamline refinance if you experience enough savings within a specific time period. Basically, when you add together the amount you save each month for the first 36 months, it has to offset how much you paid in closing costs.

It's also important to note that your interest rate doesn't need to drop at all if you're using an IRRRL to move from an adjustable-rate mortgage to a fixed-rate. This can be a great option with potential for savings if the fixed-rate portion of your ARM loan is set to expire, especially if rates are currently climbing.

 

 
Why is my new loan amount higher than what I currently owe?

If you choose to roll the closing costs from your IRRRL into the total loan amount so you don't have to bring any money out-of-pocket at closing, this can cause your loan balance to go up.

Additionally, if you defer one or two of your mortgage payments because of how the timing on the IRRRL works out, these payments don't just disappear. Instead, the interest owed to the current lender from those payments get added to your payoff amount, increasing the balance of your IRRRL.

However, we've found that even if your balance goes up, most people still benefit from the savings they experience from a VA IRRRL. Often, the cost of rolling your closing costs into the loan is normally recouped by the amount you save within 6–18 months, if the loan is structure properly.

 
How do I go about getting my escrow refund after my loan closes?

Your escrow refund is mailed to you by the lender we paid off with the VA IRRRL, usually within 30 days of the loan funding. Low VA Rates has no control over when this occurs or how much you'll receive.

Also, while an escrow refund occurs on over 95% of the loans we refinance, you are not guaranteed one. If you don't get a refund, it's usually because your lender either reduced the payoff amount by your escrow balance or you didn't have anything in escrow when the IRRRL closed.

If you want to be certain of what escrow refund you will get, then we suggest calling your loan officer and having them get you a definitive answer from your current lender.

 
Can my current lender report me late on my credit if I do not make a payment by the late date?

No. Legally, you can not be reported late by your lender until the 30th of the month. That's because the law gives you 30 days to make your payment.

However, after the 15th of each month or, in some cases, after the 10th, you will likely incur a late charge. Many people confuse the late charge with being reported late to the credit agencies.

At Low VA Rates, we do our best to help you avoid any late fees or derogatory marks on your credit while you wait for your IRRRL to fund.

 
My mortgage company called me to tell me they have not received my payment, does this matter?

Mortgage payments are due on the first day of every month, and most lenders have a collections department that will start calling for mortgage payments that have not posted by the 20th. Often these calls are used as scare tactics to get you to make your payment.

However, if your loan has closed, been approved to close, or is in the final stages of approval, then we suggest that you work closely with your loan officer to determine just how serious these collection calls are and if your streamline loan will close in time to pay off your loan so you can avoid any late or delinquent reports that could damage your credit.



 
Will my taxes and insurance still be included after the streamline?
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Yes. After your streamline loan closes, your monthly payment will cover your principal and interest as well as your taxes and insurance. What you pay towards your taxes and insurance will be held in an escrow account. Then, when these are due, we will use the money in escrow to pay them for you.

 
Who do I make my payments to after the loan closes?
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In your loan closing documents, you will receive a temporary payment statement or coupon that will instruct you on where to send your mortgage payment. Once 60–90 days have passed, you should receive an official welcome letter that will tell you how to set up recurring payments.

If you ever have any questions or confusion on where to send your payments, you can always contact us for assistance.

 
Where do I go for my closing?
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Our goal here at Low VA Rates is to make your loan process as effortless and easy as possible. VA streamline loans are almost always done in your home at whatever time you prefer. However, there is a lot of flexibility and we are willing to do whatever will work best for you.

For example, we have closed loans at truck stops in the middle of the Alaskan tundra and at US embassies overseas. We can close your loan wherever you want.

 
Can I skip any payments?
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Technically, you are never actually skipping any payments. Instead, you are simply deferring them.

Basically, this means that when we set up your VA streamline, we can time it right so that we roll one or two of your payments into your new mortgage. Instead of paying them each month, you will pay them off over time.

We've found that most veterans prefer this approach because it allows them to use those months to attack high-interest rate credit cards, pay other bills, take a much-needed vacation, or just save the money for a rainy day.

 

Buying a home with a VA loan?

How much can I borrow with a VA loan?
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The VA loan program is unique because it actually has no stated maximum dollar amount for its loans. There are, of course, limitations on the size of the VA loan, but they are completely contextual in nature. There are two primary factors that will determine the maximum amount the VA loan can be made for. The first one is for lenders selling their VA loans through a secondary market. Secondary market loans are sold through a third party service, such as the Government National Mortgage Association, and those third-party services often prescribe maximum loan amounts. VA loans are not granted an exception to those limits.

The second factor that determines the maximum loan amount is the reasonable value of the property shown on the Notice of Value (NOV) provided by the official VA appraisal. The loan will be limited to either the reasonable value on the NOV or the sale price of the home, whichever is lower, plus the cost of energy efficient upgrades up to $6,000 and the VA funding fee.

 
How many times can I use a VA loan to purchase a home?
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In theory, as many times as you’d like. However, you are limited by the occupancy requirement to one home being financed with a VA loan at a time. The occupancy requirement states that the borrower must occupy the property being purchased as their primary residence. Since it is impossible to have two primary residences, you’ll only be able to finance one home at a time.

Also, in order to reuse your VA loan entitlement, you’ll need to apply for a restoration of entitlement. To qualify, your previously-used entitlement must be completely paid off. If you have not defaulted on your first loan and have either paid it off or are selling your old home, this will qualify as paying off your previous entitlement.

 
Can I purchase a rental property with a VA loan?
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Generally no, however, there are some cases where it can be allowed. VA rules state that if a borrower purchases a multi-unit property, then the borrower must occupy one of the units. For example, if the borrower purchases a duplex with a VA loan, the borrower must occupy one of the two units.

Also, the most units a property can have is four. Anything with more than four units will not be eligible for purchase with a VA loan.

 
What does my credit score need to be to buy a home with a VA loan?

VA does not have any written or specific requirements for a minimum credit score. Here at Low VA Rates, neither do we! VA loans look more at your overall credit history and take a more “human” approach to approving loans. Many other lenders have hard fast rules and do not take into consideration your history. Suppose you got injured in combat or suffer from military-related injuries and your medical bills are hurting your credit score. We take that into account.

The mortgage industry has some general rules. If you have a score under 620 then it becomes very difficult to find financing or VA loan approval at many banks and lenders. Again, here at Low VA Rates, we do not follow that industry standard.

Your credit score can affect your interest rate or closing costs, however. We can many times get someone with a low credit score the same rate or fees that we can someone with a high score. There could be occasions where someone with higher scores has more loan opportunities or better rates available.

Here is a range of credit scores and what they indicate. 580 or lower (Poor Credit) 580-620 (Ok Credit) 620-660 (Good Credit) 680-720 (Great Credit) 720 plus (Excellent Credit)

 
Do VA loans have Mortgage insurance?
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No. Though VA loans require no down payment, they do not require mortgage insurance, so VA borrowers can get the benefit of low upfront cost and low monthly payment.

 
Are there closing costs when buying a home with a VA loan?
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Yes. The VA specifies which charges the veteran is allowed to pay for and which are the responsibility of the lender or the seller. The VA Lender’s Handbook offers the following explanation for closing costs:

  • Those payable by the veteran are limited by regulation to a specific list of items plus a one percent flat charge by the lender.
  • Any other party, including the seller, can pay any costs on behalf of the veteran.
  • Closing costs cannot be financed in the loan except on certain refinancing loans.
 
How long do VA purchase loans take?

A general rule of thumb for the length of time it takes to do a VA loan is 45 days. A VA purchase could take 90 days in some circumstances. On a purchase you need an appraisal, pest inspections may be needed, and you are dealing with Realtors and sellers also. We suggest asking your loan officer this question as he/she will have a better understanding of all of the details pertaining to your individual situation and loan.

 
Can I get cash back at closing of a purchase loan?

Yes, you can always structure the loan so that you get your earnest money back at closing. You can also do EEM (energy efficient improvements) on a new home you are buying and may be able to receive cash back to reimburse for those improvements. Many times new buyers are really wanting to know if they can get cash to furnish the home or do upgrades and the answer to that is No.

 

VA Closing Costs

What are the closing costs?
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Closing costs can be a very tricky thing for many homeowners and what we find here at Low VA Rates is many people (our competition) confuse you even more by not being transparent or by trying to "trick" you. At the end of the day, all loans have some kind of cost associated with them. Sure, you can select a higher rate and get a loan where the lender removes or credits the costs for you. However, you still have a "cost" by taking a higher rate and thus paying (costing) more interest over time.

A basic breakdown or summary of a Good Faith Estimate (GFE) is very beneficial in understanding closing costs. Perhaps the single most important place to look is page 1 under the A near the bottom also known as your adjusted origination charges. The adjusted origination charges are charges the lender/broker are charging you to get the loan done. B, the other settlement charges are normally the same across all lenders and this section is where fees from 3rd parties are accounted for. Finally, the last box on page 1 of the GFE is a total of A+B= your Total Closing Costs.

Here is a more detailed explanation and breakdown for those interested. Box A as mentioned are charges directly from the originator (lender or broker or both) This area is where you can see what it is costing for the rate you chose or if you are getting a credit for the rate also. The total of Box A is essentially where you can “shop” for a lower cost/rate or deal.

Box B are charges that should stay relatively the same across all competitors. Here you will see costs for the following: credit reports, title insurance and related title fees, recording fees(county), transfer taxes, escrows or impounds, daily interest on the new loan, VA funding fee or mortgage insurance premiums due.

 
What is the VA funding fee for?
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VA loans do not have any down payment required and most have very little to no equity at the onset of the loan. On conventional loans, there is mortgage insurance required if less than 20% down and on all FHA loans, there is an upfront MIP (mortgage insurance premium) and a monthly MI (mortgage insurance) due. Like the conventional mortgage insurance and the FHA MIP, the Department of Veterans Affairs charges a one time upfront fee to guarantee or ensure the loan. Essentially the VA is charging this funding fee on a VA loan in order to have funds available should they need to step in and assist the lender in cases where the Veteran is in loan default. Think of the VA funding fee as an insurance policy for the loan. Banks are willing to make getting VA loans easier because the bank has the backing or guarantee of the US government. The only VA loans that do not require the payment of the VA funding fee are for loans extended to someone receiving VA disability benefits. Keep in mind the VA funding fee is only paid one time at the closing of the loan and not every month. The following is a table outlining how much the VA funding fee is on each loan.

Funding Fee Table

 
Why are closing costs so high?
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We are asked this all the time. On the surface, it can seem as though your closing costs are too high. There are basically two types of loans (as it pertains to costs) and then a little room in between. 1. You can choose the absolute lowest rate available and as you might expect, the lowest rate = the highest costs. 2. You can take a loan with little to no closing costs but as you might also expect lower costs = higher rate. Why is this do you suppose? Wall Street gets all the loans done in one way or the other. Wall Street wants to do one thing and that is make money. Whether you pay the "banker" a very low rate for the life of your loan or choose to take a "higher" rate with no cost, the banker has figured out how to make the same amount either way. At the end of the day, here at Low VA Rates, we challenge you to find a loan with lower costs/rates than we can offer. In the event that you do, we have a $250 challenge that will allow us to pay you $250 if you are able to. Please contact us for information on how to challenge us on the $250.

 
Can I do a No Out-of-Pocket Cost loan?

As mentioned above, by choosing to do a no out-of-pocket costs loan, you are simply selecting a higher interest rate. The only time we feel it is prudent to negotiate or try to do a loan with no money out-of-pocket is when you will be moving or refinancing again within about 12-18 months. This is not a black and white rule, but most of our loans can be structured to not only lower your interest rate but to also get your incurred closing costs paid back off within 12-18 months. Please ask us how to structure your loan so that you can take advantage of both the low rates and also recover/recoup your costs as soon as possible.

 

VA Hybrid ARM

What is a VA hybrid ARM?
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A hybrid ARM loan is a loan that combines aspects of both fixed-rate mortgages and ARMs. In a hybrid, your interest rate is fixed for the first 3-5 years (depending on what option you choose), after which, it can be adjusted annually. On a VA hybrid ARM loan, the rate cannot adjust more than 1% above or below the previous rate. Hybrid ARM loans also have a lifetime rate cap of 5% from the original rate. This means that if the original interest rate was 3.5% (2.25% from the Index, and a 1.25% margin), the rate could never rise higher than 8.5% throughout the duration of the mortgage.

In the above example, the terms “index” and “margin” were mentioned. The index and margin are the two basic components of an interest rate. The “index” is the weekly average yield on U.S. Treasury Securities adjusted to a constant maturity of one year. This number fluctuates constantly. The margin is generally determined by the lender, but for VA ARMs, and consequently VA Hybrid ARMs, the margin is set at either 2.00% or 2.25%, which makes VA ARMs much more attractive than other types of ARMs.

Now that we know what a VA Hybrid ARM loan is, we can talk about its advantages and disadvantages. Because a Hybrid ARM is fixed for the first 3-5 years, then subject to variation, interest rates on hybrid ARMS are often lower than fixed-rate mortgages. The adjustments that happen annually after the initial fixed period will bring the interest rate closer to the current rate at the time of adjustment, which protects the lender because they have chances to increase the interest rate later on if interest rates rise after the mortgage has begun. On a fixed-rate mortgage, the borrower is gambling that the higher interest rate they are getting now will be saving them money in the future because interest rates will rise.

 
What kind of VA hybrid arms are there?
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There are two kinds of VA hybrid arms: a 3/1 ARM and a 5/1 ARM. The numbers indicate the number of years the initial interest rate will remain fixed, followed by the maximum it can be adjusted each year afterwards (# of years/max annual adjustment). On a 3/1 ARM, the initial interest rate will remain fixed for three years (36 months), and each year after that the interest rate can be adjusted no more than 1% in either direction. On a 5/1 ARM, the initial interest rate will remain fixed for five years (60 months), and each year after that the interest rate can be adjusted no more than 1% in either direction.

 
What index does the VA hybrid have?
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The VA hybrid arm loans use the CMT index. Here is a great tutorial video that goes over just how the index, margin and Caps all work.

 
What if rates keep going up?
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Asking "what if" is generally an indicator that you are basing your decision on a worst case scenario. For example, "what if I get in a wreck on the way to the grocery store?" If we based all our decisions on the worst case scenarios we would never leave the house! However, suppose rates do keep going up. Here are a few things to consider. First of all, history has shown that rates do go up and in the last 10 yrs or so they have never gone up more than 3 yrs straight. Why not ask, "what if rates keep going down?". Rates have been falling more the past 15 yrs than they have been rising. The simple truth is this, rates will go up and rates will go down. The VA has gone to great lengths to protect you in times of rising rates. On VA hybrid arms no matter how high and how fast rates do rise, you get the following protection. No more than 1% maximum increase per year, no more than 1 time per year for an increase and no more than a 5% increase over the life of the loan.

 

Questions about Low VA Rates

Are you a scam?

Answer

Yes of course we are. Just kidding. We actually get this question asked and it always amuses us because if we were, we would certainly have a hard time admitting it wouldn’t we? We want you to feel very secure and safe when doing business with us. Just ten years ago or so, the mere thought of doing a mortgage over the internet, phone or fax and not meeting face to face seemed foreign to most of us. However, here we are and doing a VA loan online and not in person is very commonplace.

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