VA vs. Conventional ARM Loans

VA Vs. Conventional: The ARM Loan


The VA loan program has a very different offering in terms of ARM (adjustable-rate mortgage) loans than the conventional loan program. Why is this relevant? Because the VA’s ARM option (technically called a ‘hybrid ARM’) is significantly better than the conventional ARM option. To adequately explain how a VA ARM is better than a conventional ARM, we’ll first go over some ARM basics, then talk about the conventional ARM, then talk about the VA ARM.


ARM Basics

An adjustable rate mortgage is exactly what it sounds like; a mortgage in which the interest rate periodically adjusts. An ARM is the opposite of a fixed-rate mortgage. ARMs have typically been given a pretty bad rap, and in fact are often what people point fingers at to blame for the housing market bubble bursting. While the role ARMs played in the housing bubble is debatable, the fact that some ARMs are better or worse than others is indisputable. ARM loans typically are limited to annual adjustments, and usually have a lifetime cap of how high they can rise above their starting rate, as well as adjustment ceilings for how much it can fluctuate. ARM interest rates are calculated by combining the margin a lender offers at the beginning of the loan, which can’t change after closing, with the index being used for that ARM loan. With those basics out of the way, let’s talk about the different offerings.


The Conventional ARM

Conventional ARMs are generally not that great. Both VA and FHA ARMs have the leg-up on on Conventional ARMs. The conventional ARM usually adjust once per year, but the frequency of rate adjustments is something to keep an eye on if you’re applying for one. When a conventional ARM adjusts, it can go as much as 2% higher than it was previously, which can make for some drastic increases depending on the market activity. However, the conventional ARM does have a lifetime cap of 5% higher than the starting rate, so no matter what the market does, your loan can never be higher than 5%. Conventional ARMs typically start with a fixed period of 3-10 years, after which the rate starts adjusting. It’s important to know that on a conventional ARM, the very first year it adjusts, it can adjust as far as it needs to to catch up with where the market is at that time, up to the 5% lifetime cap. In other words, even the minimal 2% annual cap protection is not present in the first adjustment. The conventional ARM uses the LIBOR index, which can be volatile and result in less predictable adjustments.


The VA Hybrid ARM

The VA Hybrid ARM is a different story. VA ARMs also adjust once per year, but they have an annual adjustment cap of no more than 1% higher, and that protection is in place for the first adjustment after the fixed period. Fixed periods on VA ARMs are typically shorter, between 3 and 7 years, but starting interest rates are even lower than on conventional ARMs. VA ARMs share the 5% lifetime cap with conventional ARMs, but when combined with a 1% annual adjustment limit, this is a far more reasonable limitation. VA ARMs use the 1-year CMT for their index, which is an average of the CMT activity for the last 12 months. This averaging makes the CMT much more smooth and less volatile than the LIBOR, which results in easier-to-predict adjustments that generally aren’t as likely to jump up or drop down very drastically.


It’s All In The Numbers

If you want to know for sure how much better a VA ARM would be for you than a conventional ARM, apply for an ARM with two different lenders, one conventional and one VA, and that will be your proof. ARMs are great in that they start with (usually) a much lower interest rate than fixed-rate mortgages, with the tradeoff that they can adjust over time. If you have the protections built-in that the VA ARM comes with, the risk of suddenly having a payment you can’t afford is much, much lower, and the chances that you’ll end up paying more in the long run for your ARM is much lower as well.


Military Experience Republican Candidates

The Lack of Military Experience Among Presidential Candidates Raises Questions

2016 Presidential Election

The number of Republican presidential candidates for the upcoming election is very high. So high, in fact, that for the first GOP debate, the candidates were split up into two sections, with those polling highest being grouped together, and those polling lowest being grouped together. In the group of 10 being polled the highest, not a single one has any military experience. This is unusual, but it also calls into question whether the presidential field at large will have the interest of veterans and the military at heart. In a time when we are facing threats from ISIS, Russia, and the need to artfully work with Iran to prevent them from gaining nuclear capabilities, the lack of military experience in presidential hopefuls may be cause for concern.


In fact, of all the GOP presidential hopefuls, only Rick Perry and Lindsey Graham have any meaningful military experience. Perry served in the Air Force as a pilot in the ‘70s, and Graham served 33 years in the Air Force Reserve, having retired only this year. Significant questions have been raised about Graham’s service, as well as why Donald Trump and Jeb Bush received draft numbers but were never drafted. It has also not been discussed why Dr. Ben Carson and Governor John Kasich never served despite being old enough for the draft. This lack of military experience would not be nearly as concerning if it weren’t for the subsequent lack of military-related discourse since the beginning of the campaigning. Candidates have stayed relatively silent on military matters and veterans affairs in their speeches.


This could have more to do with a lack of significant disagreements among the candidates about required action on military and VA matters, but it may also signal a significant disconnect between the presidential hopefuls and the military and veterans of our nation. You know it’s a bad sign when the only major military or veteran-related issue to come up in the race so far is when Trump said that McCain wasn’t a war hero for being a POW. Instead of this comment being a catalyst in starting conversations about better serving veterans and our military, it was washed away as soon as Trump said something else controversial.


Even among the few Democratic candidates, none of the prominent hopefuls has military experience, with only Jim Webb having military service in his background. While this lack of military experience among the hopefuls doesn’t mean that veterans or the military will be neglected, it does cast shadow on the possibility that we’ll see meaningful veteran and military reform over the next 4-8 years. Unfortunately, even with the VA scandals and other bad press that has come about over the last while, veterans issues just aren’t at the forefront of the majority of Americans’ minds. Immigration has pushed itself to the forefront of the discussion, as well as healthcare and government overreach. These issues are what most Americans are looking to have fixed, and while everyone agrees that veterans issues need to be addressed, no one seems to have any idea where to start.


Beyond talking points and rhetoric, there seems to be no clear plans of action to address the issues at the VA, which may be because no one can figure out the root cause of the negligence and poor care that has come out. It’s much easier to talk about putting up a fence on the mexican border than it is to talk about launching an investigation to figure out the root cause of the VA’s issues and then address them accordingly. There’s a reason mobs grabs torches and pitchforks instead of clipboards and pens.

2016 Presidential Debate

Hopefully by the time the nominations occur we will have had discourse on the ever-present veterans issues that are defining our military and veterans, so we will have a clear picture of the candidate that will do the best in representing the members of our armed forces.


Even if non-veteran presidential hopefuls can give domestic military and veteran issues the attention they deserve, how will they handle the tricky and complicated military matters of ISIS, Russia, and Iran? Not to mention North Korea and China. We live in an increasingly dangerous world, with threats from many different sources, and military experience can be the tempering that turns an iron president into a steel president.


Uncommon Loan Types

Loan Types You Don’t Hear About Very Often

VA Loan Types

When you’re looking at getting a loan, you want to get the loan that is tailor-made for your situation; you want something that is going to be absolutely perfect for your family. A lot of this comes down to the monthly payment, the loan term, and the interest rate, but some of it can come down to the way the loan amortizes or what type of home loan you want to get. In this article, we’re going to talk about growing equity mortgages, graduated payment mortgages, and construction loans. These will just be summaries and highlights of each type, so if you are interested in learning more about them you can give us a call or contact us via our website.


The Growing Equity Mortgage

Growing Equity Mortgages, or GEMs, are only a different type of mortgage in the sense that they have a non-standard amortization schedule. The idea behind a GEM is to pay your mortgage off faster in a sustainable way. This is accomplished by starting out at the normal minimum monthly payment that you would have on a standard schedule, then gradually increasing that minimum monthly payment over time to build equity faster than you would be paying the minimum on a standard loan. The reasons why GEMs aren’t very common are that most people don’t know about them, and that those who do know about them would rather just make more than the minimum payment on a standard schedule and have the exact same effect. The downside to a GEM is that it helps you build equity by increasing the mandatory minimum payment. This is no problem if your income grows over time, but if you suffer a career setback or don’t get the promotion you were expecting, you’re put in a situation where you have a higher minimum payment that you can no longer afford, whereas if you just use your own discretion to make more than the minimum payment on a standard schedule, you can just stop making more than the minimum when you are having financial trouble.


The Graduated Payment Mortgage

Graduated Payment Mortgages (GPMs) do basically the same thing as GEMs, but for a very different reason. A GPM starts out with a partially-amortizing payment, which means that your balance is actually going up from month to month because you’re not paying all the interest that you owe each month. This payment gradually goes higher until it’s to a fully-amortizing payment. The reason a GPM does this is to help a borrower get a big enough home to meet his or her family’s needs if the borrower can’t quite qualify for a fully-amortizing payment right now, but should be able to a few years down the road. Good candidates for GPMs could be young college students with families and are about to graduate, or a professional who is working on an extra industry certification that will qualify them for better jobs. These aren’t common because they aren’t that great of a deal unless you really need it. They end up costing the borrower more interest over the life of the loan, and also come with the inherent risk that the borrower will not enjoy the increase in salary he or she was expecting, and won’t be able to keep up with the payments.


VA Construction Loans

Construction Loan TypesConstruction loans can be hard to get in any loan program, but they are particularly hard to get in the VA loan program, at least at this time. Why? Construction loans are extremely risky, and most lenders have been turned off of offering them, at least for the time being. A construction loan is a loan that is obtained for the building of a house, rather than for the purchase of an existing house. There are a lot of variables included in construction loans, such as whether the borrower is going to be the contractor or whether they are going to hire one, and whether the land is being purchased or leased as part of the deal, that make construction loans difficult to guarantee effectively, which makes many lenders hesitant to offer them. With that in mind, construction loans can be pretty awesome if you can get one because you can build a truly perfect home that meets you and your family’s needs exactly the way you need them to be met.


These are all loans that aren’t good for that many situations but are perfect for a small few, and if you are in one of those small few situations, one of these may be a great option for your family. Give us a call or reach out to us via our website to learn more about these options.


Qualifying for a VA Loan

Everything You Need to Know


VA loans are much easier to qualify for than conventional loans. In this article we’ll talk about everything you need to know about qualifying for a VA loan, and we’ll try to go a bit of a different direction than other things you may have read about qualifying. We’ll talk about the basic requirements, but we’ll also talk about reasons why those requirements are in place and general principles you can follow to increase your chances of qualifying for a VA loan.


The Qualifications

How to be QualifiedOne of the best things about the VA loan program is that there is no minimum credit score that they set in order to qualify. Many lenders do have their own minimum credit score, but there are other lenders (like Low VA Rates, for example) that take applications from borrowers with any credit scores and take a look at their actual credit history to get a better understanding of the borrower. The VA generally wants the borrower’s debt-to-income ratio to be below 41%, but there are also compensating factors that can allow for higher DTIs. The requirements for employment history and verifiable income are similar to a conventional loan but also more relaxed and easier to fulfill in nature. If you want to find out for sure whether you are qualified for a VA loan, start the application process on our website, or give us a call to get started. The VA allows lenders the flexibility to make subjective determinations on whether a borrower is a good risk.


The Reasons Why

The biggest reason why the VA’s requirements are the way they are is because they want the VA loan program to be available to as many eligible veterans as possible. The VA can’t make every veteran have great credit scores, but they can empower the lender to use their own judgment to decide whether a borrower is a good credit risk. The purpose of the VA loan program is to help veterans obtain suitable housing at better terms than they could otherwise receive, and the easier the qualification requirements are to meet, the more veterans they can provide that service for. These more relaxed requirements are possible due to a combination of factors. First, the lender still needs to make sure that the loan package is attractive to buyers (not homebuyers, but mortgage investors – entities who buy mortgages to collect on the interest), so the lender is still going to be bound by practical market restraints. Second, the VA offers lenders the VA guarantee, which mitigates the risk that the lender is taking on, which opens the doors for borrowers whom many lenders would consider high-risk. Third, the VA charges the borrower a very reasonable Funding Fee to offset the cost of those few veterans who do require the VA to pay out to the lender. Since fewer borrowers default than don’t, the result of this system is a fairly balanced and sustainable way of making VA loans available to more borrowers.


Principles You Can FollowPrinciples to Follow

The first thing is to start taking a look at your credit history long before you apply for a mortgage. Fix the things you can fix, and don’t sweat the things that were out of your control (such as a job loss during the recession or an underwater mortgage). Be open and honest with your lender when you do apply for a loan and don’t try to hide anything. Loan officers in the VA loan program have a fair amount of weight in the decision-making of whether you’re a good risk, and if the lender feels like you will always be open about the less-than-perfect things going on financially, they won’t worry that the first time they hear about a financial problem is when you miss a payment on your mortgage. Going along with that, when you get approved for a mortgage, and if you run into financial difficulty where you may not be able to make your mortgage payment, one of the first people to find out should be your current loan servicer, because the earlier they are aware of the situation, the more willing they will be to offer some form of forbearance and help you to get through the situation without losing your house.


VA Construction Inspections

VA Lender’s Handbook Chapter 14 Summary

VA Construction Inspection

If you’re lucky enough to find a lender that is willing to finance a VA construction loan, or if you are using a cash-out refinance to make a major addition or improvement to your home, you will come face-to-face with the VA construction inspections, and it will be important for you to know how they work and what to expect. Chapter 14 in the VA Lender’s Handbook covers the construction inspections. We’ve written a series of articles on chapter 14, but we would like to provide this summary of the most important parts of Chapter 14 to give you a better idea if you want to take the time to go through all of the articles we’ve written on the full chapter.


Stages of Inspection

There are four stages of inspection that the VA requires every under-construction property to undergo, but the third and fourth usually happen at the same time, so in practice you’ll only need to worry about three inspections. Generally, you’ll have hired a contractor to take care of most of this, so you’ll mostly be a spectator, but Some of these apply more directly to VA construction loans, but most of it fully applies to additions to homes made with a cash-out refinance as well. The first stage is pretty basic. There must be an Equal Employment Opportunity Poster prominently displayed, potentially with a Spanish copy as well as an English copy. More importantly, depending on the nature of the work being done, either the excavation must be complete and ready for the footings and foundations, or the foundation walls are built and ready for backfill. In either case, the VA inspects it to make sure that the work is up to par and being done correctly.


The second inspection covers all the construction below the superstructure which was not inspected for any reason during the first inspection. The inspector will also examine the construction of the superstructure, “including quality of materials and workmanship, details of construction, and the suitability of arrangement of all items for subsequent installation of equipment and of interior and exterior finishing materials”. At this stage, the mechanical work should be mostly roughed-in, which should include the plumbing, heating, and electric installations. If you are building a modular home which has pieces that were assembled in a factory, you are exempt from the second inspection because the factory-assembled pieces must already be inspected to meet state standards.


The third inspection stage is essentially the final check to make sure that any and all onsite and offsite improvements or construction has been completed. Both the interior and the exterior will be subject to a thorough examination, with the VA checking the compaction of fill material, finish grading, drainage, utility connections, walks, drives, accessory buildings, retaining walls, planting, safety provisions at terraces, porches, and areaways, protection against the elements, masonry pointing, caulking at openings, paint coverage, flashing, design of dwelling structure, materials and details of their installation and finish, and other offsite improvements. The interior inspection includes evaluating the cabinets and millwork, materials, equipment, and details of their installation, interior surfaces, quality and operation of hardware, quality of tilework, glass, linoleum, venting of attics and underfloor spaces, and other things like fixtures.


The fourth inspection stage (which usually happens at the same time as the third), is very similar to an appraisal on an existing construction; pictures are taken, and the condition of the property is described, and a valuation is made. Other inspections may be made if there is something unusual or unique about the project, or if the builders being used have been the subject of frequent complaints.


Chapter 14 goes into more detail on the different stages and talks about re-inspections, missed inspections, and many other details related to the construction inspections on a VA construction loan or a major addition. If you are interested in further details on these things, you can read all of our articles on Chapter 14, which are written with the borrower in mind, or you can go directly to the VA Lender’s Handbook, which is available online, but written towards lenders. You can also call us or contact us via our website.


Veteran Affairs vs. Conventional Loan Options

VA vs. Conventional: Available Loan Options

VA or Conventional Loan

Continuing our theme of establishing the superiority of the VA loan program to the conventional loan program, we are going to compare the two programs based on one very important metric: available loan options within each program. This is a factor that many borrowers do not even take into consideration when getting a loan, even though a variety of loan options can make a huge difference in how much money you save or spend over the life of the loan, or how easily you can refinance or move when the time comes. Let’s talk about some loan options that matter and what the two programs offer in each regard.


A Streamline Refinance Option

A streamline refinance is a fast, cheap, and easy way to refinance your loan. The primary features of a streamline refinance are that an appraisal may not be required, the credit check and paperwork is minimal and usually the borrower cannot get cash out on the equity in their home when using a streamline. Now let’s talk about each loan program. There’s no such thing as a standard “conventional streamline refinance”. However, many banks offer their own streamline refinance options to borrowers. These offerings vary greatly in just how ‘streamlined’ they really are and how expensive they are to the borrower. Generally speaking, though, streamline refinances offered by banks satisfactorily meet the goals and purposes of a streamline refinance.


The VA loan program has a standard streamline refinance option called the IRRRL (Interest Rate Reduction Refinance Loan), which is actually really really cool. The VA has made it really advantageous for borrowers to have access to the IRRRL. The credit check is minimal, an appraisal is usually not required, and the borrower can even get up to $6,000 to make energy-efficient improvements to their home with an EEM. The Funding Fee is significantly cheaper on an IRRRL than on a normal refinance, and an IRRRL can close in as little as 10 days. The IRRRL can be much faster, cheaper, and easier than a streamline offered by a bank for a conventional loan, not to mention more consistent.


An Adjustable-Rate Mortgage Option

An adjustable-rate mortgage (ARM) is the opposite of a fixed-rate; the interest rate adjusts over the life of the loan instead of remaining the same. ARM loans can save you a ton of money over a fixed-rate depending on the circumstances, but they can also cost you more. A lot of the effectiveness of an ARM depends on the terms offered you. Conventional ARMs come with an initial fixed-rate period of usually 3, 5, or 7 years, but can go as low as 1 or as high as 10. After the fixed period, however, the interest rate can adjust as far as it needs to to catch up with the market, up to 5% higher than the starting rate. After that, the rate adjusts annually with an annual cap of 2% difference each year. The lifetime cap on the interest rate on an ARM is 5% higher than the starting rate (hence the limit on the first adjustment).


VA ARMs are much, much better. Not only does the VA hybrid ARM offer much lower starting rates, the annual adjustments (including the first one) are limited to 1% each year, with the same lifetime cap of 5%. The VA hybrid ARM is also based off of a different index than the conventional ARM. The VA’s index is the 1-year CMT, which is much less volatile than the LIBOR used by conventional ARMs. The CMT is averaged for the last twelve months, making your interest rate adjustments very predictable, and the 1% annual cap protects you from rapid upswings in the market. It’s much more likely to save money (usually a lot of money) by using a VA hybrid ARM instead of a fixed-rate. It’s not nearly as safe of a bet to use a conventional ARM instead of a fixed-rate.


When it comes to loan options, the VA definitely has this one in the bag. We’ve also written articles comparing loan qualifying on each program and interest rates available on each program, and we’ll keep writing articles comparing the two so you can have a very clear and detailed picture on which loan option is going to be best for you.


What is VA Entitlement?

VA Entitlement

We’re talking specifically about VA entitlement in regards to the VA loan program. We’re going to go into detail about VA entitlement including talking about what it is, what the amount available actually is, the difference between basic entitlement and additional entitlement, and what it all means to you. VA entitlement is an important part of the VA loan program, and is what makes the entire program possible. Understanding VA entitlement is important for you to understand in order to have reasonable expectations of what is possible with the VA loan program.


What It Is

VA entitlement is the amount of money the VA is theoretically willing to pay out to the lender on your behalf if you default on your loan. VA entitlement is a replacement for mortgage insurance and serves essentially the same purpose – to persuade the lender to offer better terms to low-risk borrowers and be willing to take on high-risk borrowers. Every eligible veteran has a certain amount of basic entitlement, which is usually $36,000, unless the veteran has used their entitlement in the past and the VA paid out some of that. $36,000 is not very much when we’re talking about buying houses, so let me explain. The VA usually guarantees 25% of the loan, and the amount the VA guarantees is the amount of money the VA pays if the borrower defaults on the loan. So, with a basic entitlement of $36,000, you can get a VA-guaranteed loan of $144,000. While $144,000 is a more reasonable amount than $36k, it’s still not much at all in most parts of the country. This is why the VA also offers “additional entitlement” to most VA-eligible borrowers.


The nuts and bolts of additional entitlement vs. basic entitlement (like why they’re separated in the first place) don’t make any sense, so all you need to know is that with additional entitlement, you can get a home loan of up to $417,000 in most counties in the US, and higher than that in many places around the nation where the cost of housing is higher than average. Additional entitlement is what allows most borrowers to purchase the home they are looking for. It’s important to remember that having basic entitlement of $36,000 does not automatically qualify you for a VA loan of up to $144,000 – eligibility and qualifying are two different things. You are eligible based on your military service, but whether you qualify is determined by your credit, income, and employment history. Don’t confuse the two.


You Can Re-Use Entitlement

You don’t have to save your VA loan for the home you intend to live in forever; you can use your VA entitlement more than once to get access to all the benefits of the VA loan program for each and every home you buy. There are even many cases where you can have more than one home financed with a VA loan at one time. If you are interested in this possibility, your best bet is to call us and speak with a loan officer to get the details. The ability to re-use entitlement is exciting, but once the entitlement has been used up it’s gone. What does that mean? That means that if you default on your loan or make a VA compromise sale and the VA has to pay out to a loan holder on your behalf, that money comes out of your VA entitlement, and if all of your entitlement has been paid out, you will no longer be eligible for a VA loan. That being said, if only part of your entitlement was paid out, or if you decide to pay the VA back the amount, you can have your entitlement restored and use it again as normal. If you’re in this situation, you may still have enough entitlement to purchase the home you’re interested in and you should definitely speak with a VA-approved lender about your options. You never know what’s available to you until you ask.


The VA entitlement is an essential part of the VA loan program and is what allows you to have access to all the amazing benefits that the VA loan program offers. Hopefully now you have a better understanding of VA entitlement and will be able to keep up with your lender as he or she talks about your VA loan.


The Current State of the VA


The Backlog to Get on the Backlog


The VA inspector general has published a report that goes into detail in researching the current state of the VA health care system, prompted in large part by the VA health care scandals that came to light last year. According to the report, nearly 900,000 veterans have pending health care applications with the VA. To be clear, “These are not veterans waiting for care. These are veterans who are applying for the privilege of waiting for care…And as of last year, there [were] more than 867,000 of them whose applications just to get in line at the VA were not processed.” said CNN’s Drew Griffin.


Speeding up the BacklogWhat is worse is that more than 300,000 of those veterans are believed to be dead. Unfortunately, widespread issues with the VA’s data, which includes problems and inaccuracies with many important identifying figures makes it impossible to determine how many have actually died. Our veterans are literally dying because they are not receiving the care that they were promised when they enlisted. There is no such thing as an acceptable excuse for this situation. I’ll ask the obvious question: how on earth is such absurdly awful and negligent service even possible? Can the inaccuracies and terrible data entry really be blamed on a lack of funding? Is a record-keeper’s ability to type numbers into a computer really contingent on whether that person is making $11/hour or $12/hour?


I can see the case for more funding when we’re talking about veterans whose applications have been processed and are waiting for care; more funding is required if you are going to hire enough practitioners to cover the demand, but we’re not talking about that waitlist; we’re talking about the wait list to get on that waitlist. This is before a doctor ever gets involved – this is the process of determining whether the veteran is entitled to health care benefits from the VA in the first place. Here is some information taken directly from the VA Inspector General’s report:


“We substantiated the existence of about 867,000 pending records as of September 30, 2014. However, due to limitations in the Health Eligibility Center’s (HEC) Enrollment System (ES) data, we could not reliably determine how many pending records existed as a result of applications for health care benefits. These records were coded as pending because they had not reached a final determination status. However, the number of pending records in ES was overstated and did not necessarily represent veterans actively seeking enrollment in VA health care. Further, most of the pending records have been inactive for many years.


The data limitations occurred because the enrollment program does not adequately define, collect, or manage enrollment data to monitor the performance of application processing. In addition, VA guidance did not require that applications reach a final determination in a set timeframe or establish how long ES records may remain in a pending status. Unless substantial action is taken to address the quality of ES data, the HEC cannot reliably monitor enrollment performance nationally or make program-level decisions using this data.


To determine whether a backlog of pending health care applications existed, we extracted all records from ES as of September 30, 2014, and identified 866,879 records coded as pending without a final enrollment determination. We analyzed a statistical sample of the pending records, obtained copies of available applications, and reviewed enrollment application dates, when possible. In addition, we reviewed the length of time each sample record had been in a pending status. Finally, we interviewed and obtained testimonial and documentary evidence from VA officials and complainants.


We also identified a large, unevaluated data category in ES called “locked” records. A “locked” record has a blank enrollment status and generally contains incomplete or inconsistent information. About 6.2 million (28 percent) of the 22.3 million records in ES have a blank status and are “locked.” However, the HEC has no automated method for identifying which “locked” records represent legitimate requests for enrollment in VA’s health care system.”


The VA Minimum Property Requirements

VA Lender’s Handbook Chapter 12 Summary

Chapter 12 VA Lender Handbook

The VA’s Minimum Property Requirements (MPRs) are what set the VA’s appraisal apart from the appraisal process on a conventional loan. The VA’s MPRs are fairly similar to the FHA’s Minimum Property Standards, but have a few differences. If you’ve gotten an FHA loan before, you’ll be very familiar with the process and won’t have too many surprises. Chapter 12 of the VA Lender’s Handbook covers the VA MPRs in a fairly thorough manner. We have an entire series of articles written on Chapter 12 that we have previously published, but to save you time and help you find what you’re looking for, we’ll be summarizing the important parts of Chapter 12 here.


Note on Purpose and Scope of the VA MPRs

Many borrowers don’t understand why they VA has such stringent requirements on homes that borrowers want to purchase; if the borrower is happy with the home, why should the VA be able to put the kabosh on it? It really comes down to the purpose of the VA loan program in general, which is to assist veterans in finding suitable housing at better terms than they could otherwise obtain. The VA does not expect every veteran borrower to be an expert in all things housing, and so they have instituted the VA appraisal to make sure that every property purchased with a VA loan meets a minimum standard of quality and safety. To be frank, the VA’s MPRs are pretty basic, and you probably don’t want a house that violates them in a severe enough way to be ineligible for purchase. Also, as the guarantor of the loan, the VA has a vested interest in the remaining economic life and viability of the property, and therefore has their own interests to protect.


The Basic MPRs

Minimum PropertyMost of the MPRs apply to all homes that are eligible for the VA loan program. These are very basic things such as having enough space to live, sleep, eat, cook, and go to the bathroom. The mechanical and electrical systems must work and be accessible for repairs as needed. The home needs to have a heating system, domestic hot water, potable water, and a safe method for sewage disposal. See, quite basic. Their requirements on the roof are a bit extreme though…it can’t leak. You also have to be able to access the property without going through someone else’s property, and you have to be able to get into your living unit without passing through someone else’s living unit. The house cannot have defective construction or show signs of poor workmanship, leakage, decay, or excessive dampness. The home cannot have “wood-destroying insects, fungus, or dry rot”. Oh yeah, and lead-based paint is not OK. Such stifling restrictions.


More Specialized MPRs

There are also MPRs that may only apply to some houses and not others. For example, the VA has certain requirements if the house has an individual water supply (such as a well) as opposed to water provided by a utility provider. There are also requirements if the home is served by a septic system as opposed to a sewer system. We won’t go into those here since this is just a summary. If you are interested in more details you can check out the VA Lender’s Handbook, which is available online, or you can check out our articles on Chapter 12. Manufactured homes and manufactured homes classified as real estate have their own MPRs that apply only to them and not other homes. These are mostly to do with the foundation and the structure of the home. The anchoring devices, piers, footings, and concrete slabs must all meet the requirements that the VA has for these types of homes.



Overall, the VA’s MPRs are really not that onerous and are just common sense. For the most part, you really shouldn’t be interested in a home that doesn’t meet the VA’s Minimum Property Requirements, but in the event that you have a house you feel is appropriate for you, and it doesn’t pass the VA appraisal, you can submit an appeal to see if you can get it approved for purchase.


Amortization ARM vs. Fixed

How Amortization Works on Adjustable-Rate Mortgage


Understanding Amortization
Businessmen Study Financial Documents

When used as a verb, ‘amortize’ means to set up a payment schedule. So when a lender amortizes a loan, that just means they set up a schedule that pays them interest owed and pays down principal, usually calculated to pay off the loan amount in a certain number of months. On a standard fixed-rate mortgage, the loan is amortized (payment schedule is set up) once at the very beginning of the loan, and that schedule is maintained until the loan is paid off. If you make more than the minimum payments, you are considered “ahead of schedule”, your loan will be paid off sooner, and you’ll save a fair amount of money in interest. There’s a lot of advantage to being ahead of schedule on a fixed rate loan, but making more than the minimum payment is even better when you’re on an adjustable-rate mortgage.


Its Greatest Weakness is Also Its Greatest Strength

Adjustable-rate Mortgages (ARMs) are often criticized for being unpredictable, volatile, and always giving you a higher rate than you were promised. In the interest of being transparent, most of this criticism does not apply to the VA hybrid ARM, which has specific protections built-in to prevent those things from happening. However, those weaknesses are mostly the result of the interest rate adjusting. Since what differentiates an ARM from a fixed-rate is the interest rate adjustment, the potential for an ARM loan to have a higher interest rate is definitely there, and can be considered a weakness of the ARM. However, in order to adjust the interest rate, an ARM loan has to reamortize. What does it mean to reamortize? It means to make a new schedule during which the loan must be paid off. Most hybrid ARM loans have a loan term of 30 years. When the loan is initially amortized at the beginning of the loan, it stays the same throughout the initial fixed period, then once the interest rate starts adjusting annually, the loan reamortizes. What does reamortizing do? Well, if you’ve been making more than the minimum payment (especially while your interest rate is in the very low fixed period), reamortization lowers your monthly payment because it takes the amount of principal you still owe and spreads it over the remaining life of the loan to calculate a new minimum payment. This means you can pay off even more principal if you continue to pay more than the minimum. There have been many cases where a borrower’s interest rate has gone up, but their monthly payment has still gone down because of reamortization.


Comparing ARM vs. Fixed

Paying extra on a fixed-rate mortgage saves you money and helps you pay off your loan faster, but it does not affect your minimum monthly payment, which means you are more limited in your ability to make faster-than-scheduled progress on your fixed-rate loan. Reamortization on an ARM loan gives you a very distinct advantage in this area; you get credit for the extra principal you’ve paid off, and the loan holder re-schedules the payments to the minimum required to hit the original loan payoff date. If you continue to make more than the minimum payment, the effect compounds, until you’re only required to make a very small payment and you’re paying off way more principal than you’d be able to on a fixed-rate mortgage. If you’re looking for a reason to check out the VA hybrid ARM, this is a really good one. When you combine the effect of reamortization with the much lower starting rates, plus a non-volatile index that the interest rate is based on, the VA hybrid ARM starts to show a great deal of advantages and very few disadvantages. Access to the VA hybrid ARM is one of the greatest benefits to the VA loan program.



So, amortization means setting up a schedule to pay back a loan, usually with the goal of paying it off by a certain date. A fixed-rate loan amortizes just once at the beginning of the loan and stays the same regardless of how much ahead of schedule you are. If you pay it off early, it’s over and done with. An adjustable-rate mortgage amortizes once at the beginning, once at the end of the fixed period, then once annually when the interest rate changes. This reamortization allows the lender to give the borrower credit for the extra payments they’ve made and make a new schedule for the borrower to pay off the remaining balance on the loan. This means the borrower has the same amount of time to pay off less money, which results in a lower monthly payment, which can often offset or even outweigh an increase in the interest rate.


VA vs. Conventional: Loan Qualifying

Loan Qualifications

The VA loan program is pretty awesome, but many VA-eligible borrowers don’t understand what makes it so great and underestimate its value. We are going to do a head-to-head comparison in this article to compare the VA loan program and the conventional loan program and their relative qualification requirements. There are three aspects to loan qualification that we’re going to cover: credit score, income requirements, and employment history. You’ll find that while many of the qualification requirements are generally the same, lender discretion is allowed in far more cases than with conventional loans.


Credit Score Requirements

The VA Lender’s Handbook does not specify a minimum credit score requirement for a borrower to be approved for a VA loan. They do, however, require that the lender make sure the borrower has “satisfactory” credit for the loan they are applying for. Most lenders interpret this to mean a minimum credit score of 620. Many lenders, however, will go as low as 580. The great thing about the VA loan program, however, is that it allows lenders to use their discretion when analyzing a borrower’s credit report to see exactly why their score is so low and see whether they can still consider the borrower an acceptable credit risk. To get a conventional loan, you’ll definitely need a minimum of 620, and at least 740 to avoid extra fees and headaches. VA wins this match-up with no problem.


Income Requirements

Income and employment are often blurred because they are interconnected. To differentiate this section from the one that follows, this paragraph will be talking about debt-to-income ratios, while the next paragraph will be talking about employment history. The maximum debt-to-income ratio (DTI) on both a VA loan and a conventional loan is 41%. However, just like with credit score, a VA lender has the discretion to approve a loan with a DTI higher than 41%, they simply have to provide an explanation in the loan documentation when the send it to the VA. The loan can still be processed and closed without VA’s prior approval, and simply needs to have an explanation as to why it was approved even though the DTI was higher than 41%. While this match-up is closer than the first one, VA still has the advantage.


Employment History

There’s a lot to analyze here: full-time work, part-time work, currently verifiable income, past employment history, second-jobs, self-employment income, etc. For the most part, however, the VA loan program and conventional have virtually identical requirements. Both require 2 years of unbroken employment history and require you to have worked at your current job for 30 days if it’s full-time, and 2 years if it’s part-time, self-employment, or similarly un-guaranteed work. The only real flexibility the VA offers here that conventional does not is the documentation they allow to be used to verify the employment, which is not a huge advantage. This match-up is more of a draw, but that still means that VA is the overall winner by a two out of three points.


The Why and HowGet Approved Today

So why is the VA loan program better than conventional? Because the VA loan program is set up to be a benefit to those who have served in the military. Conventional is just the process by which you buy a house, and the VA loan program is designed to be a way to make that process easier, faster, and cheaper, as well as make it easier for you to get the house you want on better terms. How do you get a VA loan? That’s pretty easy; you just call us at Low VA Rates using the number on our website or by contacting us via chat and tell us what you’re looking for. We’ll answer your questions and get you the best loan option that will work for you.


Being easier to qualify for isn’t the only benefit of the VA loan program. You’ll also enjoy lower interest rates, better refinance options, and built-in protections on ARMs and in the event that the market dips that conventional loans simply can’t offer. We’ll keep publishing more articles comparing the VA loan program to the conventional loan program to show you the differences.


VA Loan Temp Buydowns

Reducing Your Interest Rate on a VA Loan – Discount Points & Buy-Downs

Loan Buydowns

As the title suggests, in this article we’re talking about reducing your interest rate on a VA loan using the two most popular methods (you know, aside from having great credit, sufficient income, and solid employment history): discount points and buy downs. We’ll spend most of our time talking about buy-downs since discount points are fairly easy to understand and an article on discount points was recently written. Buy downs are a bit more of a gray area and we want to make sure you understand what they are and how they can be used.


What is a Buy Down?

A buy down is a temporary offsetting of the interest rate that is in effect for the initial period of the loan. A buy down is often used as a marketing tool by lenders, builders, or even sellers to entice borrowers to come to them for their home-purchasing needs. Buy-downs are universally allowed on VA loans with only one exception – Graduated Payment Mortgages, or GPMs. Since these loans come with a specialized amortization schedule that starts the borrower at a partially-amortizing payment, a buy down doesn’t make much sense to add on. A buy-down works by someone (can even be the borrower) funding an escrow account from which is drawn partial payments that subsidize the monthly payments the borrower is making on the mortgage. There is not a standard amount of time that a buy down can last though two years is common. Longer than that is generally not done. Buy downs can be as short as 6 months.


How to Get One

Look for a lender offering one. If the lender is not offering a buy down as part of a promotion of some kind, then you’re out of luck as far as getting one from the lender. You can, however, push for a buy down as a seller concession if that’s what you’re interested in. If you’re in a market where the seller has more choices than the borrower, you’ll probably have a hard time convincing a seller to fund a buy down, but if the seller is in a hurry to sell the home, or if there are not a lot of buyers in the area, then your chances get a lot better. There is always the option of funding it yourself though the advantage to this is questionable. If you’ve got the cash on-hand to fund your own buy down, it’s usually going to be more to your advantage to just add it to your down payment or keep it in savings so you can do whatever you want with it. Once your money is in the escrow for the buy-down you can’t touch it and it can only be used for the buy down.


Discount Points – A Summary

Discount points are a way of permanently bringing your interest rate down. Whether discount points are worth it is a numbers game. It’s fairly standard that a discount point will cost you 1% (one point) of the loan amount, but the amount that it will decrease your interest rate is not standard and can be as high as .5% or lower than .125%. Deciding whether discount points are worth it is a matter of crunching numbers and running different ‘what if’ scenarios to decide what saves you the most money in the long run. Generally speaking, if you’re not planning on being in the loan (no moving, no refinancing) for at least 5 years, then discount points are not a great investment. If you’re expecting to stay with your current loan for 15 years, then discount points are a great idea and will really pay off. It all depends.



Buy downs are great if you can get them; if a lender or seller is offering a buy down as part of the purchase transaction, then by all means take advantage of it. Whether the buy-down is significant enough benefit of choosing one house over another depends entirely on the size and duration of the buy down, but usually they are not. Discount points can be advantageous and a good investment so long as you are planning on staying in the loan for more than 5 years, but otherwise you can pass with the knowledge that you are saving money in the long run.


The Basics of Loan Assumption

Loan Assumption

There’s a lot of misunderstanding and confusion surrounding mortgage assumption. The ability to assume a loan is one of the things that make the VA loan program so great, but to take advantage of the benefits of loan assumption you first need to understand what it is. This article will go over what loan assumption is, the benefits of loan assumption, and how to go about either assuming or having your VA loan assumed. All VA loans are assumable, which puts them a notch above conventional loans because while conventional loans can be assumable, it is far from a guarantee.


What Loan Assumption Is

Typically, when you sell your home, the buyer goes to a lending institution, applies for a loan, waits to get approval, then pays off your existing mortgage with the proceeds from the loan that he or she was approved for. Because it’s a whole new loan, it will have a different interest rate and terms than the old loan. In many cases, the seller’s loan may have a lower interest rate than is currently available in the market. When this happens, it becomes very advantageous to a borrower to be able to assume a loan – and when you can offer something a borrower is interested in, you can attract more interest in your property. If you’re looking to assume a loan, remember that the purchase price is probably still going to reflect the fair market value of the home (unless you have a relationship with the seller), and you will be expected to pay out-of-pocket for the seller’s equity in the home. For example, if the home’s value is $200,000 and the seller only owes $150,000 on the home, you would most likely need to pay the $50,000 in cash to the borrower as part of the assumption. Sellers have the discretion of deciding whether to require that compensation and how much of it to require, so you’re at their mercy. While you can save a great deal of time, hassle, and money by assuming a loan rather than getting a new one, you may very well be required to put more money down when you assume a loan since the seller probably has more than 20% equity in the home.


The Benefits of Loan Assumption

The first and biggest reason people assume loans is to avoid the high-interest rates that may be offered at the time and get the low-interest rate that was offered at the time the seller got their loan. As of the writing of this article, it’s not the best time to assume a loan, since interest rates are still pretty low, but there are more benefits to assumption than just getting a lower interest rate. Assuming a loan cuts out most (if not all) closing costs, is much quicker, easier, and more casual than purchasing a home the ‘normal’ way. Assuming a loan also generally offers more flexibility in terms of negotiating the purchase price. Since the only amount you have to pay above the loan balance is determined by the seller, you have a lot of room to negotiate. No real estate agents, no commissions, and very little lender interaction.


Tips on Assuming A LoanVA Loan Tips

First, get approval from the lender. I repeat, get approval from the lender. In case you missed it the first two times, get approval from the lender. If you’re on a VA loan, then your loan is assumable, but the new borrower still has to be credit-worthy and qualified for the loan that was made to you. You can still let someone assume the loan without lender permission, but you will still be liable for the loan balance in the event of default. In other words, if the person who assumes your loan doesn’t make their payments, the lender can (and will) come after you as vigorously as they come after the current borrower, even if this is 10 years from now. If you go through a lender to have your loan assumed, it takes a bit longer and there’s a bit more paperwork involved, but it’s still much easier than the buyer getting their own loan and buying the house the conventional way, and it provides some very important protection for you as the seller. When it comes to dealing with the VA, incomplete or omitted paperwork tends to come back to haunt you for years to come, so it’s best to just make sure that everything is kosher from the get-go.


Are FHA Loans Going to Be More Available to More Borrowers?

Low VA Rates Launches New Division of Elevate Mortgage Group to Specialize in FHA Loans


Low VA Rates Logo
Currently, the FHA has roughly 4.8 million single-family mortgages insured throughout the United States. With more lenders applying to offer FHA loans, that number could be on the rise.


LINDON, Utah – Sep. 2, 2015 – As the FHA loan program continues to gain popularity with borrowers, Elevate Mortgage Group (a division of Low VA Rates) has applied for and been approved by HUD to offer FHA loans. Since the 2008 recession, the FHA loan program has become more prominent on the mortgage industry stage, as illustrated by over 21% of all home purchases being insured by FHA in 2012 – up from only 5.03% in 2006. To meet the needs of borrowers looking to get FHA-insured loans, Elevate Mortgage Group is applying their well-known customer service standards to the FHA loan program, and has completed the requirements to be approved to offer FHA-insured loans.


Obtaining FHA approval is not a given for a lender; they must meet above-average standards of experience in lending, personal and corporate credit history, and financial management. Felipe Pacheco, Division Manager at Elevate, says, “It is a long process and you have to be able to show that you have extensive experience in lending to get qualified. You also have to have a strong net worth as a company to be approved as well.”


Elevate is particularly well-equipped to offer FHA loans to their customers because they do all of their underwriting on-site, making their process much quicker than other lending institutions. Pacheco believes that customer satisfaction is the most important part of offering FHA loans.


Pacheco hopes that having a division of Elevate specially dedicated to offering FHA loans will help increase awareness among borrowers whom the FHA program is designed to help. “FHA loans are easier to qualify for than a conventional loan. FHA guidelines are more forgiving so you don’t have to have perfect credit to get an FHA loan.”


The approval to offer FHA loans allows Elevate to do even more to help borrowers improve their lives, which is what Pacheco finds most rewarding about working in the home mortgage industry. Pacheco and the rest of the staff at Elevate are excited to be able to offer their fast and exceptional customer service to borrowers looking to get an FHA loan.


About Low VA Rates: is dedicated to serving veteran homeowners. We specialize in providing VA-guaranteed loans to qualified veterans for mortgage purchases and refinances. The VA loan program offers lower interest rates and monthly payments than conventional loans and even offers no-money-down options. is one of the nation’s leading websites for VA loan information and is dedicated to assisting all the men and women of the United States Military, both active and retired. We have built a reputation of serving those that have served us, and doing everything we can to ensure homeownership for all. Our professional staff and loan officers will assist you with locking in low-interest rates and taking advantage of the unique opportunities available through VA loans.


NMLS# 1109426

Everything You Need to Know About the Certificate of Eligibility

What is the Certificate of Eligibility

Certificate of Eligibility

Your Certificate of Eligibility (COE) is an important aspect of the VA loan program and it is integral in the process of getting one. You may already know what the COE is, but we’re going to go over everything you need to know about it, including how to get one, what it’s for, and what information will be on it, in this article so you can go to your lender of choice armed with knowledge.


What the COE is and What it is For

The COE is essentially your ticket to get into the VA loan program; it’s your backstage pass that says you have a right to be there and a right to use it. The COE is what the VA uses to communicate to lenders that they approve of this borrower using the VA loan program and that they will guarantee a loan for that borrower as long as it meets their requirements. That’s the main purpose of the COE; to make sure the borrower, the lender, and the VA are all on the same page in terms of the borrower’s eligibility for the VA loan program. The COE also serves other purposes, however. The COE has a good amount of information on it about the nature of the veteran’s eligibility and other information that the lender needs to know in order to get the veteran a VA loan.


What Information Will Be on the COE

First, the COE is proof that the borrower is VA eligible. The COE will have on it the amount of entitlement available to a borrower on the loan. This basic entitlement is $36,000, which means a borrower can borrower a loan up to $144,000. However, this basic entitlement is also usually accompanied by an asterisk that explains additional entitlement may be available to cover 25% of loans up to $417,000 in most areas, and more in some. The COE will also show whether the veteran is exempt from the Funding Fee or not. The COE may also have one or more conditions on it that explain that the veteran is eligible unless something happens. These can be several different things that would require a fair amount of detail, but it usually has something to do with the veteran’s active-duty status or whether they have already been discharged. They may also have to do with the entitlement amount, particularly if the borrower has already used the entitlement once or more. The COE will also have certain identifying information on it such as (shocker) your name.


How To Get One

The easiest way to get one is to ask your lender to do it for you. Lenders have access to an online system that can automatically generate your COE pretty much instantaneously. You do not have access to this system. If you’d like your COE in-hand when you sit down with a lender, you can request your COE via mail by mailing a completed VA Form 26-1880 to the VA, but you shouldn’t do this unless you have a unique and specific need to do so. There’s not generally any need for you to have your COE before you’re sitting down with a lender, and it takes a lender all of 10 minutes to get it generated and printed out so you can move on. Even if you’re pre-qualifying with multiple lenders and they each want a copy of your COE, just let them do it. Make sure to tell them that another lender has already generated and printed out a copy. They may not care, but it’s always good for them to know even if it doesn’t require any action on their part.



Your COE is your proof that you are eligible for the VA loan program, and it shows how much entitlement you have, whether you’re exempt from the Funding Fee, and any conditions that must be met or at least not change in order for you to be approved for a VA loan. Your basic entitlement is $36,000, but you’ll most likely be able to get as much entitlement as you need for a loan of up to $417,000 in most areas, and more in others. The best way to get your COE is to have a lender do it for you, since they can do it very quickly and can even print you out a copy for your records. Please feel free to contact us for more information.


Understanding the VA Appraisal

VA Lender’s Handbook Chapter 11

VA Handbook Chapter 11

Chapter 11 in the VA Lender’s Handbook is about the VA appraisal, which is an important thing for any VA borrower to be familiar with. The Handbook is written with lenders in mind, which means they often use technical terms that borrower may not be familiar with and it provides a lot of information that is not applicable to borrowers. This makes the Handbook a difficult and sometimes frustrating read for borrowers trying to learn the ins and outs of the VA loan program. That is why we have written a great deal of articles that go through the Handbook chapters by chapter to give you all the information that the Handbook provides that you need to know. However, each chapter has 5 or more articles dedicated to it, so to save you time, you can read this article, which is a basic summary of the important information found in Chapter 11, then decide if you want to read all of the detailed articles we have on it.


VA Appraisal Requirements

These are requirements the VA has for the way that the appraiser conducts the appraisal. For example, appraisers are prohibited from appraising a property that does not appear to be eligible for a VA loan, usually because it has a clear violation of one of the VA’s Minimum Property Requirements (MPRs). Also, appraisers are strictly prohibited from “accommodating” the sale price of the home. If the value that the appraiser determines is reasonable is different from the sale price, the appraiser is not allowed to adjust it in order to accommodate the sale. In fact, the Handbook threatens disciplinary action against an appraiser who do this. Also, the appraiser him or herself must conduct the appraisal personally; they cannot delegate to an assistant for any portion of the appraisal. If the appraiser makes use of an assistant in an appropriate capacity, they must list the name of the individual and the specific tasks they performed in the appraisal report.


VA Appraisal Contents

Appraisals are intended to be a thorough examination of the property and as such, there are a lot of things that need to be included in the report. First is the appraisal report form, which is usually the Uniform Residential Appraisal Report (URAR), which has a great deal of items in it that need to be checked off and reported on. Also, the appraiser must provide a location map of the property, building perimeter sketches that show the footprint of all buildings, certain photographs, an itemized list of any repairs that need to be completed and conditions to be corrected in order to meet the VA MPRs, as well as a copy of the appraisal invoice. The appraiser also needs to include any repair-related information that supports their conclusions.


Approaches to Value

Chapter 11 also explains how it expects the appraiser to reach their value calculation. From the Handbook, “VA relies exclusively on the sales comparison approach to value, except in very unusual circumstances involving inadequate or nonexistent comparable sales or an extremely unique property.” The sales comparison approach is the practice of finding at least two comparable homes (same area, sold recently, similar square footage and amenities), and base the value of the property in question off of what the comparable sales were sold for. This is a very common practice, but the VA’s decision to rely almost exclusively on it is unique. Other approaches, such as the cost approach (estimate how much it would cost to reproduce or replace the property and use that) cannot be used except to support the sales comparison value, and the VA does not usually require the cost approach to be used. The income approach is required in addition to the sales comparison approach if the buyer is purchasing an income-generating property (multi-unit).


Other Considerations

Part of using the sales comparison approach is to include market factors in the valuation process. For example, if the comparables were sold 5 months ago and the market has taken a slight downturn since then, you can expect a lower valuation than if the market had stayed exactly the same. The appraiser uses a great deal of factors in determining market change and current market conditions.


The appraisal process is somewhat different if the borrower is getting cash out to make improvements to the home or if the home is a proposed construction. If you want to learn more about those situations,  you can check out the Handbook itself, or you can read our articles on Chapter 11.


Why Should I Pre-Qualify For my VA Loan?

How Pre-Qualifying can help the VA Loan Process


VA Pre-Qualification ProcessPre-qualifying is actually a really good idea. Unfortunately, it has a bad connotation because of all that spam you get from credit card companies saying you’re “pre-qualified” for a credit card. When it comes to mortgages, though, particularly a VA loan, it is really smart to pre-qualify. Why? We’ll talk about a lot of reasons and we’ll divide them into things that are general to just about any home mortgage and things that are specific to a VA loan.


General Reasons that Apply to All Home Mortgages

The first and probably most obvious reason to pre-qualify is because that’s the only way you can find out how large of a loan you’ll be approved for. You don’t want to waste time shopping for a $300k+ home when you won’t qualify for more than $275k. Pre-qualifying takes all the guesswork out of it, and it becomes less a question of trying really hard to qualify for a specific amount and more a question of finding a home that you can easily afford. That’s only the tip of the iceberg, however, pre-qualifying also greatly reduces the amount of time it takes to close on a loan, because a lot of the work has already been done. You can start the pre-qualifying process and house-hunt in the area you want to move even before you’ve been pre-qualified. Being pre-qualified also opens you up to purchase foreclosed homes for very competitive prices. Especially for homes that are in high-demand areas and in great condition, being pre-qualified is the only way you’ll have a chance of nabbing the property before someone else beats you to it. Banks are interested in closing on foreclosures as quickly as possible, and they are not interested in a long, drawn-out loan application process that might end in rejection because the borrower is not qualified for the loan amount.


Being pre-qualified can have the same effect on normal home sales as well. Often, home sellers are in a hurry to sell their home, whether because they don’t want to keep paying interest on a home they are moving out of or because they are relocating to pursue a career opportunity elsewhere, time is often of the essence, and your offer may be passed on in favor of a lower offer of someone who is pre-qualified because the seller knows A) the pre-qualified buyer is definitely eligible for the loan amount and B) they’ll be able to close a lot faster. Pre-qualifying on any mortgage is definitely a good idea.


Reasons Specific to (or Especially True For) VA LoansGetting Loan Pre-Approval

All the reasons explained above are true across the board, but many of them are especially true of VA loans. For example, many home sellers are turned off by the Escape Clause, which allows borrowers to get out of a contract to purchase a home if the appraisal value comes in lower than the sale price of the home. While pre-qualifying does not cancel out the Escape Clause, it makes it less likely to become a problem, because the borrower has certified that they can afford the home they are looking at, which means they are much more likely to have enough money to make a sufficient down payment to bring the loan amount down to what the VA will guarantee even if the seller is not willing to drop the price of the home. Many sellers also avoid VA borrowers because of how long it can take to close on a VA loan. Being pre-qualified can mitigate that significantly, and open a lot of doors that may not otherwise be open.


Also, for a VA borrower, your relationship with your lender is very important, because VA-approved lenders have a certain amount of leeway to offer VA loans the way they see fit, and if you establish a relationship with a certain lender (or several lenders) by pre-qualifying with them, you get an in-depth opportunity to evaluate them and decide which lender you want to continue working with to actually get your loan. You can also see the differences in the amounts that each lender will pre-qualify you to borrower, which is a useful tool in comparing different VA lenders. Contact us today and we can help you begin the process.


What Is the Basic Allowance for Housing, or BAH?

Basic Allowance for Housing

Most active servicemembers are aware of what the Basic Allowance for Housing (BAH) is, and BAH doesn’t really apply to veterans, but if you’re considering joining the military or are an active servicemember looking for some more detailed information, this article is for you.

We will also be discussing the Monthly Housing Allowance (MHA) portion of the Post-9/11 GI Bill and how it is different from the BAH, since they are often confused. We will talk about what the BAH is, how it is calculated, and the differences between it and the MHA.

What Is the Basic Allowance for Housing (BAH)?

The Basic Allowance for Housing is exactly what it sounds like: it’s an additional monthly stipend that servicemembers receive to help pay for housing when military housing is not provided. The BAH applies to all servicemembers serving within the United States.

Those serving outside of the United States have access to the Overseas Housing Allowance instead. With that explained, we’ll discuss how the BAH is calculated as well as how much you might be able to get.

How It Is Calculated

The BAH is calculated based off a number of factors:

  • Geographical Location – Since the cost of housing differs from area to area, the amount available through the BAH differs from area to area as well.
  • Pay Grade – The higher your pay grade, the more you’ll have available to you through the BAH.
  • Dependency Status – This greatly affects how much you can get through BAH. Those with dependents have access to more than those without. In fact, you could say that dependency status comes first, then geographic location, then pay grade.

The BAH is recalculated every year to match the average cost of housing in each area. Some years, the amount of BAH in a certain area is reduced, but if you’ve already been using it, your BAH rate will not go down because of individual rate protection which was instituted about 10 years ago. If the BAH rate for your area goes up, however, you can expect to see a slight bump in your paycheck.

BAH compensation rates go as low as $546 (for an E1 without dependents at Fort Chaffee/Fort Smith in Arkansas) and upwards of $5,000 for an O7 with dependents living in San Francisco. For most servicemembers, you can probably expect between $800 and $1,200 per month in most areas

The BAH does its best to take into account the average cost of utilities and renters insurance. It’s also based on the civilian rental market, not the housing purchase market.

If you’re looking at buying a house, you can still find a house with a payment low enough to keep it $0 out-of-pocket each month, or you can enjoy an absurdly low monthly payment since most of it is taken care of by the BAH.

The Difference Between the BAH and the MHA

A lot of people get these confused, including active servicemembers and veterans, so it’s important to clarify. The MHA, or the Monthly Housing Allowance, is part of the Post-9/11 GI Bill and only applies to servicemembers who are utilizing their GI Bill benefits. The rate of compensation for most users of the MHA is the same as the BAH for an E-5 with dependents, which in many cases is enough to completely cover your housing as you attend school.

There are a few exceptions to this, however. Those attending foreign schools are given a flat rate of $1,509, and those attending schools in US territories are given the OHA rate for an E-5 with dependents. Those doing purely online school are given $754.50 per month, and those attending half-time school or less are not eligible to receive any MHA.


So, to summarize, the BAH is available for any active-duty servicemembers  here military-provided housing is not available, and the MHA is available to any servicemembers or veterans who are using their Post-9/11 GI Bill benefits to attend school full-time (or just more than half-time).

The amount that the BAH gets you depends a lot on where you are stationed, whether you have dependents, and your pay grade, and the MHA depends on where you’re going to school.


About Low VA Rates

Whether you’re using BAH or MHA, your veteran benefits go even further than to help you pay for housing. Eligible veterans can also take advantage of the VA loan, which allows for a lower down payment on a home, lower mortgage interest, and other perks.

We at Low VA Rates have helped veterans access this benefit for over 10 years. Contact us if you have questions or would like to get started on the home loan process.

VA vs. Conventional – Interest Rates

VA Interest Rates vs. Conventional Interest Rates

VA vs Conventional Discussed

This is the ever-changing, elusive question that borrowers often ask and rarely get a straight answer to. In this article, we’re going to do our best to paint a very clear picture of how VA loan interest rates generally compare to conventional interest rates. We’re going to show actual data provided by Ellie Mae, and we’re going to talk about the general rule of thumb you can follow, and then we’re going to talk about the difference between rate and APR and how the Funding Fee plays into all of this.


The Data

From May of last year through May of this year, VA interest rates were consistently lower than Conventional interest rates. On average, in that time frame, VA interest rates were 0.32% lower than conventional interest rates. There were times that they were even lower than that and there were times that offered rates were closer. Generally speaking, when rates go up, conventional rates go up faster than VA rates do, and when rates go down, conventional go down faster than VA rates do. This is illustrated by the data, in that the higher rates are generally, the larger the gap between the VA rates and the Conventional rates, and the lower that rates generally are, the more Conventional begins to close the gap. This is because there’s only so low that rates will ever go, and as conventional rates get closer to that point, they begin to close the gap with the VA rates.


The Rule of Thumb

Generally speaking, the rule of thumb is that you can expect interest rate offers between 0.5% and 1.0% lower on a VA loan than on a conventional, though you likely won’t see that big of a difference until interest rates are generally higher than they are currently. This difference exists primarily because of the VA guarantee. The VA guarantees (usually) 25% of the loan amount to the lender, which takes away a good portion of the risk that they are taking on, particularly with a borrower with less-than-perfect credit that is not making a down payment. However, the VA is not guaranteeing 100% of the loan amount, so that risk is not completely gone; it’s just mitigated. This is why interest rates aren’t constantly sitting at absurdly low amounts on VA loans.


Interest Rates Rule of ThumbIt’s important not to use this rule of thumb to create unreasonable expectations, however. As you saw in the data in the first paragraph, the gap between conventional and VA loans hasn’t been as big as 0.5% in the last year and a half, so just because a VA lender doesn’t offer you that much lower of a rate does not mean you’re getting a bad deal or the lender is trying to cheat you. Hopefully, you’re getting quotes from multiple lenders, so you’ll be able to see whether the rate that one lender is offering you is a good rate. Use the actual average mentioned in the above paragraph, along with the explanation of how rates generally move, coupled with the rule of thumb to make an educated guess on what you should expect for rates as you make plans to purchase a house.


We’re Not Talking About APR

It’s important to note that these are just interest rates. While interest rates make up the majority of APR, other things (such as discount points) also add to APR. Something to consider is the requirement of the VA Funding Fee, which can add thousands of dollars to the amount the loan costs you to get, and thus increase the APR, which is what you really want to compare across the board. For example, if you got a mortgage for $200,000 and paid the standard VA Funding Fee of 2.15%, you’d pay $4,300. If the interest rate was 4.0%, and no other factors were added in, your APR would be 4.1830%, which is still lower than you’d be offered on a conventional loan using the average from the last year and a half (conventional would be 4.32% interest, plus other fees that would push the APR higher).



VA interest rates and APRs are generally lower than Conventional. How much lower depends on market factors and your own credit and income qualifications for the loan you’re getting. Many critics of the VA loan program claim that the Funding Fee makes the VA loan less affordable than a conventional, but we have shown, using actual numbers, that this is not the case. Contact us today for more information.


Everything You Need to Know About Closing Your VA Loan

Need to Know about VA Loans
You’re closing on a VA loan. Congratulations! This post will tell you:

  • What’s going to happen at the loan closing meeting
  • What closing costs you could have
  • What happens after closing

The closing costs section will include two exciting bonus topics about VA refinance loans:

  • Closing costs of cash out VA refinance loans
  • VA streamline closing costs explained

The Loan Closing Meeting

Where do you attend the loan closing meeting when working with a lender that isn’t located in the same area as you? The answer is that the meeting can happen wherever is convenient for you, including your home. The title company representative and your loan officer will meet with you wherever is convenient for everyone involved.

What actually happens at this meeting? If there are closing costs, you’ll pay those, so bring a checkbook, debit or credit card, or a cashier’s check, depending on what form of payment the title company accepts. Your loan officer will also read your documents to ensure you understand what you’re signing.

You’ll need to bring official cards or documents that identify you—whether a social security card, birth certificate, state-issued identification card, or another type. You can bring whatever you have. Your loan officer should give you a list of whatever else you need to bring.

Make sure to schedule about two hours for the meeting. It may end sooner, but it’s good to be prepared for two hours, just in case there’s a mistake on a document, which may need to be corrected.

Closing Costs

There are a few different types of closing costs. Some are constant for all VA loan borrowers, but some are specific to only some situations.

VA Funding Fee

You’ll need to pay a VA funding fee for any type of VA loan you get (with some exceptions). The VA funding fee helps to pay for the cost of the VA loan program.

Other Closing Fees

There are some other fees that VA lenders are allowed to charge on every VA loan:

  • VA funding fee
  • A 1% loan origination fee
  • Closing protection letter (CPL)
  • Discount points
  • Fraud protection report
  • Well and septic inspection fees
  • Express mail fees (which should be under $50)
  • Environmental protection lien endorsement
  • Title fees:
    • Title endorsement
    • Title examination
    • Title insurance
    • Title policy
    • Title preparation
    • Title search
  • Appraisal fee
  • Credit report
  • Recording fees
  • Survey and plot plan
  • Prorated tax and insurance escrow

This isn’t a list of every possible fee. Your lender may charge you another legal fee that’s just not on this list. This is just an idea of the major types of closing fees.

This second list below is a list of other fees your VA lender might itemize and charge you if they do not charge you a flat 1% origination fee. If they do charge you the origination fee, you won’t see a list of these fees:

  • Pest inspection fee
  • Copying fee
  • Email fee
  • Fax fee
  • Postage fee
  • Tax service fee
  • Lender’s appraisal fee
  • Underwriting fee
  • Processing fee
  • Application fee
  • Commitment fee
  • Trustee fee

This isn’t a list of every single possible fee. There may be other legal fees that your lender can charge you. If you want to be sure about a certain fee, you can check with your state, county, and city governments to find out if it’s required.

Remember, when you’re buying a home, the seller might be able to pay for some of the closing costs for you. If you really need help, it’s worth mentioning to the seller. He or she might want to help you or might really need to move.

Fees VA Borrowers Never Pay

There are a few fees that you are never supposed to pay, according to the VA. These fees include:

  • Mortgage broker fee
  • Termite or general pest inspection (in most states)
  • The real estate agent’s commission
  • Prepayment penalties
  • Transaction coordinator fees
  • Documentation fees
  • Notary fees
  • A builder’s HUD/FHA inspection fees
  • An attorney fee that is charged to the lender

If a lender is charging you for any of these, you might need to investigate whether they have a good reason or if it’s a scam.

Discount Points

One type of voluntary fee is discount points. When you buy discount points, the lender lowers your interest rate, which will save you money over time. For every quarter of a percent you want to lower your interest rate, you’ll pay a discount point of about 1% of your total loan.

Discount points usually become worthwhile if you’re going to live in the home for five years or longer. It’s worth asking your VA lender how many years of mortgage payments it would take to break even on a number of discount points. You could look at a few scenarios.

Closing Costs on a VA Cash Out Refinance Loan

You can get cash back from your home equity during your loan closing if you use a VA cash out refinance loan. The closing costs on a refinance loan are almost the same as the closing costs on a regular VA purchase loan, including:

  • Homeowners insurance
  • Discount points
  • Property taxes
  • Prepaid interest
  • VA funding fees
  • VA appraisal
  • Loan origination
  • Processing fees
  • Title examination
  • Homeowners association dues

You can ask to have the VA funding fee (but no other fees) added to the amount of your new VA loan. With a VA cash out refinance loan, your goal is to pull out as much usable cash as possible. Rolling the VA funding fee into the loan helps you keep more cash.

Closing Costs on a VA Streamline (IRRRL) Refinance Loan

Here’s a topic we promised above: the VA streamline closing costs explained. A VA Streamline (IRRRL) Refinance Loan is a fast, easy refinance of a VA loan you already have. You can add all of the closing costs of an IRRRL to the loan value itself. This benefit lets you get better terms and/or interest rates and lower your monthly payments—even if you don’t have the cash to pay for closing costs.

You can even roll two discount points into the balance of an IRRRL. Note that you can also buy more discount points if you want, but you just can’t add them to the IRRRL balance.

There are fewer closing costs associated with a VA Streamline Refinance Loan. You’re not required to get a new VA appraisal. Your lender also won’t re-check your income and employment, so there are no fees for those activities. However, closing costs still include:

  • The VA funding fee
  • Allowable fees like a flat charge from the lender
  • A credit report fee if it’s necessary for the lender’s requirements
  • Costs to refinance a past due loan, if applicable:
    • Late fees on the old loan
    • Reasonable legal fees related to the termination of the old loan

Again, because it’s so important to remember, even these fees can be rolled into the balance of the IRRRL to be paid over time.

After the Loan Closing

What happens after closing on your loan? There are two major events that are most common. First, if you’re due a refund from your escrow account, you can expect information about it within 45 days. Your lender should give you a form that explains when you’ll receive the payments.

The other major event is you may receive a written notice that your loan servicer (the company that collects your monthly payments) is going to be a different company than your lender. The notice will tell you where to send your payments, when your first payment is due, and more.

If you get a new loan servicer, they might contact you for more information to finish the process. You can check with your VA lender to make sure this isn’t a scam. If it’s legitimate, you should respond to the new loan servicer quickly.

If your new loan servicing company causes you some kind of major problem, you can send a Qualified Written Request (QWR) to your servicer explaining your complaint. They should respond to you and fix the problem in 60 days or less. If they don’t, you can send a complaint to the HUD Office of RESPA, explaining the situation.

Even if you have a problem with your new loan servicer, it’s crucial that you keep making your payments on time. If the problem is intolerable, you could look at some other options, but missing payments would put you in danger of foreclosure.

We hope that this information will help you get through the process with confidence. Contact Low VA Rates if you have questions about VA loans.

© 2020 Low VA Rates, LLC™. All Rights Reserved. Low VA Rates, LLC ™ is not affiliated with any U.S. Government Agency nor do we represent any of them. Corporate Address: 384 South 400 West Suite 100, Lindon, UT 84042, 801-341-7000. VA ID 979752000 FHA ID 00206 Alaska Mortgage Broker/Lender License No. AK-1109426; Arizona Mortgage Banker License #0926340; California DBO Finance Lenders Law License #603L038; Licensed by the Delaware State Banking Commission License #018115; Georgia Residential Mortgage Licensee License #40217; Illinois Residential Mortgage License #MB.6761021; Licensed by the New Jersey Department of Banking and Insurance, Ohio Mortgage Loan Act Certificate of Registration #SM.501937.000; Oregon Mortgage Lending License # ML-5266; Rhode Island Licensed Mortgage Lender License #20143026LL; Texas License LOCATED at 201 S Lakeline Blvd., Ste 901, Cedar Park, TX 78613; EAH061020 NMLS ID# 1109426 Consumer NMLS Access Click on these links to access our Privacy Policy and our Licensing Information. Consumer's total finance charges may be higher over the life of the loan. Consumer NMLS Access - NMLS #1109426.

*Annual savings calculator based on 2015 monthly average savings extrapolated year-to-date.