The VA Amendatory Escape Clause And Its Effects

If you’re not aware of the VA Amendatory Escape Clause, it’s something you should definitely be aware of. While the VA escape clause can be a big pain point for the seller, the seller’s reaction can cause significant consternation to the borrower, to the extent that the seller may refuse to sell the home. As a VA loan borrower, it is very wise to know exactly what the VA escape clause entails and to do your part to let the seller know ahead of time that the Escape Clause is coming and what it means.

 

What Is the VA Loan Escape Clause?

So what is the VA amendatory escape clause? Well, the official VA language of the Escape Clause is as follows: “It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise or be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs.” See a sample of the VA escape clause pdf provided by VA.gov

In plain English, the VA amendatory escape clause form means if the home’s selling price is higher than the VA appraisal determines to be the reasonable value of the home, the borrower can walk even if they have already signed a contract to purchase the home. To understand this provision fully, it is important to review the VA loan process. A home buyer applies and gets pre-approved for a VA loan at a certain amount. Using that knowledge, they begin hunting for a home. A suitable home is found, the buyer makes an offer, and the offer is accepted (if only it was really that simple, right?). Then comes all the paperwork, both things that are common among all loan types and those that are VA loan specific. One of the VA loan specific hoops to jump through is the VA appraisal, conducted by an official appraiser. One of the purposes of the VA appraisal is to determine the actual value of the home. After the appraisal, the VA will issue a Notice of Valuation (NOV) that states what the VA deems is the fair market value of the property. There’s just one tiny, little, minuscule issue here; this appraisal definitely takes place after the offer has been accepted and probably after a contract has been signed by seller and buyer for the agreed upon amount.

 

What Are My Rights If I Am Not Comfortable Signing the VA Loan Escape Clause?

Why is this an issue? Because the VA absolutely will not guarantee a loan amount that is higher than what the NOV states are the fair market value. So . . . what if the buyer has already agreed to pay a certain amount that is higher than the VA is willing to guarantee? Enter Escape Clause. Once the NOV comes in, if the “fair market value” as determined by the VA is lower than the selling price, the buyer can still back out, or they can opt to pay the price and just have a portion of the loan not be guaranteed by the VA. Since many borrowers can’t afford to pay these extra expenses themselves without VA guarantee, the Escape Clause prevents them from being forced into this situation.

 

Why is the VA Loan Escape Clause Required?

The VA loan escape clause is mandatory as it protects the buyer that qualifies for a VA loan from being locked into a sale if the VA home appraisal comes back at a lesser value than the agreed upon price by the buyer and seller. It also protects the buyer from any penalties or fees for backing out of the sale. The Department of Veteran Affairs includes the VA loan escape clause because they will not offer a loan for an amount greater than what they appraise the property to be.

 

Is the VA Loan Escape Clause Negotiable?

What is more, the Escape Clause is non-negotiable and the VA Escape Clause form must be included in every VA sales contract. If the VA escape clause disclosure is not included in the Department of Veterans Affairs residential purchase and sale agreement, the clause must be amended. In a lot of ways, this throws the seller under the bus, especially if the seller was not aware of the Escape Clause. Sellers often make important life decisions after the contract to sell their home for a certain amount is signed (since, you know, signing a contract usually establishes a legal obligation to fulfill the terms). Those important life decisions might become the worst things that ever happened to them if a buyer decides to walk out on a $300,000 contract. You can imagine why a seller might be downright irate if the Escape Clause slaps them in the face.

 

Pay Attention to the Wording

So as a potential buyer, what can you do to alleviate this? First, see what language your lender uses in the Escape Clause. The wording on a lender’s version of the Escape Clause might be subtly (but importantly) different from the official VA Escape Clause. A common adjustment is to change “exceeds the reasonable value of the property . . .” to “matches the reasonable value of the property . . .” This essentially gives the buyer the power to walk for any reason whatsoever as long as the sale value isn’t the exact same as the appraised value. If language like this is used, you can expect that a seller would rather de-list the home than selling it to a VA borrower. Knowing in advance what the lender’s Escape Clause states and making the seller aware as well can quite literally make the difference between getting your dream home and not.

 

Good Communication with the Lender and Seller

Remember that the seller is able to renegotiate the terms of the sale as long as no laws are violated. They can adjust the asking price or even de-list the property. In all home sales, it’s important to maintain good communication with both the lender and seller. This way, you will be able to cut down on any unwanted surprises at closing.

At Low VA Rates, we pride ourselves on being transparent and educating all our borrowers on their different options. To learn more about VA loans and the different loan options we offer, check out other pages on our site. To get started on your loan application now, call 866-569-8272.

VA Home Loan Borrowing Limits

How Does a VA Mortgage Work & What are the VA Loan Borrowing Limits?

There are so many decisions to be made when purchasing a home, including what type of home loan to use. The financing choices are as plentiful and varied as the homes on the market. One of the best options available to former and current members of the U.S. Military is the VA loan. If you are eligible for a VA loan, this could be an ideal loan for you.

As you begin your journey toward homeownership, it is important to know not only what your VA home loan borrowing limits are, but also how the loan process works in general. We hope this article will help explain some of the terminology and steps  that need to be taken, as well as how your VA home loan will be determined.How much money can I borrow

VA Home Loan Borrowing Limits

One significant benefit of a VA home loan is that the VA’s guarantee may make homeownership an opportunity to someone who otherwise could not purchase, or may allow a buyer to purchase more home than they could with a conventional mortgage. The VA guarantee acts as part of the down payment requirement, which is typically 20%.

There is no maximum VA loan amount, it is the guaranty amount that will fluctuate. For a loan up to $45,000, the VA will guarantee up to 50%. For loans $45,001-$56,250 the maximum guaranty is $22,500. For loans between $56,250-144,000, the VA will guarantee up to 40%. For loans $144,000 or more, it is up to an amount equal to 25% of the county loan limit.

To meet demand, the VA established a secondary entitlement that parallels conventional lending limits of up to $484,350 ($726,525 in high-cost areas). For home loans greater than $144,000, the VA will guarantee the lesser of 25% or $104,250.

EXAMPLE: Loan amount is $200,000, VA guarantee is up to $50,000

Lending Law

There are a few key regulations you should be aware of when you start shopping for a home loan. They are all in place as a means of protection for the borrower.

Consumer Credit Protection Act of 1968

This act is sort of the umbrella regulation under which the others fall. It was passed by Congress as a means to protect borrowers from abuse by lenders.

Truth in Lending Act

Also passed in 1968, the Truth in Lending Act (TILA) outlines the disclosures that lenders must make to borrowers and the timeline of those disclosures. Before you close on a mortgage, the lender must provide a Truth-in-Lending Disclosure Statement that details the interest rate, terms, and conditions of the mortgage. This statement will also have a breakdown of fees and will explain which fees may change and by what percentage. It should also provide loan product comparisons so you as the borrower are fully aware of what is available.

Take the Disclosure Statement to your closing and compare it to the one provided at closing, as well as to your HUD-1 statement, to make sure all the numbers are still accurate.

Real Estate Settlement Procedures Act

Partnering with the Truth in Lending Act, this legislation requires that lenders clearly explain the financial responsibilities of the borrower. It outlines the monthly mortgage payment, costs involved in closing (such as taxes, insurance, and origination fees), the schedule of payments, and any penalties that may occur, such as a prepayment penalty.

Equal Credit Opportunity Act

Simply put, ECOA ensures that all eligible borrowers have access to financing. Lenders may not discriminate based on race, religion, gender, age, place of residence, place of business, or any other biased factors. For example, a lender cannot deny a woman of childbearing age because she may one day have a child and her employment status could change.


Low VA Rates can make the dream of owning a home a reality without the struggle of saving a massive down payment.

 

VA Loan vs Conventional

VA vs Conventional LoansVA loan vs conventional whats the better option? Many veterans or other VA-eligible borrowers decide not to use their VA loan benefits because they’ve heard that the benefits of the VA loan program aren’t worth the hassle. That is not true. The VA loan program is far superior to conventional loans, and it is definitely worth it to use a VA loan instead of a conventional if you are eligible. VA loans are better than conventional loans in a number of ways, but we’ll cover the three main ways in this article. The three ways a VA loan is superior are that a VA loan is easier to qualify for, allows you to get better terms, and is more friendly to people in tight financial situations.

 

VA Loans are Easier to Qualify For

The heart of the VA loan program is the VA guaranty – the Department of Veterans Affairs guarantees a percentage of the loan to the lender in case the borrower defaults on the loan. The VA doesn’t actually fund loans; it simply insures them. This lowers the amount of risk that a lender is taking on with a VA loan because they know a huge portion of the mortgage will be paid back no matter what. Because of the lowered risk, VA loans are generally easier to qualify for. This is especially true when you are working with a lender that specializes in VA loans.

Some of these easy qualifications include the following:

  • Credit score of 620 or higher (Low VA Rates has no minimum)
  • DTI ratio of 41 percent
  • Adequate residual income
  • No down payments

The VA loan program and conventional loans are very different, so you’ll maximize your benefits if you work with a lender that specializes in VA loans, rather than a lender that doesn’t know the VA program very well. Lenders that specialize in VA loans often have very relaxed credit requirements, which makes homeownership accessible to even those that don’t have great credit. If you do have great credit, you can expect to be offered a stellar interest rate – especially compared to a conventional loan.

A few conventional loan qualifications, in contrast, include the following:

  • Credit score of at least 660
  • DTI ratio of anywhere from 36 percent to 50 percent depending on how well you meet other qualifications
  • At least 5 percent down payment (20 percent in order to waive PMI)

 

The VA Loan Program Allows You To Get Better Terms

For the same reason that VA loans are easier to qualify for, you can also get much better terms on VA loans than on a conventional loan. When lenders take on a VA-eligible borrower, they aren’t taking on as much risk as they are with a conventional borrower since the VA is willing to guarantee a percentage of the loan amount. So a borrower with great credit that’s able to make a down payment can get much better terms on a VA loan than a conventional, and a borrower who doesn’t have the credit to qualify for a conventional loan at all can still get a VA loan. Anything you can qualify for on a conventional loan, you can qualify for a better version of through the VA loan program.

When we talk about loan terms, we are generally referring to the type of interest rate you get and how you pay back the loan, more specifically, how often you make payments and for how long. Types of interest rates do factor into the terms of the loan. You can choose between fixed rates and adjustable rates or even get a mixture of the two with a VA hybrid ARM. For the most part, loans come with terms ranging from 10 to 30 years, meaning that if you make all of your scheduled payments, stay in your home, and never refinance, you will pay that loan off by the end of that set number of 10 to 30 years. Depending on the lender, it could be more difficult to qualify for a shorter term as this would pose more risk with the higher monthly payments. But like we said, it is much easier to qualify for the loan terms you want with a VA loan than with a conventional.

 

The VA Loan Program is More Friendly to Borrowers with Tight Finances

The single biggest barrier to a young couple, or any potential buyer for that matter, when buying their first home is saving up for a down payment. With conventional loans, home buyers can get away with only making a 5 percent down payment. However, with a down payment of anything less than 20 percent, PMI (private mortgage insurance) payments are required. To make a 20 percent down payment on a $300,000 home, you would need to save up more than $60,000 (especially since closing costs on that loan will probably be around $10,000). While many people can make monthly mortgage payments with little financial difficulty, forking out over $60,000 all at once is much less feasible.

The VA loan program addresses this barrier by offering a no-down-payment option. You can get a mortgage with a 0 percent down payment through the VA loan program. With a new purchase loan or a cash-out refinance, you’ll still have some closing costs to pay, but in most cases, closing costs can be financed into the loan. Even when the borrower makes no down payment, the VA loan program does not ever require any mortgage insurance, which helps keep your monthly payment lower. Instead, they will charge the VA funding fee, but this is only paid upfront and can be waived entirely for service members with service-related disabilities.

Another huge financial benefit of VA loans is the lower interest rates. VA loans tend to have the lowest interest rates of any home loan program. This difference could save you thousands by the end of your loan.

In summary, here are a few unique financial benefits of the VA loan:

  • No down payment
  • Lower interest rates
  • No PMI
  • Closing costs can be financed into the total loan amount

 

Apply for a VA Loan Today

In short, the VA loan program trumps the conventional in every way that matters. Because of the VA guarantee, VA loans are easier to qualify for, come with better terms than you could get elsewhere, and have much better options for borrowers in tough financial situations. You really should pursue a VA loan if you are VA-eligible and are looking to purchase a home. The best thing you can do is look for a lender that specializes in VA loans, since they know the program well enough to know all of the great advantages available for you to take advantage of. There are more advantages to the VA loan program than what we have discussed in this article, and you can learn more about them by reading more of our articles or by giving us a call here at Low VA Rates.

 

 

The Constant Maturity Treasury Index

The CMT Index is complicated and can be hard to explain. In this article, we hope to provide you with accurate, concise, and clear information about the CMT and how it affects you as a borrower.

What Is the CMT Index?

CMT stands for Constant Maturity Treasury. It’s an index based on the average monthly yield of various Treasury securities (the monetary benefits these Treasury securities accumulate each month). Treasury securities are bonds given out by the federal government, and the CMT is published by the Federal Reserve Board. The United States Treasury determines the yields of Treasury securities, and the CMT index is very responsive to changes in the economy and general market. The one-year CMT is adjusted to reflect constant maturities of one year. When it comes to home loans, numbers yielded from this index are often used by mortgage lenders to determine the cost of ARMs and other variable-rate loans. Lenders then add a margin to the index, which determines an individual’s interest rate on these loans. So when the index fluctuates with the state of the economy, so does the margin, and so do your interest rates.

In general, constant maturity yields that come from the United States Treasury fluctuate very little, meaning they also carry little risk. But that doesn’t mean the risk totally disappears with ARM loans. So lenders will compensate for risk that borrowers bring to the table by raising the interest rate. For instance, let’s say when you apply for a loan, the one-year constant maturity rate is at 5 percent. The lender may charge you 6 percent to account for risk factors that you have (these could include a high DTI, an imperfect credit score, or a fluctuating income). This 1 percent increase is also how the lender profits from your loan.

In addition to the one-year CMT, there’s also a three-year and a five-year.

The CMT Index and VA Loans

When it comes to the VA Hybrid ARM loan, the initial fixed interest rate is determined by the lender and is based on the borrower’s qualifications and level of risk. After the initial fixed period of the Hybrid ARM loan, the rate becomes adjustable. At this point, the rate begins to be affected by the CMT index; specifically, it is calculated by adding current CMT index values to the margin that the lender and the borrower agreed upon when the loan closed. For example, let’s say your VA Hybrid ARM loan was set at a margin of 2 percent. Let’s also say the CMT index at the time was 0.23 percent. Your interest rate then, once it became adjustable, would adjust to 2.23 percent from what it had been throughout the fixed-rate period. Your loan’s margin never changes throughout the life of your loan, so, however the CMT index changes, your adjustable interest rate will do the same. Here’s this concept illustrated in a math problem:

Index (0.23 percent) + Margin (2 percent) = Interest Rate (2.23 percent)

Luckily, the CMT index isn’t super volatile. This is the primary reason why many lenders choose it to determine ARM rates. The VA in particular hopes for a stable CMT because they’re guaranteeing to lenders a large percentage of the VA loans. In this case, the borrower’s interests and the VA’s interests line up: neither party wants to invest in a loan with interest rates likely to skyrocket at any given moment. In an absolute worst-case scenario where the borrower couldn’t keep up with the higher expense, the VA would have to pay up on that loan. And for the borrower, they could default on the loan and even lose their home. Thankfully, there are also interest rate caps in place with VA adjustable-rate loans. ARM rates cannot rise any more than 1 percent each year and no more than 5 percent over the life of the loan. This protects the borrower from any unreasonable jumps in the index.

What Does the CMT Index Measure?

In short, the CMT measures the return on treasury securities. To put it in a more understandable way, the CMT measures the rate at which an investment should be considered risk-free. In other words, if an investment is considered risk-free (like a savings account), it should have an interest rate comparable with the current CMT, or the CMT at the time the investment was made. Here’s more from Bankrate:

Investors and those following the movement of interest rates look at the movement of Treasury yields as an indicator of things to come. Their rates are considered an important benchmark: Because Treasury securities are backed by the full faith and credit of the U.S. Treasury, they represent the rate at which investment is considered risk-free.

The CMT is not very volatile. In fact, it is because of how placid it is that the VA chose it to base hybrid ARM interest rates off of. The VA has an interest in the loan because they are guaranteeing a percentage of it, so naturally they aren’t going to want to slap their guarantee on a loan based on an index that is likely to drive borrowers’ interest rates up 5 percentage points in just a few years. Your interests and the VA’s interest line up in this instance.

Other Indexes Used for ARM Loans

Aside from the one-year CMT index, lenders also base ARM rates on an index called the Lindon Inter-Bank Offer Rate, or LIBOR. This index is much more volatile than the CMT: its rates change more drastically in shorter amounts of time. Sometimes, LIBOR rates can be as much as half a percent higher than CMT index rates. However, LIBOR rates are also prone to jump down as often as they jump up, so depending on the direction, basing ARM rates off the LIBOR index could be optimal or disastrous.

Pay attention to margins when you’re shopping for a VA loan, and keep in mind that you can negotiate them with your lender.

Conclusion

For you as a borrower, that’s really all you need to know about the CMT index. Remember thaIf you have more questions about the CMT or about VA hybrid ARMs in general,

We at Low VA Rates want our customers informed and involved in the home loan process. To learn more about how the CMT and other indexes will influence your unique financial situation, give us a call, and you’ll be put in touch with one of our experienced loan officers.

 

What is APR? Information for Veterans

What is APR?

 

You’ve probably heard the term APR hundreds of times, but what exactly does it mean? Some confuse APR with interest rates, but actually, your interest rate is just one component of your APR. Your Annual Percentage Rate (APR) encapsulates the full cost of getting a loan. It can help you closely compare lenders or loan options to see which is cheaper in the long run; because, as you know, your loan amount is never the only cost of taking out a loan.

 

APR vs. Interest Rates

 

There are lots of fees and extra costs associated with loan closing. Your APR accounts for all of these, and is expressed as a percentage of the loan amount. It calculates how much money per year you’ll be spending on loan transactions. What’s more, these transactions are only those incurred by the lender, so your APR won’t include insurance or property taxes.

 

Here’s an example: let’s say you’re borrowing $100,000, and your APR is 4%. In other words, you’re paying $4,000 (4%) for the privilege of borrowing $100,000. Granted, you get to pay most of that $4k over the life of the loan in interest, but some of it will be paid in closing costs at loan closing. Think of the $100,000 loan as the product, and the $4,000 APR as the purchase price for the product.

Both your APR and your interest rate measure the costs of your loan in the form of a single percent, but they do so very differently. Knowing the difference could mean you saving thousands of dollars on your home. The main difference between APR and interest rate is that your interest is part of your APR. Interest rates cover the pure cost of borrowing that principal amount of your loan, but they don’t take into account other added costs like as discount points, broker fees, and some closing costs. When comparing APRs between lenders, know that some lenders may fail to make this distinction for you, or what costs their APR actually includes. So it’s always important to ask a potential lender what APR means to them, in order to know how much you’ll really be paying each year for your mortgage.

 

Depending on the situation, interest rate percentages and APRs can vary in usefulness. For example, if your priority is to save money every month, then you’ll probably want to focus on getting a low interest rate. However, if it’s likely you’ll be in the same mortgage for 20 or 30 years, then you’ll probably want to focus on your APR and overall savings. When refinancing, it’s important to consider both.

 

How to Calculate APR

 

Calculating your APR isn’t very easy; it involves a bit of guessing and checking. The good news is that you won’t actually have to calculate APR very often, since lenders usually do that for you. But if you’re contemplating possibilities for the future and haven’t selected a lender yet, calculating APR on your own can help you know what to expect when you do meet with a lender.

 

To calculate your APR on a fixed-rate mortgage, the first step is to add up the loan amount and the loan-related fees. So, if you’re borrowing $200,000 and have $5,000-worth of fees, the cost would be $205,000. Next, use a mortgage calculator to apply your interest rate to the sum. Let’s say your interest rate was 4.5%. When applied to $205,000, and then by adding the loan term to that amount, you should get $1,038.70 for the monthly principal and interest payment. Once you’ve done this, switch the mortgage amount back to $200,000 and increase the interest rate until you get to the same monthly payment you got the first time around. Doing this for our current scenario should give you an APR of 4.711% (monthly payment of $1,038.60) or 4.712% ($1,038.72).

 

Knowing what goes into APR and how it’s calculated is essential to understanding what a lender is offering you. For example, calculating APR on an ARM loan is very different than calculating it on a fixed-rate loan. This is because the interest rate varies after the fixed period, and no one can predict exactly how much that will cost you in the future. The APR calculation will assume that the interest rate will drop after the initial fixed period and stay at that rate until the end of the loan. It’s more likely that your interest rate will go up and down during the rest of your loan, so it’s impossible to get a perfectly accurate APR on an ARM loan. In these cases, it’s especially important to ensure your lender is being transparent with you on what the APR is really calculating.

 

Our Low APR Guarantee

 

At Low VA Rates, we strive to provide you with a lower APR than anyone around. In fact, if you can find someone who offers a lower APR than what we do, we will personally write you a check for $250. We do this because we truly care about our veteran clients. To find out what APR we can offer you today, give us a call at 866-569-8272.

 

How to Get a No Money Down VA Loan

Is a No Money Down VA Loan even possible?

 

Is such a thing even possible? Well, I’m glad you asked. Such a thing is possible, and in this article we’re going to explain how. There are factors that can combine to make any new purchase loan a no-money-down loan, and there is also an easy way to do a VA refinance with no money down as well. We’ll cover both scenarios here.

 

Yes its possibleNo Money Down on a New Purchase Loan

This is possible due to a combination of a number of factors. The first thing that makes this possible is that VA loans do not require a down payment of any kind. You can obviously make a down payment, and if you do you can expect a better offering from the lender, but you do not have to and there is no penalty for not doing so. Since the down payment is often the single largest piece of money down on a new purchase loan, having this removed makes a VA loan far more affordable than it would otherwise be. This leaves two other things that cost money right at closing: the VA Funding Fee, and closing costs on the loan. The VA Funding Fee is usually around 2.15% of the loan amount and is normally due at closing. However, the VA allows the borrower to roll the Funding Fee into the loan amount so that the borrower does not need to pay it upfront. Considering that on a $200k home, the Funding Fee would be around $4,300, that takes a significant chunk out of the out-of-pocket costs as well.

 

So of all the normal upfront costs of purchasing a home, all that is left is closing costs charged by the lender. Much of closing costs are paying for services the lender has provided in regards to originating the loan, but other things such as the appraisal are also included. For origination, lenders are only allowed to charge a maximum of 1% of the loan amount. Combined with the other charges that aren’t considered origination, you’re probably looking at 1.5 – 2% of the loan amount in these closing costs. Considering that your down payment (if you were making one) would probably be at least 5%, which would be $10,000 on a $200k home, plus the $4,300 from the Funding Fee on that home, plus the 2% of closing costs ($4,000 on a $200k home), you could be looking at an upfront cost of $18,300, so even if the only thing you’re stuck with is closing costs, a $4,000 tab is much better than an $18,300 tab.

 

You can, however, also have that $4,000 taken care of in some instances. The VA loan program allows the seller to pay the borrower’s closing costs up to a certain point. Especially if you’re buying without a real estate agent, most sellers will be willing to pay up to 2% of the loan amount in closing costs for you as part of the deal, and it’s not usually too difficult to convince the lender to do so. Obviously, this depends on the market and the home you’re buying (if the seller has three other offers on the house then they may not be as motivated to help you buy it), but it’s often very possible.

 

No Money Down on a VA Refinance

Obviously, the same ability to roll the Funding Fee into the loan applies to refinances, and no down payment is required on refinances period, the only question that remains is how to address the remaining closing costs. The way to do a VA refinance with no money down is by using the VA’s streamline refinance option, called the Interest Rate Reduction Refinance Loan, or IRRRL. This streamline refinance option is what allows you to do a no-money-down refinance. The VA allows IRRRL borrowers to roll every penny of closing costs into the loan amount along with the Funding Fee (which is actually quite small on the IRRRL compared with a new purchase or a normal refinance). This means that you don’t need to rely on anyone else’s generosity in order to do your refinance with no money down. The VA makes this option possible to help out borrowers that need to refinance their homes but don’t have a whole lot of cash saved up.

 

What Homes are Eligible with the VA Program

What Home Types Can Be Purchased With a VA Loan?

Once you find out about the VA’s special loan program for purchasing homes, often the next question that comes to mind is how Which Home to Chooselimited you are when choosing the home you would like to purchase. While there are some limitations in place, for the most part, any house that you’d want to live in will be eligible for a VA loan. In this article, we’re going to talk about the eligible home types and the considerations that go with each type. We’re going to talk about existing homes, new homes, condos, and manufactured homes. Each situation is slightly different, so we’ll try to give you a good idea of what to expect in each situation.

 

Houses – Proposed, New, and Existing

Houses fall into three main categories, all based on the status of their construction: proposed construction (or under construction), new construction, and existing construction. A proposed or under construction is a property which is not completed when the loan is made. A new construction is a home that is completed when the loan is made but has not had its first occupant yet. An existing construction is a home that has had at least one occupant previous to the person getting the loan to buy it. A proposed/under construction home is eligible as long as it has been inspected appropriately by either the VA or HUD during construction. A new construction is covered if it is either covered by a one-year VA builder’s warranty, enrolled in a HUD-accepted ten-year insured protection plan, or built by a veteran, as the general contractor, for his/her own occupancy. An existing property is eligible for a VA loan as long as it meets the VA’s Minimum Property Requirements, which all properties must also meet.

 

VA Approved Condos and Community Developments

Condos are not as straightforward as houses. Each condo project needs to first be approved by the VA before any condos within the project can be eligible for a VA loan. Why? Because condos vary a lot in what the owner of a condo must agree to in order to purchase the condo. Many projects put limitations on the owner’s ability to sell the condo or other title limitations, and this presents a concern with one of the VA’s Minimum Property Requirements, which is that there are no restrictions on the title beyond the basic ones needed to obtain a home loan. A condo project may already be on the approved list, or you may need to submit the condo project’s documents to the VA for them to approve them. If the project is not approved, then no condos within that project will be eligible for a VA loan. The same is true with HOAs and other Planned-Unit Developments though those do not need to be approved beforehand; title and restriction issues will be discovered during the appraisal process. There are plenty of VA approved condos on the market so if you are looking to purchase a VA approved condo, click here for a good place to search VA approved condos that are available.

 

Manufactured Homes

Manufactured homes are a bit tricky. The VA distinguishes between manufactured homes, modular homes, and mobile homes. The type of manufactured home that is fully eligible for a VA loan term of 30 years must be classified and taxed as real property, properly affixed to a permanent foundation, substantially conform with the VA MPRs, and conform with applicable building code and zoning requirements for real estate. Modular homes, which are delivered to the building site in sections, but are not affixed to a chassis with wheels, are also eligible as long as they are constructed to the standards of the State in which the factory is located. For the most part, mobile homes, or manufactured homes on wheels, are not eligible for a VA loan, nor are houseboats. If you really have your heart set on getting a mobile home or a houseboat, you can look at Title 38 CFR 36.4200 to find out what your options are.

 

Summary & Conclusion

As you can see, any of the above home types, though, may not be eligible if they don’t meet the VA’s Minimum Property Requirements, which are not onerous or difficult to meet – they are considered a minimum standard of quality that a property must meet if it is to be expected to adequately meet the needs of the veteran-occupant.

 

Request for Determination of Reasonable Value Explained

VA Form 26-1805 

 

After you start the process of applying for a VA loan to purchase a home, one of the first things you and your lender need to do is request an appraisal on the home. To do so, you or your lender will use VA Form 26-1805: Request for Determination of Reasonable Value. That may seem confusing at first; why not “request for appraisal”? However, the primary purpose of the appraisal is to determine the reasonable value, which makes the name of the VA form a little bit easier to understand. In most situations, the lender will take care of requesting the appraisal, in which case you won’t need to worry about filling out this form, but there are some cases in which the borrower may be required to request the appraisal or simply want to do so instead of the lender. In cases like these, instructions on how to do so can be very welcome.

 

How to Fill Out the Form

The first thing to know about this form is that the VA requires it to be filled-out with a computer. All of the answers on the form must be typed and not handwritten. Handwriting can often be difficult to read, and it’s very important that all of the information on this form be correct. Most of the information here should be fairly easy to access. Your lender should be able to provide your case number, and the seller of the home should be able to provide the legal description of the home. For #4, Title Limitations and Restrictive Covenants, you’ll generally know what those are by the time you are requesting the appraisal. Generally if there are easements on the property you’ll want to ask the lender if they would be considered title limitations, but you’ll usually only run into title limitations and restrictive covenants if the home is a condo or is in an HOA. If the home is in a condo or HOA, you’ll need to get the documentation from the managers to show what limitations there are.

 

Lot dimensions should be easy to find, as should most of the other information in question 7-13b. If you’re not sure on any of those questions, you can ask the seller and they should be able to answer them for you. Most of them, however, are things you should probably have found out before you agreed to buy the home. The information from 14a-23 may need to come from the seller, as they are things that you may not know at this point. You’ll need to get the originator’s identity number from your loan officer, as well as the sponsor’s identity number and the institution’s case number.

 

If you’re buying a new or existing construction, then you can skip #28. If the building is proposed or under construction, you’ll need to not only answer those questions about the builder and warrantor, but also attach construction exhibits to this form when you submit it, which the appraiser will use to help determine the reasonable value of the property. Starting with #29, you may need a lot more help from your loan officer, the seller, and possibly even local government offices in order to get the information they are asking for. It can be helpful to attach the proposed sale contract to the form, and #38 is the place you can indicate whether you have done that. The rest of the form is under the “Certification for Submission to VA” section, and is all fairly straightforward. The signature of the person authorizing the request is the only field that can be hand-written. The rest must be typed.

 

The form itself also has some instructions on the backside that give guidance on some of the fields that may not be as obvious. It gives instructions on the name, address, and zip code fields, the legal description, title limitations, lot dimensions, removable equipment, construction completed, comments on special assessments and/or homeowner association charges, mineral rights, leasehold cases, and sale price. As you fill out the form, you should look at those instructions and understand them, as well as use this document as a guide for where you can get the required information.

 

How VA Responds to Fraudulent Lenders

 

VA Lender’s Handbook Chapter 17 Summary

Lenders Handbook

Chapter 17 covers all “program participants”, and also covers actions that are not considered fraudulent but are still “detrimental to the VA loan guaranty program”. We’ll be giving you a summary of the information provided in Chapter 17 so you can decide if you want to research it more thoroughly by reading through all of our articles on the chapter or by reading the chapter directly from the Handbook itself. We’ll touch on most of the information that’s important for borrowers to know here.

 

Number One: The VA Does Respond

It may come as a strong comfort to many borrowers that the VA does, in fact, have the authority to respond to any program participants that are guilty of detrimental actions against the VA loan program and impose sanctions on those parties. Program participants include lenders (of course), builders, and management brokers. As a borrower, you are not considered a program participant, so you don’t have to worry about getting slapped with VA sanctions. The types of actions that the VA is likely to respond to include fraud, significant deficiencies in performance, ongoing disregard for VA requirements, and the like. The sanctions that the VA may impose can, of course, be partial or full exclusion from participating in the VA loan program either temporarily or permanently, but they can also come in the form of civil money penalties. Either type of sanction is pretty effective in minimizing the number of cases in which sanctions must be imposed.

 

Program Participants

Sanctions can be against a company, but they can also be against specific individuals. The participants can be lenders, employees of lenders, loan holders, loan servicers, builders, real estate brokers or agents, management brokers, repair contractors, compliance inspectors, fee appraisers, salespersons, and manufactured home manufacturers, dealers, or park operators. As mentioned above, a borrower is not considered a program participant, and a VA-eligible borrowers ability to obtain a VA loan is not affected by whether that borrower is also a program participant in another capacity and has sanctions imposed on him/her. On all program participants, a full or partial exclusion from participating in the VA loan program may be used as a sanction, and they are added to a list which is available to other program participants so they can know if they are doing business with an excluded party.

 

Lender-Specific SanctionsSanctions

Since this information is coming out of the VA Lender’s Handbook, and as a borrower you do most of your interactions with the VA loan program through a lender, we are going to focus on the sanctions that might be imposed on a lender and how that affects their ability to offer VA loans and how it might affect your VA loan application process. Lenders may be sanctioned in specific ways based on what they did in order to get sanctioned. If they make a false lender certification, for example, they may be charged a civil money penalty. The lender certification is a statement that must be included on all loan applications that states the lender complied with all VA requirements and the law. Depending on the severity of the falsification or if it’s the first time, the lender may also have their automatic authority revoked or be fully or partially excluded from making VA loans.

 

How Sanctions Affect You

They affect borrowers in two main ways. First, they keep the field of lenders fairly clear of snakes so you can trust your lender. However, if you’re working with a lender that has had their automatic authority revoked for some reason, it means that your loan application is probably going to take longer to process, because it has to be sent to the VA for prior approval before it can be closed on. Depending on your lender and loan officer, you may or may not be informed that that is taking place. Lenders can also be hit with sanctions if it becomes apparent that they intentionally led the veteran to choose less-than-ideal terms by incorrectly advising that those terms were excluded by VA requirements. This sort of thing can happen in a number of ways, and if you’re interested in learning more, we would encourage you to read our detailed articles on Chapter 17.

 

Why Does the VA Loan Program Not Require Down Payments?

Why the VA Does Not Require a Down Payment

VA Loans Dont Require Down Payments

This is a common question about the VA loan program because it seems too good to be true – “I can get a home loan without making any down payment when normally you have to make a 20% down payment? Yeah, right…” If you don’t know much about the VA loan program, that might even sound like a scam. It’s not. You really don’t have to make a down payment if you get a VA loan. However, that doesn’t mean that no money will be due at the time of closing on a VA loan. We’ll go into that as well as explaining the numbers behind why the VA loan program doesn’t require any down payments.

 

You’ll Still Have Money Due at Closing

“No down payment” is often confused with “No money down”, which is something different. While you can have a true no-money-down VA loan, that’s usually only available as a refinance by using the VA streamline option. The only other way to get a no-money-down VA loan is if the lender chooses to offer one, which will only be done if the money is being made up in some other way such as a higher interest rate. The down payment goes towards paying down the principal balance on the home, and it’s important to lenders because they want the object securing the loan to be worth more than the loan is being made for. Closing costs are different; closing costs are the fees and charges associated with getting a home loan. The VA does not allow closing costs to be rolled into the loan amount unless it’s a streamline refinance, so you’ll be looking at paying a few thousand dollars upfront on a VA loan even if you’re not making a down payment. Part of closing costs is the VA Funding Fee, which can be rolled into the loan amount if you would like, or you can pay it upfront as well. Many veterans are exempt from the Funding Fee, so it’s worth checking to see if you might be as well.

 

So Why No Down Payment?

As we touched on above, the lender needs to have a reasonable assurance that they will get their money back, and preferably a healthy return on their investment. One of the most important ways they do that is by requiring at least a 20% down payment on the house or the borrower purchase mortgage insurance. The reason why is because the house is the security for the loan; in other words, if you default on your loan, the lender takes the house as compensation. In a scenario where 20% of the value of the house has been paid off, the lender needing to sell the home at 85% of its fair market value in order to get rid of it quickly is not a big deal; they still get a small return on their investment. The last thing a lender wants is to make a loan for $100,000, only get $5,000 back from the borrower before they default, and then only be able to sell the home for $80,000, because that means the lender loses $15,000 on the transaction. In that same scenario, if the borrower had made a 20% down payment ($20,000), then paid $5,000 before defaulting, and the lender could only sell the house for $80,000, the lender gains the $5,000 that the borrower paid.

 

It may seem odd that the VA loan program lacks this protection, and if it really did it would be odd indeed. However, the VA loan program has its own protection called the VA Guarantee, and it is designed to eliminate the need for the borrower to make a down payment. Borrowers are still able to make a down payment if they wish and are encouraged to do so if they can afford it, but the Guarantee takes care of the minimum requirements that lenders need in order to be willing to make loans. The VA guarantees 25% of the loan amount to the lender when the loan is made. In other words, if the borrower defaults on the loan, the VA will pay up to 25% of the loan amount to the lender on their behalf. This puts the lender on even better ground than a 20% down payment and makes it even more likely that they’ll be able to at least break even and even turn a small profit on the transaction. Obviously not nearly as much as they would if the borrower had not defaulted, but enough that the risk is sufficiently mitigated.

 

Even though the Guarantee is paid to the lender when it’s used, it’s in place to help borrowers by eliminating the need for a down payment and opening up homeownership to more veterans sooner.

 

Why You Should Choose a VA Loan Over a Conventional Loan

Comparing VA and Conventional Loans

 

Make no mistake: the VA loan program is drastically superior to the conventional loan program. In an effort to turn this trend around, we want to do a direct comparison between the VA loan program and conventional home loans. The benefits to getting a VA loan instead of a conventional are as significant as they are numerous, and we are confident that after reading this ebook you’ll agree that getting a VA loan whenever possible is the best route to choose.

We’re going to compare the two loan programs on a variety of fronts. We’ll talk about interest rates, closing costs, down payments, qualifying for the respective loan programs, and the available loan options on each program, both for new purchases and refinances. There are other aspects we could compare the two on, but the ones above are the most important and have the most eect one way or the other. If you have questions after reading this ebook, don’t hesitate to give us a call or contact us via our website and we’ll be happy to answer them.

On every important measurement, the VA loan program is a significantly better option than the conventional loan program. If you are a VA-eligible borrower, you owe it to yourself and your family to get a VA loan instead of a conventional loan. At the very least, you should apply for a loan with a VA-approved lender and see for yourself how much money you can save over the life of the loan. Feel free to give us a call at 866-569-8272 or contact us via our website.

Red Bull 400- Alyssa Kroll

Military Daughter of Low VA Rates Employee Ran the Red Bull 400!

red-bull-400-park-city

 

One of our highly-valued and outstanding employees, Cheryl Kroll, has an 18-year old daughter named Alyssa who has joined the Army National Guard and is planning on entering the ROTC program in college and graduating as an officer in the Army. Alyssa also recently ran the first Red Bull 400 held in the United States!

Course

The Red Bull 400 is a special event in which the runners start at the bottom of an Olympic ski jump and run up the 400 meters to the top. The first RB400 in the US was held at Olympic Park in Utah, and Alyssa was the youngest female to run the race. The RB400 is so steep that race organizers are required to lay a cargo net across the entire length of the jump in order to give the runners enough traction to go upwards and something to grab onto if they slip. While 400 meters may seem like a short run, the difficulty of running up a nearly-sheer mountain face is extremely high. The men’s world record for the RB400 was set at this past races, and is 3 minutes 58 seconds, slower than the world record for running an entire mile (roughly 4 times the distance) on level ground. Suffice it to say, the RB400 is not for the faint of heart.

 

And faint of heart Alyssa is not. At 14 years old, she became the youngest person to do the first Spartan Beast race held in Soldier Hollow. She describes herself as always looking for a challenge. She strives to push herself to limits beyond what she or anyone else thinks are possible for her. Having already maxed out the female standards for the APFT (Army Physical Fitness Test), she has now set her eyes on the male standards even though she is not required to do so? Why? Because she likes a good challenge. Alyssa is loving her time in the Guard and is looking forward to joining the Army after graduating from college and the ROTC. Alyssa says she’s grateful for her experience so far in the Guard because she’s learned so much about herself and life already, and can’t wait to learn more.

 

When asked what advice she would give to other young women thinking of joining the military, Alyssa had a lot to say, but what stood out the most was the following: “Being in the army has made me a lot more confident in myself and I love it. But if you’re going to do it, do it right…be the best soldier they have ever seen, female or not. It’ll be intimidating at times to be going against males twice your size and having to perform tasks you never thought you were capable of, but if you take the time to prepare yourself physically and mentally you’ll be able to tackle any challenge head-on and it’ll feel amazing.”

 

Being in the military is, of course, only part of Alyssa’s life. She is a dyed-in-the-wool country girl and boasts having seen over 60 country artists perform on stage. She loves country dancing and even competes in small dancing competitions. She considers the gym her second home, and is planning on going into exercise science and nutrition in college, and is considering eventually working towards a Ph.D. in Kinesiology.

 

We’d like to congratulate Alyssa and Cheryl and say how proud we are to be associated with you. We wish you the best of luck as you continue your adventures, and hope you’ll keep us posted with upcoming events.

 

Refinancing Your Home? Which to consider VA vs. Con

VA Vs. Conventional: Refinancing Your Loan

VAvsConventional

Despite popular belief, the process of deciding which loan program to go with shouldn’t stop at comparing interest rates. While interest rates are very important, and the VA loan program wins that fight, there’s more to it than just interest rates. One of the factors that many borrowers fail to internalize is their ability to refinance their loan once they have it. Since both conventional and VA loans offer the ability to refinance a loan, we’re going to compare the different options you have when refinancing within each program and the advantages and disadvantages of each one.

 

Understanding Refinancing

Quickly, we’re going to go over how refinancing works. When comparing a new purchase with a normal refinance, there’s not much difference on your end. It is a bit simpler in terms of paperwork, but you still have to have the home appraised again and you have to go through the same credit qualifying and employment/income verification that you went through on the original loan. There really is very little practical difference between a new purchase loan and a refinance, since most of the stuff that happened with the seller happened on their end. If you are expecting refinancing to be a walk in the park compared with a new purchase loan, prepare to be disappointed. That being said, there are some ways you can try to make a refinance be better, depending on what loan program you are using.

 

Conventional Refinancing

Conventional refinancing includes closing costs similar to that of a new purchase loan, and they take almost as long to conduct. You can get cash out on a refinance if you have enough equity in the home to do so, but that’s it. You can’t really get cash out on the loan in any other way. Many banks that offer conventional loans offer a streamline refinance option, which is intended to be quicker and easier than a standard refinance. These streamline refinances are all very different; some may require appraisals while others do not, and some may be faster than others or require less underwriting than others. You might happen upon one that’s almost as good as the streamline refinance that the VA loan program offers standard, but the chances are not good. We’ll talk more about how advantageous a good streamline refinance can be in the context of the VA’s streamline option, since that’s where most of the advantages come to light anyway.

 

VA Refinancing

The VA loan program also has a normal refinance (commonly called a cash-out refinance, even if no cash is taken out). The VA cash-out refinance is very similar to the conventional, but it comes with one really nice feature: the Energy-Efficient Mortgage (EEM). The EEM is an add-on that a borrower can get with their refinance to make energy-efficient improvements to their home. The normal limit is $6,000, but even more can be obtained if there is justification. More importantly, however, the VA has the Interest Rate Reduction Refinance Loan (IRRRL), which is their streamline refinance option. The IRRRL comes with a host of benefits. Closing costs are significantly cheaper than on a normal refinance, no appraisal is required, nearly all of the underwriting information is taken from the original loan, and the refinance can be done from start to finish in as little as 10 days. Even better, on an IRRRL you can also get an EEM, where on conventional refinances you can’t get any money out of a streamline refinance. On the VA streamline refinance, you are not able to get equity out on the home, but you can still get an EEM to make energy-efficient improvements to your home. The IRRRL is far superior of a loan product than anything you’ll be able to find on the conventional market.

 

Conclusion

And thus concludes our multi-article comparison of the VA loan program and the conventional loan program. We may add more articles to the series sometime in the future, but for now all of our bases seem to be covered. As always, if you have any questions let us know in the comments or reach out to us via phone or our website.

 

Mortgage for Combat Veterans

The Mortgage for the Combat Soldier or Veteran

Combat Soldier

If you are serving or have served in a combat position in the armed forces, you face unique challenges when you exit the military that non-combat positions don’t face. Because you are facing those challenges, you want buying a home to be as simple and painless as possible. We’ll talk about general guidelines to make your home loan application and closing process easier, and we’ll also talk about some options that may be available to specifically help combat veterans.

 

The Basic Process Explained

The first step in having a smooth application and closing is to know all the steps that are going to be required. The first thing you want to do is pre-qualify for a loan. This involves calling a home loan company and saying, “I want to pre-qualify for a home loan.” The receptionist will connect you with a loan officer who will walk you through the process. You can do this with just one lender, but it can be helpful and enlightening to do this with at least three lenders. There are also online companies that will facilitate a search for the lenders in your area that will offer you the best terms, but these companies usually charge a fee. In order to pre-qualify, you’ll have to answer a number of questions about your work history, your income and the income of your spouse (if applicable), and your debt. Only a certain level of verification will be done, since the purpose of pre-qualifying is to tell you what you could qualify for if all your information is accurate.

 

After you pre-qualify, you’ll be given a maximum amount that you could be qualified for from that lender, and you’ll probably also be given an idea of the interest rate and closing costs associated with that loan. The next step is to find a house. You can do this by opening a web browser, going to google.com, and typing “houses for sale in zip code #####”, using the zip code that you would like to live in. If you’re wanting to look in more than one zip code, just choose one, because the websites that allow you to browse homes will all let you search surrounding zip codes as well. If you already have a home in mind, compare its sale price with the amount you are able to qualify for. If the home is just a little bit too expensive, consider contacting the seller or getting a real estate agent to do so and see if they can drop the price a bit for a pre-qualified buyer. Once you’ve selected the house you want, you (and/or your agent) will need to work with the seller to draw up the sales contract. At this same time, you will also need to begin the application process with your loan officer. If neither you nor the seller have real estate agents, most loan officers will be willing to provide legally sound documentation that protects both of you. The loan officer will walk you through the process of applying for the loan, and either your agent or your loan officer will explain how the documents that both you and the seller need to sign work.

 

You’ll be expected to provide a great deal of financial documents such as bank statements, W2’s from previous tax years, recent pay stubs, and credit card statements. If you have an auto loan, you’ll need to provide a recent statement from that as well. If you have those things on hand the process shouldn’t be too bad.

 

The Special Options Available to Disabled Veterans

Combat veterans have a higher chance of being disabled, and the VA has two programs that are designed to help disabled veterans obtain housing that gives them freedom and mobility. The Specially Adapted Housing Grant (SAH) “helps veterans with certain service-connected disabilities live independently in a barrier-free environment.” The SAH grant can be used to construct a specially-adapted home on a new plot of land or on a plot of land that is already owned if it is suitable, as well as to remodel an existing home if suitable changes can be made, or even to pay down unpaid principal on a home that’s already been adapted without the use of a grant. The amount of money available through SAH varies, but you can learn more on the VA website.

 

The Special Housing Adaptation (SHA) grant operates on a somewhat smaller scale and is intended to adapt existing homes of veterans or family members of veterans with whom the veteran lives to help accommodate the veteran’s disability. These grants are only available to veterans with permanent and total service-connected disability such as the loss of limb, severe burns, blindness, or other serious injuries. If you think you might be eligible for SAH or SHA, definitely work with your local VA office to apply.

 

Good Civilian Jobs for Combat Veterans

How Valuable Military Experience is in the Job Market

Good Jobs for Vets

If you served in a combat position in the armed forces, you’re probably sick of everyone telling you just how valuable your military experience is in the civilian job market. In this article, we’re going to go over some good job options that utilize the experience you obtained while serving in the armed forces. It’s important not to discount the things other than combat that you gained experience in even if you were a grunt – discipline, organization, teamwork, leadership, project management, coordination, etc. How can you use those things to your advantage? Let’s talk about it. But first, a quick note.

 

Combat Veterans are Different from POGs

A grunt has a completely different career and employment prospects than anyone serving in any other capacity in the military. This makes them difficult to connect with for many employment agencies because it’s difficult for them to know how their job skills translate into the civilian world. These differences are not weaknesses; they’re just differences, and it’s important to recognize that. If you look on your military experience as an asset, you’ll begin to see how it can be used in many other capacities. You’ve got two main options as you look at a civilian career: choose a career that falls relatively well in-line with what you did in the service, or go to school for an unrelated career path and work that way. Either way is totally fine, and we’ll talk about jobs and career options for either one.

 

Careers that Work Well With Your Experience

It may be a cliche, but civilian law enforcement is a fantastic career choice for combat veterans. This is true for a number of reasons, and they’re all good ones. You have virtually all of the skills you need to be a great police officer already, and once you go to the police academy you’ll be a shoe-in for most departments because of your military experience. Everything from keeping your boots polished to report writing you have down. What many combat veterans don’t realize is that pulling people over and writing traffic tickets is hardly the end of the career path in civilian law enforcement. You can get on security details for public figures, you can get on SWAT, you can become a detective, you can go state law enforcement or federal, and you’ll go far if you remember the things you’ve learned from your military career. Civilian law enforcement embodies a number of great careers for combat veterans.

 

Choosing an Unrelated Career

Chances are good, though, that law enforcement isn’t your thing. What then? Well, you’ve got the GI bill and years of good work experience behind you. You’ll probably want to go to college and work a job until you get your degree. It can be very beneficial to find an entry-level job in your field of choice so when you graduate you not only have a degree but also 4+ years experience in the field but if you’re not able to find a job in your field yet, you can also look at becoming a security guard. Security guarding is a lot like law enforcement in that it utilizes many of the same skills you learned in the military. Specifically armed security positions are always looking for ex-military or off-duty police officers. Whether armed or unarmed, the security company hiring will often pay for your certification, which makes it a great starting point for many combat veterans. While working as a security guard or as an entry level position in your career field, you can work get your degree using the GI Bill and graduate ready to have a lucrative career in whatever you wanted. At least in theory.

 

Other Considerations

Law enforcement is hardly the only realm in which your skills will come in handy, but it is definitely the closest match. Any job on the planet will value your organization skills and discipline that you’ve developed through your military service, and those are assets which shouldn’t be discounted. Many employers look for veterans because they know they are good at working as a team or individually as needed, and that they will not shirk their work. Military veterans are known as being hard workers, and that’s because of their experience.

 

VA vs. Conventional Loan Down Payments

VA vs. Conventional: Down Payments

 

Saving up the money for a down payment is one of the largest (if not the largest) obstacle that first-time home buyers face. Once you’ve bought a house and begun to build up equity, a down payment isn’t as much of an obstacle, but is still present, especially if you’re looking to move to a more expensive house. Unfortunately, a down payment is just a part of buying a house and there’s nothing you can do about it – or is there? The VA loan program is designed to directly address the obstacle of a down payment that veteran home buyers face. In this article, we’re going to show how the VA loan program offers a more borrower-friendly package, especially when it comes to the down payment requirements.

 

Down Payments on Conventional Loans

Understanding Down Payments

To give us a baseline, let’s talk about what you should expect as far as down payments go on conventional loans. You may have heard that semi-recently, federal restrictions on down payments were eased up all the way to allow as little as 3% of the loan amount to be sufficient for a down payment. While that’s technically true, you won’t be happy with how few lenders you have to choose from if that’s all you’re paying, and you definitely won’t be happy with the terms offered you. You’ve probably heard that a 20% down payment is required on conventional loans, and that’s true in a sense. Making a 20% (or more) down payment is the only way you can avoid having to purchase private mortgage insurance. Mortgage insurance adds to your monthly payment, sometimes as much as hundreds of dollars each month, and for no other reason than because you didn’t pay enough for a down payment. Most lenders will take borrowers making at least a 10% down payment, but your options start to get more scarce as you get lower than that. Unless you have $50,000 just sitting in the bank, you will probably have to pay mortgage insurance for your first home.

 

The VA Loan Offering

The VA recognizes that down payments constitute the single greatest obstacle to home ownership for first-time buyers. With that in mind, the VA loan program does not require a down payment of any kind. If you are getting a VA loan, you don’t have to put in a dime on a down payment. Why? Because the VA guarantee to the lender acts as your down payment and gets you the good loan terms (with no mortgage insurance) without forcing you to make a down payment. You can, of course, still make a down payment, and if you do you’ll be rewarded by getting a discount on the VA Funding Fee as well as better terms from the lender, but it’s not required and you don’t have to pay mortgage insurance if you don’t make a down payment. This is one of the greatest benefits of the VA loan program – the ability to buy a home without having 20% to make a down payment. It’s important to remember, though, that you’ll still need to have enough saved up to pay closing costs, which can be thousands of dollars. You can roll the Funding Fee into the loan amount if you wish, but none of the other closing costs can.

 

Why the Difference?

The biggest factor in play here is the VA guarantee – it’s because of the guarantee that VA lenders are willing to make good loans to borrowers who are not making a down payment. The VA offers the guarantee as a benefit to those who have served in the armed forces. Where the conventional loan market is just that – a market – the VA loan program is a specialized benefit made for active service members and veterans to reward them for their service. If you are eligible for the VA loan program, you should definitely use it to purchase your home, and not just because of the superior down payment requirements. The VA loan program also boasts some extremely beneficial loan types and options, as well as protections that the conventional loan program does not offer. And you don’t even have to deal much with the VA when you get a VA loan – you’ll need to get your Certificate of Eligibility, but that’s pretty much it; any other dealing with the VA is taken care of by the lender, and most lenders don’t need to submit their loan packages to the VA before closing. You can get your VA loan quickly, efficiently, and easily.

 

Life After Discharge for Combat Veterans

Starting Your New Life After Discharge

Life after Discharge

Life immediately after discharge can be a stressful time, especially if you’re not sure what you want to do with your life, or even what your options are. If you have a service-related disability, you may be even more stressed out. For those still dealing with their experiences during service, this time can be extremely difficult, but even for those who never saw combat, discharge brings a host of changes to your life that can really stress you out and even depress you. Many veterans have a hard time coping with life immediately after discharge, and in this article, we’re going to give you some options of what you can pursue now that you’re out, and also give you some strategies for coping with the changes.

 

Your Options After Discharge

It’s actually really simple: you need to get a job. Unless you’re 100% disabled (and sometimes even if you are), getting a job is just part of life. Getting a job is the only thing you really have to do. Getting more education, buying a house, getting married – all those things are good, but they aren’t things you have to do, so don’t get really stressed about those things. Take care of them as you can, and focus on enjoying your new found freedom. If you’re not sure what career path you want to take, narrow it down to three or four and use your first semester in college to take an entry-level class in each one. That will give you a clearer picture of which one you like the most. If you’ve already graduated by your time of discharge, then you should have a better idea of what you want to do with your life, and that makes your job search easier. If you are looking at starting college after discharge, then you can start by finding a job that will work with your school schedule, and then work on finding a job that correlates with your chosen career field as time goes on.

 

If college is not your thing, then feel free to take a look at tech schools and certification programs in your field of choice. Believe it or not, electricians and plumbers make pretty good money, and it takes only a short certification program to get started. Many military vets get frustrated with the college experience and end up stopping before they get their degree. If college isn’t for you, that’s totally fine. You can be a perfectly successful person without a college degree.

 

Some Tips on Coping

Number one: stay busy. The more downtime you have, the more depressed you get. Why? My theory is that the fewer demands you have on your time the less you feel like people actually need you, and that can be deeply depressing. For whatever reason, keeping busy really helps a lot with adjusting from military life. Going to school and having a job should keep you pretty busy, so it’s a great combination.

 

Number two: stay in shape. Physical fitness is directly related to mental health. Keep exercising and stay in good shape. Go running or hit the gym at least 4-5 times per week. If you stay in good shape, your self-esteem will be higher, you’ll feel happier overall, and you’ll have a more optimistic outlook on life. I know it can be hard to find time to exercise, especially if you’re consciously trying to stay busy, but it’s completely worth it. It may not seem to be related to any of your goals, but it’s essential to a well-rounded life.

 

Number Three: Don’t sweat it. Things are going to happen that you didn’t plan on, and that you wish didn’t happen. Don’t worry about it. You might be three years into your degree and realize that you want to do something else. That’s fine, and there’s no reason to let it stress you out. Be honest with yourself about your weaknesses and the areas you need help. If you are suffering from PTSD or other traumatic injuries, recognize that you need help and seek it out. Understand that you are different and that you need additional help and that’s not a problem.

 

Conclusion

Hopefully, some of that advice was useful. Let us know in the comments!

 

How To Avoid Buying Too Much House

How Much House is too Much

Too Much House

If you’ve never heard the phrase “buy too much house” before, it’s a good one to be familiar with. Buying too much house means you buy a more expensive house than you can afford. Sure, you may be able to make the minimum monthly payment and the lender approved you for the loan so you’re good to go, right? Wrong! It’s very possible to be approved for a home that’s more expensive than you really should be buying. The difficult thing about this is that it’s very subjective; you can’t just throw out blanket rules that are the definitive measurements of how much house you can afford. While there are guidelines that can be laid out, and there are definitely indicators of whether you’re buying too much house, only someone intimately familiar with your finances (as you hopefully are) can know for sure if you are buying too much house.

 

You Are Your Own Master

No one is responsible for this besides you. The loan officer is not there to tell you how to spend your money, and plenty of loan officers will tell you they’ve closed on plenty of loans that they would never have done if they were the borrower. Why? Because it’s not the loan officer’s job to tell you how to manage your money. You’re a big boy or girl and you can make your own decisions. Unfortunately that means that we all need to have a clear understanding of what we’re getting ourselves into when we buy a house, and we need to know the guidelines and red flags to keep us from getting more than we can really afford. This responsibility to both learn about how to know if you’re buying too much house and to choose not to do so is yours and yours alone, so take it seriously. Plenty of responsible people got hit hard when the recession hit, but the ones that got hit the hardest were people who bought too much house in the first place.

 

Your Debt-to-Income and Other Signals

There are a few things to look at that can help you know how much house you can afford. The first one is your Debt-to-Income ratio, abbreviated as your DTI. You will not usually get approved by a lender if the addition of the proposed monthly payment brings your DTI higher than 41%, though there may be some exceptions. That said, 41% is a pretty high DTI, and if you’re flirting with that line, that’s a really good indicator of buying too much house. 35% is much better, and 30% is where you start to be in really good shape. Now, we’ll talk about this more in-depth in a bit, but choosing a 30-year fixed because the 15-year brings your DTI close to 41% would not be a great decision. Other signals include how much credit card debt you have – your DTI only incorporates the minimum payment on your cards, which will result in a large amount of interest over time, so you’ll want to evaluate how much credit card debt you have and how quickly you can pay it off. You also want to look at how stable and reliable your income is, and whether it’s likely to get larger, go lower, or stay the same. Are you in the sort of position where it’s likely your hours will be cut as employers comply with Obamacare? Those signals are less concrete but all help to paint a clear picture of what you can realistically afford.

 

The Effect of the 30-Year Fixed

The 30-year fixed is a very divisive thing in the mortgage industry – many (like this author) look at the 30-year fixed as a poisonous viper that’s out to get borrowers and ruin the potential wealth that buying a house can bring. Others look at the 30-year fixed as the door that has opened up homeownership to literally millions of families who would not have been able to afford it otherwise. Regardless, the 30-year fixed can easily lull borrowers into buying more house than they can afford. Why? Because the monthly payment drops so much on a 30-year that all of the sudden the DTI is fine, the income is fine, and borrowers can suddenly qualify for the house they want. While this can work out just fine, and has for many people, this can also be a recipe for disaster, and is a good way to buy more house than you should be. If you can’t qualify for the loan on a 15-year fixed, chances are you shouldn’t be buying that expensive of a home. It may seem rough, but you’ll accrue equity much, much faster on a 15-year fixed so you’ll actually be able to save up a big down payment to pay down the balance on a more expensive home more quickly.

 

Condos, HOAs, and PUDs, Oh My

VA Lender’s Handbook Chapter 16 Summary

Chapter 16

Many borrowers are interested in using their VA loan benefits to purchase a home in a condo project, homeowners association, or planned unit development. Chapter 16 of the VA Lender’s Handbook addresses these types of residences and many of the unique expectations that go along with them. While we’ve written a short series of articles exclusively on Chapter 16, we wanted to give you a summary of the information so you can decide whether you want or need to delve into it further. So in this article, we’re going to summarize most of the important information in the chapter, and if you need more information on a particular portion, you can check out the rest of our articles on chapter 16.

 

The VA Approved Condominium List

The VA maintains a list of condo projects that they have approved for the VA guarantee. In order to get on this list, a condo project must have paperwork and agreements that are acceptable to the VA. The biggest thing they look for limits to the borrower’s freedom to sell or modify the property. Often, when condo projects are denied, it is due to a clause that the borrower must give the administrators of the condo first option to purchase the property when they want to sell, or other similar limitations or liens on the home. A condo project having a lien on the home will not automatically disqualify it (since pretty much every condo project has a lien of some kind on the home), but the VA will look into the lien and make sure that it does not violate their terms of approval. Only condominiums are on this list; the VA does not maintain a list of approved HOAs or PUDs (planned unit developments).

 

“Except Under Certain Circumstances”

If all of the VA’s title requirements for any common interest communities could be summed up in one phrase, that would be it. For example, “the estate must not be less than fee simple, except under certain circumstances” and “title must not be subject to unreasonable restrictions on use and occupancy, except under certain circumstances,” and “VA regulations require that every VA loan be secured by a first lien on the property, except under certain circumstances.” So to every rule there is an exception. Any sort of common interest community generally has to have a lien that is subordinate to the VA-guaranteed mortgage. The first lien is one of the rules that has very, very few exceptions. The property will need to undergo a VA appraisal and the property’s inclusion in a condo project or HOA will usually affect the valuation of the property either negatively or positively. In addition, the presence of nonresidential units in the project or area will also be evaluated and considered when making a valuation of the property.

 

The Notice of Value For Condos or PUDs

Multihousing ExpectationsEvery notice of value issued for a property in a condo or PUD will have the following statement on it: “This property is located in a development with mandatory membership in a homeowners’ association. The lender is responsible for ensuring that title meets VA requirements for such property and that homeowner association assessments are subordinate to the VA-guaranteed mortgage.” In the appraisal report, which includes the notice of value, the appraiser must use the Uniform Residential Appraisal Report, or if it’s a condo, the appraiser must use the Individual Condominium Unit Appraisal Report. The condo appraisal report is a bit different from the Uniform report because condos are different enough to warrant it.

 

Getting a Condo Project Approved

You can work with a lender to submit a condo project for VA approval if it’s not currently approved. To do so, the lender needs to provide a written request to the VA for approval and include a copy of the condo’s organizational documents. VA reviews the documents to make sure that they are in compliance with their rules and notifies the lender accordingly. In some cases, the VA may ask for further documentation, usually in response to incomplete submissions, but may also be a result of unsatisfactory documentation and a required change by the condo project in order to be approved.

 

The DoD Homeowners Assistance Program and the VA Loan Program

DoD HAP & the VA Loan

DoD Homes for Veterans

The Department of Defense’s Homeowners Assistance Program (DoD HAP) and the VA loan program aren’t coordinated to work together in any way, but they are not mutually exclusive either. A borrower can use a VA loan program to purchase a home, then utilize the HAP when they are selling that home. In fact, the HAP can be used to mitigate or eliminate the need for the VA loan program to pay out in the event of foreclosure or short sale. We’re going to talk about what the HAP is and what it does, as well as how to know if you are eligible for HAP and how it can interact with the VA loan program.

 

The Homeowners Assistance Program

The Department of Defense’s website has a clear and succinct description on their website: “The Homeowners Assistance Program (HAP) is authorized by Section 1013 of the Demonstration Cities and Metropolitan Development Act of 1966, as amended. The Act authorizes the Secretary of Defense to provide financial aid to eligible military (including Coast Guard), civilian, certain overseas employees, and non-appropriated fund employee homeowners who have served or have been employed at or near military installations which the Department of Defense (DoD) has ordered to be closed or whose operations have been significantly reduced and where real estate values have declined because of the announced closure or realignment. Section 1001 of the American Recovery and Reinvestment Act of 2009 expanded the HAP authority to authorize the Secretary of Defense to provide financial aid to: members of the Armed Forces (30% or greater disability) who incur a wound, injury, or illness in the line of duty during a deployment in support of the Armed Forces on or after September 11, 2001; wounded DoD and Coast Guard civilian homeowners reassigned in furtherance of medical treatment or rehabilitation or due to medical retirement in connection with a disability incurred in the performance of his or her duties during a forward deployment occurring on or after September 11, 2001 in support of the Armed Forces; and surviving spouses of fallen warriors who move within two years of the death of such employee or member.”

 

Eligibility and Use Cases of HAP

At the moment, the DoD is only accepting applications from wounded, injured, or ill and surviving spouses as described in the above paragraph. If you do not fall under that category, you may be technically eligible but they will still not accept your application at this time. HAP provides benefits in three scenarios: private short sales, government acquisitions, and foreclosures. In a private short sale, the benefits amount is the difference between 95% of the home’s prior fair market value and the selling price. In other words, if the borrower has paid off 85% of the home and is selling it at the remaining loan amount (85%), then the HAP would reimburse the veteran up to 95% of the fair market value of the home, recuperating 10% of the 15% equity that the veteran had. In a government acquisition, the benefits amount is the greater of 90% of the home’s prior fair market value OR the mortgage’s payoff amount. In a foreclosure, the benefit is paid to the lien holder to let the borrower off the hook for the amount.

 

Working With the VA Loan

HAP_Logo_smHAP covers some of the same ground as the VA Compromise Sale, which uses your VA entitlement to pay the lender in case of a short sale or foreclosure. If you’re eligible, however, you should definitely first try to get approved for HAP, because that is free money that comes with no strings attached, while using your VA benefits for a Compromise Sale will utilize your VA entitlement, preventing you from using your VA benefits to get another VA loan. In this way, using HAP is a way to preserve your VA benefits for future use. While there is no coordination between the DoD and the VA in this regard, these programs do work this way together. If you think you might be eligible for HAP and would like to apply, you can visit the HAP website to download the application and instructions.

 

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