Everything You’ll Need to Get a VA Loan

Checklist of info you'll need to get a VA loan

Sometimes it can seem like there’s a lot you have to provide in order to meet the requirements to get a VA loan. However, we’ve put together this list of everything you’ll need so it’s all in one place.

Not only will reviewing this list prepare you to meet with a loan officer, but it will also help you be sure that you’re even eligible for a VA home loan.

Personal Data

There is a variety of personal information you’ll need to fill in when you apply for a VA home loan. Some of it, like your name, phone, number, address, and birthday, you should already know.

Some information, though, you might not remember off the top of your head, so it’s better to make sure you know it before you start filling out an application.

In addition to the information already mentioned, you’ll also need to provide:

  • Your social security number
  • Any past addresses for the last 2 years
  • Your highest grade level completed in school
  • Your ethnicity and race*
  • Your government-issued ID card
  • How many dependents you have, along with their ages
  • What state you want to buy a house in

*This information will not affect your ability to get a loan. However, all mortgage lenders are required, by law, to ask it. It will simply be reported to the government to make sure your lender is in compliance with the Equal Credit Opportunity Act (ECOA) and the Home Mortgage Disclosure Act (HMDA).

Certificate of Eligibility (COE)

Your COE is one of the most important documents needed to get a VA loan. The easiest way to get this information is to actually have your lender request it. However, you may also send in a request yourself, though doing so usually takes longer.

Credit History

Even though a minimum credit score isn’t one of the VA’s requirements for a VA home loan, your score will be pulled by lenders in order to determine your interest rate. In addition, some lenders do create their own internal credit score requirements, but Low VA Rates is not one of them.

Besides checking your credit score, another reason lenders look at your credit history is to make sure you’re not behind on loan payments or collection fees.

When it comes time to have your credit pulled, you’ll want to have the following information ready:

  • The social security numbers for everyone getting a credit check
  • A list of all your debts, including auto loans, student loans, credit cards, and other lines of credit, to make sure they’re correct on your credit report
  • Proof of any errors on your credit report, if applicable
  • The amount you spend on childcare each month, if applicable
  • Bankruptcy and discharge documents, if applicable
  • A way of explaining any late payments, if applicable

Income, Employment, and Assets

In addition to your debts, you’ll also need to be prepared with evidence of your income, assets, current employment, and recent job history. To this end, you’ll need to provide:

  • Your job history for the last 2 years, including the name, address, and phone number for all your employers, and the dates you worked for each
  • Your pay stubs from the last 30 days or your latest Leave & Earnings Statement (LES)
  • Your W2s for the last 2 years
  • Pension, retirement, and/or social security award letters and related 1099s, if applicable
  • Divorce decree and settlement documents, if applicable
  • Bank statements from the last 60 days as evidence of the money necessary for any down payment and/or closing costs, if applicable
  • Statements from your retirement account from the last 60 days, if applicable
  • A list of any real estate you own
  • 2 years of tax returns, if you’re self-employed
  • Any tax returns showing income from commissions or rentals, if applicable

Military Service Information

To prove one of the most important home loan qualifications, you’ll want to gather the following documentation:

  • A copy of your DD-214, if you’re separated from the service
  • A statement of service signed by your commanding officer & your LES if you’re on active duty
  • Evidence of future stable income if you plan to leave the service less than a year after closing on your home

Real Estate Documents

Finally, you can try to gather the following real estate documents:

  • A contract to purchase the real estate, which should be signed by the seller and you
  • A VA appraisal of the property, which your loan officer can order
  • The contact information of your homeowner’s insurance agent
  • The contact information of your homeowner’s association, if applicable
  • An inspection report on the property, which is wise but not required

However, if you’re not able to gather all of these before meeting with your loan officer, don’t worry—they can help you get them.

Contact Low VA Rates to Get Started

Once you’ve gathered all of the information you can, we hope you reach out to us. All of our loan officers are experienced in VA loans, so please contact Low VA Rates today.

What Is the Minimum Credit Score for a VA Loan?

Drawing of cell phones showing different credit scores with their ratings

Many lenders require your credit score to be above a certain number before they’ll issue you a VA loan. And they’re allowed to do that.

But there isn’t a minimum credit score for VA loan qualification according to the VA’s guidelines, so Low VA Rates chooses not to require one. We can, and often do, work with veterans who have very low credit scores.

Good and Bad Credit Scores

To refresh your memory, the lowest possible credit score is 300, and the highest is 850. Lenders often rate scores like this:

  • <550: Bad
  • 550–649: Poor
  • 650–699: Fair
  • 700–749: Good
  • 750+: Excellent

We know that some veterans with low scores have just had financial trouble in the past, but they’re now able and willing to pay their debts. And some veterans just haven’t had a chance to build a credit history yet.

Because of these reasons, we’ve chosen to help them instead of just turning them away for a loan.

How to Improve Your Credit Score

Of course, we’re still aware of borrowers’ credit scores, and there’s a cost to a low score: you probably won’t be able to get the best interest rates, which leads to higher monthly payments.

Some borrowers choose to work on improving their credit score before taking out a mortgage—even if it takes a year or two. You’re going to pay off a house over many years, so it can benefit you to have lower payments over that whole period.

And we’ll definitely work with you any time you’d like to get a quote! And, if we find out your credit score doesn’t qualify you for the interest rate you’d want, we’ll work with you directly to help raise it, even if it means waiting a while before you can get a mortgage from us.

But, in the meantime, if you’re not quite ready to call in and talk with a loan officer, here are five tips that can help you start raising your score now:

  1. Never be late on debt payments
  2. Keep low or zero balances on credit cards
  3. Only get one new line of credit at a time
  4. Pay off debts as soon as possible, beginning with the one that has the highest interest rate
  5. Order your credit report once a year and fight any mistakes in it

One thing to note is that, even if you follow these pieces of advice exactly, you might not see an improvement to your credit score for several months. This is especially true for paying off a debt.

The reason for this delay is that it can sometimes take a few months for the credit bureaus to remove that debt from your credit report. But we promise, if you follow these steps, it will happen!

Even if you don’t have any kind of credit history, these five pieces of advice still apply, though in a slightly different way. Essentially what you’ll want to do is get a single credit card and follow these five guidelines in how you use that card.

Doing so will help you start building a positive credit history, and once you’ve developed good habits with one card, you could apply for another one, and so on, to keep that positive credit data growing.

How Low VA Rates Can Help Those with Low Credit Scores

We specialize in loans for veterans. If you talk with one of our loan specialists—some who are veterans like you—he or she will look at several factors in your background.

One of the first and most important is your honorable military service is first. The next important qualification is the stability of your income, which can be from a job, VA disability payments, or investments.

They’ll also help you add up all your expenses, including debt payments and the potential VA loan, to make sure you’ll have enough money left over at the end of each month. This is a VA guideline, which helps the VA loan program to be safer for you and for all veterans.

And, while they’ll also look at your credit score, we know that a high credit score doesn’t always guarantee that someone can handle a new mortgage because their situation may have changed.

We also know the opposite is true, so even if you have a low credit score, you can qualify for a good VA loan as long as you can show your willingness and ability to afford and pay for it.

So, whether you choose to improve your credit score first or you want to buy your home right away, Low VA Rates will be here to help.

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.

 

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.

 

Military Discharge Types

The military discharges soldiers to release them from their obligations to serve in the armed forces. A military discharge can occur for many different reasons: expiration of term of service, Military Dischargereaching the maximum age limit, disability, hardship, mental or physical conditions, misconduct, and resignation, to name a few.

The reason for discharge determines the type of discharge. Very few people know that there are many types beyond just honorable or dishonorable. In fact, there are six. Take a look at the meaning and circumstances behind each.

6 Types of Military Discharge

Military servicemembers can be discharged under any of the following conditions:

  • Honorable Discharge — To receive an honorable discharge, a service member must receive a good or excellent service rating by performing their duties honorably and displaying excellent personal conduct.
  • Entry-Level Separation or Uncharacterized — This discharge is given to individuals who discontinue prior to completing 180 days of service, and this does not characterize service as either good or bad.
  • General Discharge — A general discharge is given to soldiers whose performance is satisfactory but does not meet standards of personal conduct. Failure to meet fitness or weight requirements, failure to progress in training, and minor discipline problems are some of the more common reasons for receiving a general discharge. This discharge can affect a veteran’s eligibility for certain benefits, including for the GI Bill and for VA home loans.
  • Other-Than-Honorable Discharge — This discharge is typically the result of negative actions that fall just short of requiring a court-martial. Such actions include but are not limited to being convicted of a crime in a civilian court, violating security, abuse of authority, using deliberate force to hurt another person, or displaying other behavioral problems. This type of discharge can also affect eligibility benefits.
  • Bad Conduct Discharge — This discharge is given by a court-martial to enlisted service members due to bad conduct. It can also be preceded by time in military prison. All veteran benefits are forfeited with a bad conduct discharge.
  • Dishonorable Discharge — This discharge is also given by a court-martial when actions of a service member are considered reprehensible, and this is the worse discharge a soldier can receive. All benefits and other rights, such as owning a gun, are lost.

Military Discharge Papers and Why They Matter

The type of military discharge papers a veteran receives has a big effect on their life after service. Nearly 77 percent of discharges are honorable, which leaves 33 percent ineligible for many, if not all, veteran benefits. For example, only veterans that received an honorable discharge are eligible to obtain a VA-guaranteed home loan.

The type of discharge a veteran received will be listed on form DD-214 of the discharge paperwork. It is sometimes possible for veterans to do a military discharge upgrade. This allows veterans to receive a higher rating by completing DD Form 293, which is an application to review dismissal. An upgrade is not automatic and is, of course, subject to review.

If you are a veteran, you may be entitled to some amazing benefits, including the VA home loan. Contact us at Low VA Rates to learn more about your VA home loan benefits.

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.

Differences

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.

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.

What Is a Deferred Payment?

deferred payment

Depending on the context, hearing the phrase “deferred payment” may be a good thing or a bad thing. In this article, we’re talking strictly in the context of a borrower who is being told they will be able to defer one or more payments on their mortgage or another home loan. We’re going to explain what a deferred payment is, when it might happen, and how it works when it does. Some of this is covered in our Frequently Asked Questions, but some of it is not. Regardless, when you’re done reading this article, you’ll know everything you really need to know about deferring payments. It’s actually a fairly simple thing.

What It Is

Many people confuse a deferred payment with a skipped payment. Deferring a payment is not really the same thing as skipping one. Skipping a payment means that the payment comes and goes and you don’t make it. Deferring a payment is simply postponing a payment so that it does not come until later. When it does come, you pay it as you would any other payment. So a deferred payment is just a postponed payment. Deferred payments can be awesome, because it significantly eases your expenses for the month or two that you aren’t making payments, which allows you to make more headway on credit card debt, go on a vacation, or do something else with the cash that is not going towards your mortgage payment. So when your lender mentions deferred payments, there are some serious advantages in it for you.

When It Might Happen

Deferred payments usually come into play when you’re refinancing your home loan though they also commonly happen on a new purchase loan as well. It’s very common for your lender to take a month or two’s worth of payment in advance as part of closing costs, then give you a couple month break before you start making payments on your mortgage. When you’re refinancing your home, it still works basically the same way as on a new purchase, except that you have an existing loan holder that needs to be paid off. It’s very common during a refinance to not only have two months of payments deferred but also to receive an escrow refund from your old lender after you’ve closed on the loan. Escrow refunds can be great, though it’s important to remember that you were charged whatever you needed to be charged to fund your new escrow in your closing costs on your new loan, so if you come out on top at all, it will only be by however much extra was in the escrow from the old lender. However, that’s still cash in your pocket that you can choose what to do with, and deferred payments are the same. Deferred payments usually start at closing and end after no more than 2 months after.

How It Works

So, when you’re deferring a payment, it’s different from paying in advance. Often at closing, the lender will include the first month’s payment in closing costs, then defer the payment for the following month, so the first time you actually make a payment, it’s almost two months down the road. Why do lenders do this? Because the lender really wants to sell your loan on the market to a different loan holder, and it’s a lot easier for them on the paperwork, record-keeping, and liability side of life if they get it sold before they take any payments from you. Not to mention it’s a good way to incentivize people who are on the fence about the loan to take the plunge. While not directly related to deferred payments, you should keep track of when your next mortgage payment to your old lender is due before you’ve closed on your new loan. If you decide to hold off on making that last mortgage payment because you’ve already been processing your new loan with a certain amount, keep in mind that the old lender can still charge a late fee and even report the payment as late if it’s more than 30 days.

Understand a VA Loan Process

Summary

Deferred payments are good, they come at the very beginning of a new refinance or new purchase, and they can help you have some nice financial freedom before picking up the hammer again on your new loan.

 

What Is a VA IRRRL?

First off, let’s define what the acronym IRRRL (pronounced “Earl”) stands for.

IRRRL: Interest Rate Reduction Refinance Loan.IRRRL lowering rates

Veterans aren’t the only ones who can apply for an Interest Rate Reduction Refinance Loan (IRRRL), but because Low VA Rates focuses on offering veteran loans, we will discuss the VA IRRRL here.

What can an IRRRL do to help you?

  • Well, by refinancing your existing VA home loan, an IRRRL can lower your interest rate – sometimes significantly!
  • By lowering your interest rate, your monthly mortgage payment should decrease. This may even give you the opportunity to pay off your mortgage early!
  • As well, you can also refinance your existing adjustable rate mortgage (ARM) to a fixed rate mortgage if you prefer and rates are great.

Quick IRRRL Facts & Benefits

  • No appraisal or credit underwriting package is required when applying for an IRRRL.
  • Far fewer initial documents are required.
  • An IRRRL may be closed with very little or no money out of pocket. How? By including all the costs of the loan into the new loan or by working the new loan to enable the lender to pay the costs, you could close your loan with no cash out of your pocket – a great benefit of an IRRRL.
  • And, drumroll please…THE BEST BENEFIT OF ALL!!??

 Low VA Rates $250 Low APR Guarantee

250 Dollar GuaranteeWe advise every veteran to contact several lenders so they can compare terms and get the best rate.

Here at Low VA Rates, as our name may suggest, we take great pride in delivering to our clients terrific interest rates. We work hard to do this and can usually beat other offers, but if you close with a lender at a rate we can’t beat, we’ll give you $250.

Visit our website for more information.

 

FAQ; What is Escrow?

What is Escrow?

 

What is EscrowEscrow is a word you’ll hear frequently when applying for and closing on a VA loan, and it’s an important word for you to understand. This article is mostly for first-time homebuyers because most who have bought a house before will already have a sense of what escrow means, in general, and a very clear idea of what escrow means to them. Knowing what escrow means before you’re applying for a loan can save you time in the process and help make the process go a bit smoother. It can also help prevent nasty surprises from coming up during the process. So let’s jump into this; we’re going to go over the definition of escrow, then talk about what it means in the context of a mortgage and how it affects you.

 

The Definition

Investopedia defines “escrow” as: “A financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions or until obligations have been fulfilled.” Since that doesn’t make any sense, allow me to explain with an analogy. When you go grocery shopping, you take your groceries and put them into the car, which is where they stay until you take them home. In this sense, your car is acting as an ‘escrow’ for the groceries. You can’t put the groceries directly from your shopping cart into your refrigerator, because your refrigerator is way too far away, so you put them in your car until your refrigerator is close enough that you can carry them to it from the car. This may seem a weird example, but an escrow works the same way; it is just an account where money is placed and stored up until the bill being saved up for comes due.

 

What is it used for?

In a mortgage, an escrow is usually used for property taxes and insurance (homeowners, sometimes flood or other additional). Those items are usually due annually, so your mortgage company sets up your payment to make a monthly contribution to the escrow so by the time the bill comes due you have enough money in the escrow to pay for it. Usually, the mortgage company takes care of paying it for you. Escrow is a legal and financial term, in that there are certain ways that a company is required to handle and treat escrow funds if they are officially being used for an escrow purpose, but many people use de facto escrows without even realizing it. You know those “rainy-day” funds you keep? That’s an escrow. Your new car fund? An escrow. Kids’ college fund? Escrow.  So you already know and understand what an escrow is. In the context of a mortgage, the escrow is something that the mortgage company charges you to cover taxes and insurance.

 

How Does it Affect You?

Well, the most obvious way is that it makes your monthly payment higher because you’re Home Based on Escrowpaying X amount in taxes and insurance every year. Taxes & insurance can add hundreds of dollars to your monthly payment, and even after you completely pay off your home, you’ll still have to pay those every year. Escrows also make life easier for you, though. Rather than having to keep track of it yourself, make sure to save up enough, and make sure to remember to pay your taxes and insurance premiums every year, the mortgage company worries about that for you. It makes life a lot easier on you. Other than that, the escrow on a mortgage doesn’t really affect you. Be prepared to sign something during the process that authorizes the mortgage company to take some of your money and put it in escrow, though. As long as you’re expecting it and realize that it will be added to the monthly principal+interest payment you have painstakingly calculated in preparation for getting a mortgage, the escrow shouldn’t present any difficulties.

 

So there you have it, now you understand escrow and you are armed with the knowledge that you can take with you when you meet with a loan officer. The more knowledge you already have when you start the process of getting a loan, the more likely you’ll be able to get the best mortgage option available to you.

 

Working in the Private Sector

Everything You Need to Know About Working in the Private Sector

 

Working in the Private SectorNow, many veterans had jobs as a teenager before they joined up, and many also work second jobs while they are serving to pay the bills. This article is targeted towards those who don’t have much experience with working in the private sector and are approaching their discharge date (or have already hit it) and are trying to figure it out as they go. Hopefully, this article will give you everything you need to know to get launched into the private sector like a rocket. The things you need to know are as follows: you need to be qualified, speaking up is a good thing, and you will be rewarded based on merit.

 

You Need to Be Qualified For the Job You’re Applying For

As someone who has done hiring before, it’s pretty frustrating when someone who doesn’t have the qualifications we’re seeking applies for the position. For many veterans, especially those with combat positions, it is difficult to find jobs that you are qualified for based solely on your military experience. The solution? An education, or a second job while you’re still serving. Pick a direction, skillset, or career field that you would like to work in following service, and start getting qualified for a position in that field. Maybe you pick up a part-time entry level position while serving, or perhaps you go to college and get a related bachelor’s degree. What you do to get qualified should depend on the field you want to go into. A college degree may be the way to go, but it might also be a waste of time (if you want to be a diesel mechanic, then go get certified from a tech college or trade school). If you’ve already been discharged, aren’t qualified for any positions in the field you’re looking for, consider finding a job as an armed security guard (actually pay pretty well) and using your GI bill benefits on a degree or certification. If you are able to find an entry-level job in your field while you go to school for it, even better.

 

Speaking Up is Usually a Good ThingEYNTK Private Sector

Everyone’s had a supervisor that wanted them to sit down, shut up and do their job. Most supervisors and managers, however, welcome innovation and ideas from their employees. It shows that the employees are thinking about what they’re doing, care about it, and want to make it better. It’s been said that the best way to get promoted is to make yourself obsolete. If you’re able to come in, simplify processes and increase efficiency, and get more done, you better believe you’ll be on the fast track to a promotion. This is often counter-intuitive to former military because in the military you are taught not to question and not to argue. Obviously you need to respect your supervisor or manager’s authority, but you can still make suggestions and improvements, and you will normally be rewarded for them.

 

You Will be Rewarded Based on Merit

Let’s be honest for a moment: promotions and raises in the military are often based more on time served and tenure than qualifications for a position. The private sector is different. There are exceptions to every rule, but usually the people who work the hardest, make the biggest difference, and impress their superiors the most are the ones who get the promotion. Don’t get jaded if you get gypped once or twice, just buckle down and keep doing everything you can to excel at your job, and if you’re good at what you do, you will be rewarded for it. If you aren’t getting the rewards you think you deserve, you can always find a job at a different company, which is also different from the military.

 

There are a lot of differences between being in the military and working in the private sector, but those are the ones you really need to know to get going. If you find yourself struggling to succeed in the private sector, check veterans forums or help groups to get more guidance on specific things like interviewing, building a resume, and contributing to a positive work environment.

 

Mortgage for the First-Time Homeowner

What You Need to Know as a First Time Homeowner

 

First Time HomeownerWhen you’re taking that first major step in building your wealth, it can be really daunting how many options there are and very tempting to just take the simplest option available. Unfortunately, the simplest options is usually the 30-year fixed. If you’re willing to do a lot of homework and perhaps spend a little more money right now, you can save yourself a lot of time, money, and trouble later on. We’ll be talking about the best mortgage option for the first-time homeowner, but first we’re going to give you a few tips to help your first home purchase go smoothly.

 

Get a Real Estate Agent – A Good One

This may seem counter-intuitive, and it may even be the opposite of what other people have advised you. Here are my reasons for recommending you get a real estate agent: real estate agents do a lot more than just help you find a home. They also help with the process of getting a loan. They probably have a few lenders that they know well and can recommend. These lenders are more likely to work harder to offer you better terms than another lender because they want the agent to keep sending them people. They are also a lot of things that the agent helps take care of (the sale contract, addendums, etc.) that you will need a lot of hand-holding through on your first time. If you don’t have an agent, the loan officer will try to assist you, but most of the heavy lifting will have to come from you directly. If you’re anything like me, you’re thinking to yourself, “I know a bit about mortgages, and I can research anything else I need to know. No need for an agent.” Trust me, sale contracts and other forms are weird and tricky, and getting a good real estate agent will pay off.

 

Another real value in a real estate agent is to protect you from getting a bad loan or working with a bad seller. There’s a lot of things you may not notice about a house that a good agent is trained to look for, and your lender may offer you terms that you think are standard or even a good deal, when actually you’re getting ripped off. An agent is there to protect you from this sort of thing. You may not need or want an agent every time you buy a home, but it’s a good idea to get one for your first home purchase and ask every question you can think of for future reference.

 

Remember that You’re Buying a Starter Home

Your first home purchase will almost certainly not be the home you are going to grow old in. It’s probably not even the house that your children will grow up in, so there’s no need to look for a house that works for that purpose. When you’re getting your first house, your primary location concern should be how far it is from your work. Your other concern should be whether it’s big enough for how much you anticipate your family growing over the next 3-5 years. You’ll probably have moved within 5 years to a home more suitable to raising children in. It’s many people’s tendency to be really picky about their first home, which is just silly. No home is perfect, and especially when you’re looking for a starter home, you should be more concerned about price than perfection.

 

Your Best Mortgage Option

Assuming you’re eligible for the VA loan program, your best bet is going to be First Homethe VA hybrid ARM, which gives you an extremely low interest rate for the first few years, and cannot increase by more than 1% per year after the initial fixed period. Especially since you’re not going to be in the home for more than 5 years, a VA Hybrid ARM doesn’t even have any risk associated with it. You get a super low interest rate with no risk of it going up in the future. If you’re very risk-aversive, take some time to learn more about the VA hybrid ARM, because there really is far less risk than the stereotypes would have you believe, and you can literally save tens of thousands of dollars just over the next 5 years by getting a hybrid ARM instead of a 30-year fixed rate. If you’re not VA eligible, there is still a conventional hybrid ARM, that can be a good option, but is not as good as the VA ARM, or you should go with a 15-year fixed. If the payment on a 15-year fixed is too high, the problem is not the 15-year fixed; it’s the price of the house. Contact us today with any questions or to get started.

 

What is a VA Compromise Sale


The VA compromise sale is actually a really cool benefit of the VA loan program, but it doesn’t get a whole lot of publicity, partially because those who have utilized it aren’t usually proud of it and want everyone to know about it. To understand what the compromise sale is and why it’s such a great benefit of the VA loan program, you first have to understand what short sale is and how it might come about.

 

What’s a short sale?

A short sale is when a house is sold for less than the current owner owes the mortgage company. Short sales are not a happy experience. They are, however, usually a better alternative to foreclosure, at least for the current owner of the home. A short sale situation usually happens when home prices have dropped and the income of the owners has also dropped. This drop in home prices takes away the equity the owners have in the home and the drop in income takes away the ability of the owners to make their current mortgage payment. Needless to say, this is a horrible situation to be in and it makes selling the home very urgent at the same time as making the sale price much lower than it should be. The biggest problem with short sales is that the mortgage company has to agree to release their lien on the home even though they have not been completely paid back. If the mortgage company does not agree to this, the short sale cannot proceed and the home will be foreclosed on.

 

Enter the VA Compromise Sale

The VA compromise sale is designed to mediate these situations. Since mortgage companies will often refuse to agree to a short sale, the VA steps in and uses the veteran’s entitlement to make up the difference between the sale price of the home and the amount the borrower still owes to the lender. The borrower’s equity is not restored, and no cash ends up in the borrower’s pocket, but the lender gets paid back the full amount owed to them, which makes much more amenable to the idea of a short sale. This service also goes a long way in helping the borrower’s credit after the short sale, since the debt has been paid in full. The VA compromise sale is one of those things you hope you never have to use but if you are in a situation where you need it it’s invaluable. Those who have access to the VA compromise sale find that it makes the difference in their lives for the next 10 to 15 years.

 

When Can I Use the VA Compromise Sale?

The VA compromise sale is only available to VA-eligible borrowers whose home is currently financed with a VA loan. A VA-eligible borrower who has financed their home with a conventional or FHA loan will not have access to the compromise sale. If you are in need of a VA compromise sale, you’ll want to communicate that to your mortgage company and together work with the local VA office to get everything taken care of. Now, you should know that if your VA entitlement is used to pay a lender in a compromise sale, you no longer have access it (because it’s been used). If you want to use your VA loan benefits again, you’ll either be limited to however much entitlement you have remaining, or you will need to pay back the entitlement to the VA. Paying the entitlement back is probably not worth it, but it’s something you can consider as an option.

 

Summary

So, a short sale is when the home is sold for less than the owner currently owes on the home. The mortgage company has to agree to allow a short sale to take place, and may just decide to foreclose on the property instead. The mortgage company can also put very damning things on the owner’s credit report. A VA compromise sale is where the VA steps in on a short sale situation and pays the lender the difference between the amount that the home is selling for and what is still owed to the lender. The borrower does not get any cash from the proceeds of the short sale, but the borrower also has significantly better odds of being let out of the loan and being able to move on with their life without a significant blemish on their credit report.

 

Should I Choose a 30-Year Fixed?

Why do so Many Choose a 30-Year Fixed?Why to Choose a 30 Year Fixed

 

For reasons that no one understands, the 30-year fixed-rate mortgage is still the dominant choice for most borrowers in the US. Honestly, the fact that everyone has 30-year fixed-rate mortgages may be a major contributor to the growing wealth gap in our country. So, the question above is should you choose a 30-year fixed? The short answer is ‘NO’. In this article, though, we’re not only going to cover why you shouldn’t choose a 30-year fixed, we’re also going to talk about situations where a 30-year fixed might be tempting. We’ll also talk about the only circumstances that might actually make the 30-year fixed your best option.

 

How the 30-Year Fixed Compares

Let’s crunch the numbers to show you exactly why a 30-year fixed is literally the worst option you could choose. Since we specialize in VA loans, we’ll be including the VA hybrid ARM as one of your options. If you are not eligible for VA loan benefits, you can still get a conventional ARM that is similar but not as good as the hybrid ARM. So, for this comparison we will be pretending that you are buying a home for $200,000, not making a down payment, are paying closing costs upfront, and are getting today’s mortgage rates. We’ll show you how the numbers go with a 30-year fixed, a 15-year fixed, and a 3/1 VA hybrid ARM. First we’ll take a look at the available interest rates.

 

For the record, interest rates right now are insanely low. Even with how low-interest rates on a 30-year fixed are, they are still the highest option. If you live in Salt Lake City, as of today, your lowest interest rate offer on a 30-year fixed is 3.87%. On a 15-year fixed, you could get as low as 3%, and on 3/1 VA hybrid ARM, you could get a starting rate of 2.25%. We won’t talk too much about the ARM in this article, but you should know that the VA hybrid ARM is actually really awesome, and it’s very likely that the hybrid ARM is the best loan option for you. Just comparing interest rates across the board, though, you can see that the 30-year fixed gives you the highest interest rate.

 

Unfortunately, 30-year fixed rates not only charge a higher interest rate, they also charge that rate for twice as long as a 15-year fixed! So not only are you paying more in interest each month, you’re paying it for twice as many months. It’s like a double whammy of horribleness. So how do the numbers play out over the life of the loan? It’s hard to estimate the ARM since it adjusts and there’s no way to predict how rates will change over time. For the 15-year fixed and the 30-year fixed, however, it’s very easy. On a 30-year fixed on a $200k home, you’ll pay $138,366 in interest over the life of the loan. In other words, you’re paying $338,366 for a $200k home. Want to know what makes that even worse? Because of amortization, you’re paying most of that interest in the early years of the loan. Since you will almost certainly refinance or move every 5-6 years, it’s very likely that you will never reach the point where you’re paying more towards principal each month than interest – even with a historically low-interest-rate like 3.87%.

 

Now let’s take a look at the 15-year fixed. You can get a straight 3% interest rate on a 15-year fixed. How much of a difference does that make? Nearly $100,000 of difference. On a 15-year fixed you’ll pay $48,610 of interest on a $200k home. Still a lot of money, sure, but compared to $138,366? That’s a no-brainer.

 

Many people think that their monthly payment will double if they go from a 30-year to a 15-year, but this is not the case. The monthly payment will certainly be higher, but most of that is added principal. Most of the times that I have compared specific home prices and interest rates between 30-year and 15-year options, I have found that the 15-year monthly payment is usually about half-again the payment on the 30-year. So if the 30-year payment is $900, the 15-year will usually be around $1,350 (900/2=450, then 450+900). This can change a lot depending on the different interest rates offered at each term.

 

We didn’t talk much about the ARM, but the ARM usually beats the 15-year fixed, regardless of whether you refinance or move every few years or stick with it. Check with one of our loan officers to learn more about the ARM or the 15-year fixed.

 

FAQ; What is a Deed of Trust

What is a deed of trust?

“In real estate in the United States, a deed of trust or trust deed is a deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan (debt) between a borrower and lender. The equitable title remains with the borrower. The borrower is referred to as the trustor, while the lender is referred to as the beneficiary.”

Wait a second. Now,wither or not that is clear for you, it is an amazing feeling to go into something or situation with a knowledge base. No one likes feeling like they are making a decision without the facts. Worse yet is when you feel like you are agreeing without knowing a process that could come back yo cost you more than you anticipated. For that reason, let’s talk about a few things here. First of all how does it relate to a VA Loan?Here we will describe the differences and similarities with a Mortgage.

We try to help you understand the basics so you know what you are doing as you go through the Loan Process. Know what you are getting into and how to get the most out of your VA Loan.

Hybrid Mortgages & The CMT Index

VA Hybrid mortgages (like most adjustable-rate mortgages) use the Constant Maturity Treasury index. Often abbreviated as the CMT index, this measures the one-year yield of recently auctioned U.S. Treasuries. From Investopedia: This article will help you get a more in depth understanding on how a VA hybrid loan works. VA Hybrid mortgages could save you a lot of money and are definitely something to consider. Understanding the CMT index and how it works with VA arm loans will help you make a better educated decision.

A Closer Look at Hybrid Mortgages & the CMT Index

The interpolated one-year yield of the most recently auctioned four-, 13- and 26-week U.S. Treasury bills, plus the most recently auctioned 2-, 3-, 5- and 10-year U.S. Treasury notes as well as the most recently auctioned U.S. Treasury 30-year bond, plus the off-the-runs in the 20-year maturity range.

Index and the ARM

For the purpose of ARMs, the CMT index for the past year is calculated each day (on a rolling 365-day basis). To calculate the 1-year CMT, the U.S. Treasury takes all the daily performances for the last year and averages them, which takes a lot of the volatility out of the index, making it a lot more predictable and mild for borrowers who are wondering where their loan will adjust in the coming year. While some adjustable rate mortgages have the option of using a different index, all VA ARMS are tied to the CMT index and cannot use a different one.

 

Understanding constant maturity isn’t really very important for understanding your VA loan, but for your information, here is the definition from Investopedia:

An adjustment for equivalent maturity, used by the Federal Reserve Board to compute an index based on the average yield of various Treasury securities maturing at different periods. Constant maturity yields on Treasuries are obtained by the U.S. Treasury on a daily basis through interpolation of the Treasury yield curve, which in turn is based on closing bid-yields of actively-traded Treasury securities. Constant maturity yields are used as a reference for pricing debt securities issued by entities such as corporations and institutions.

 

The CMT index is always fluctuating, but it has been extremely low for several years now, and as of the week of the writing of this article, is sitting at .12%. Considering that the index is added to the margin of the lender, and that Low VA Rates is offering either a 2% margin or 2.25% margin (depending on what your starting rate is), that means your rate after your fixed period could be as low as 2.12%. That’s a pretty fantastic rate, considering the best you could reasonably expect on a VA fixed-rate mortgage is 3.75%, and probably higher.

 

The margin that the lender charges is essentially how they make a profit. The full term is “profit margin”, The CMT index measures risk-free securities (hint: not mortgages), therefore, as lenders use the CMT index to calculate interest rates on securities that are not risk free (e.g. homes), they need to pad the index with a profit margin to protect themselves from the risk. If you’re interested in learning more about the CMT index, other indexes, or investing in general, feel free to check out the links above to investopedia, or give us a call here at Low VA Rates, and we’ll be happy to address any questions you have related to the VA loan program.

 

VA ARMS

VA ARMS comes in several flavors. It’s hard to simply list what kinds of hybrid ARMs are out there, because there’s more than one set of options to choose from. You can choose how long the note rate lasts, you can choose what note rate you want to start with and thus what margin you’ll be offered after the fixed period expires, and you can choose how you want to use your hybrid loan to work best for your goals. First, we’ll cover the differences between the note rate terms, then talk about how the note rate and margin work together, and then we’ll cover different ways you can use your hybrid ARM to make it the most appropriate for your future plans.

 

ARM VA Loan TypesVA ARM Loan Options

There are many Hybrid ARM myths out there but VA ARMS are actually a great loan option in the right situation. Understanding which Hybrid arm is right for you is the first step. There are many VA ARMS to choose from, you can choose between a 3/1 hybrid ARM and a 5/1 hybrid ARM. What am I talking about? Well, the first number (either 3 or 5) is the number of years that your interest rate remains fixed. The second number (“1” in both cases), indicates the maximum amount that the interest rate can be adjusted each year following the fixed period. So for a 3/1 hybrid ARM, the initial interest rate will remain fixed for 36 months, then will adjust by no more than 1% each year, while a 5/1 hybrid ARM will remain fixed for 60 months, then adjust by no more than 1% each year. Which one you choose depends on a number of factors, not least of which is how long you intend to remain in the house. You are able to refinance at any time, and since the IRRRL allows you to roll closing costs into the loan amount, you can really do an IRRRL anytime you want to. Remember though, that the lender may likely offer you a better starting interest rate and margin on a 3/1 hybrid ARM than a 5/1. You’ll want to speak with the VA-approved lender you’re planning on working with to find out.

Next, once you’ve chosen whether to go with a 3/1 or 5/1, you will likely be presented with at least two options on what you want your starting note rate to be. The note rate is the fixed interest rate used during the initial period of the loan. You may think that you definitely want to choose the lower option, but that may not be the case. Often, lenders offer a lower margin (one component of how the interest rate is calculated after the fixed period) in exchange for a higher note rate. For example, on a 3/1 hybrid ARM, Low VA Rates offers to note rate options: a 2.25% and a 1.75%. The margin paired with the higher note rate is 2%, while the margin paired with the lower note rate is 2.25%. Which one ends up saving you the most money? It’s a numbers game, and any of our loan officers would be more than happy to work it out with you to decide which is likely to be your best option.

Choosing the Right VA ARMS

As far as the “official” options that you can choose from, that about covers it. However, you have a lot of options in how you handle your hybrid ARM once you have it. Are you planning on selling your home and moving in the next 5-7 years? Not selling but hoping to refinance soon? Hoping to keep the loan and not need to move or refinance until the loan is paid off and the home is yours? Depending on your answers to those questions, you can decide if you want to use the money you save each month (from having a smaller mortgage payment) to pay off extra principal on the house, improve the house, or spend it on something else. If you’re planning on selling the house, you may want to put that money towards improving the home to increase its sale value. You can also pay off principal faster to save yourself interest in the short run, but putting the extra money towards principal gets much more beneficial after about 7-8 years, since that’s when it starts to take a noticeable chunk out of how much interest you’re being charged. Perhaps, if you’re only planning on being on the home for a few years, you just want to take advantage of the lower monthly payments and have $200 more fun-money each month. It’s all up to you.

 

FAQ; No Cost Loan| Low VA Rates

 

Can I Do a No-Cost-at-Closing Loan?

No Cost Loans

Wouldn’t it be wonderful if you could just say, “I’d rather not pay for any closing costs.” and your lender just shrugged and said, “Alright, then. Don’t worry about it”? The good news is that you can totally do that! The bad news is that it’s not as simple as just getting your closing costs waived. You have a few options as far as finding a way to not pay your closing costs. The first option is to work with your seller on some concessions, and the second is to work with your lender on negotiating a higher interest rate in exchange for them covering your closing costs. You also need to consider when it’s a smart idea to do so and when it’s best to just stomach the cost.

 

The VA permits the seller (or any other party, for that matter) to pay as much on behalf of the borrower as they so desire. In other words, a seller can completely pay for a VA borrowers closing cost if the buyer can convince the seller to do so. Seller concessions of this nature are actually fairly common. Sellers often just want to get enough out of their home to supplement their down payment on their new home, and they are often willing to miss out on more cash above and beyond that amount in exchange for being able to sell the home quicker. In many cases, the seller has already moved and is under serious strain trying to make two mortgage payments. If you are using a real estate agent, see if he or she has tried negotiating for that concession, and if not, see if it’s an option. Having the seller pay for closing costs is free money for you with no penalty, and it’s the most advantageous way to get a loan with no upfront cost. It’s not the only way, however.

 

VA-approved lenders will almost always be willing to negotiate a higher interest rate in exchange for lower closing costs. Some lenders, including Low VA Rates, are willing to go as far as it takes to completely remove closing costs. It doesn’t generally take as far as you might think. Since getting your closing costs taken out makes your interest rate go higher, you’ll obviously feel the bite of that decision over time, and therefore we generally recommend that you don’t eliminate closing costs unless you are planning on moving or refinancing within 12-18 months. You certainly don’t have to do so, but once you’ve gone longer than 18 months, the increased amount of interest that you’ll be paying is enough that it would have been far better to just pay the upfront closing costs.

Finding your Financial Freedom

Obviously, in a perfect world, you’d have all the money you needed to pay for closing costs with no problem. As it stands, you’re usually better off paying as much of closing costs as you can, and only taking as high of an interest rate as you absolutely have to to get closing costs down to where you can afford them. You may be surprised, however, at the tricks we can pull out of our hats here at Low VA Rates to get you very good loan terms and not have you pay any closing costs. If closing costs are something you’re worried about, and you truly need to do a no cost loan, definitely talk to us about it and see what options we can offer you.

 

Everything above has to do with a new purchase loan, but you may be pleasantly surprised to learn that the VA’s streamline refinance option, the Interest Rate Reduction Refinance Loan (IRRRL), can be done with zero money down, because the VA allows you to roll all of the closing costs (including the VA funding fee) into the loan amount. In this way, you can get your VA loan with no money down now by getting a higher interest rate, then refinance with an IRRRL in a year from now with no penalty for rolling closing costs into the loan and get a much better interest rate. Feel free to bring any questions up with us here at Low VA Rates.

 

FAQ; What Causes Closing Costs to be High

Why Are Closing Costs so High?

 

This is an extremely frequently-asked question. Unfortunately, there’s not really a clear, specific answer. If you’re looking for an explanation of the various charges that are included in closing costs and how expensive each one usually is, then I would highly recommend the article for the FAQ “What are the Closing costs?”. In that article, we talk about the largest things that are included in closing costs and what they’re for. That will likely address that question as much as you need. If, however, you’re wanting to know why each of those items are so darn expensive (e.g. the funding fee, discount points, etc.), we’ll do our best to cover that here.

 

The funding fee may seem expensive, but it’s actually not too bad when you understand that it serves the same purpose as mortgage insurance on FHA loans and costs you a fraction of the amount of money. Mortgage insurance on FHA loans can easily cost you upwards of $10k every 5 years, while the funding fee is only going to be 2.15% of the loan amount as a one-time payment (Usually in the realm of $3k-$6k). The VA charges as little as they can for the funding fee and still minimize the burden of the VA loan program on taxpayers. While a significant chunk, however, the funding fee is far from the only thing that goes into closing costs.

Cutting and Eliminating Closing Costs

Many people wonder why discount points on interest rates are so expensive. This is largely a matter of perspective, because usually it’s a pretty fair trade. Considering that generally the break-even point of paying discount points (the point where you’ve saved as much money on interest as you spent on the discount points) is around 5 years. The lender is accepting 25 years’ worth of less money in exchange for a relatively small amount of money now. Any way you slice it, at 1% of the total loan amount, the cost of a discount point is quite small in relation to the loan. The lender charges such a small amount for discount points because they would rather be guaranteed the money right now than take a risk on receiving that money later.

 

A lot of closing cost expense comes from the involvement of title companies (they costed my wife and I $2k when we bought our house last year, and I didn’t feel that they actually offered me any real value). You can thank the government for that, since the government requires that a licensed third party (the title company) mediate the loan closing between the lender and the borrower. Regardless of whether one believes the government requiring the use of a title company is a good or bad thing, it is one of the things that adds a pretty penny to closing costs.

 

If your question has more to do with Low VA Rates specifically, we can assure you that we strive to offer very low cost and rates. In fact, we have an ongoing promotion that offers you $250 for finding a VA-approved lender that offers lower costs/rates than we do. If you have found a lender that does just that, please contact us to find out how you can get your $250. If you’re wondering how you can keep your closing costs down as much as possible, let us know at the beginning of the loan application process, and we’ll write up a loan that emphasizes lower closing costs. In many ways, the VA loan program exists because getting a home loan is so expensive, and as such we have a lot of flexibility to make sure that you get the terms that meet your own needs as effectively as possible.

 

Like most things that seem unreasonable at first, closing costs are the way that they are for a reason. Sure, lenders, Fannie Mae and Freddie Mac, and even the investors and companies that purchase the loans, could probably survive with less profit from each individual loan, but it would take someone with more detailed understanding of the process than I have. For you, right now, it’s best to focus on what you can do to make your own costs as low as you need them to be.

 

FAQ; What’s a Hybrid ARM

 

What is a VA Hybrid ARM?

VA ARM Definition

This is a great question, and it touches on one of the coolest options you have when you’re looking into getting a VA loan. To explain what a Hybrid ARM is, we’re going to work from the ground up to make sure we’re all clear on the terms that we need to know before we can understand what a Hybrid ARM is. First, we’ll cover the different types of interest rates you can choose and what they mean. Then we’ll go into how a hybrid ARM works. Last, we’ll explain why hybrid ARMs can actually save borrowers a big chunk of change most of the time even though most people have a negative impression of ARM loans and hybrid ARMs.

 

So, when you’re getting a VA loan, you can choose to get a fixed-rate mortgage, an adjustable-rate mortgage (ARM), or a hybrid adjustable-rate mortgage (hybrid ARM). The names give fairly accurate definitions themselves, but we’ll cover them each specifically. A fixed-rate mortgage is where you get locked into a rate at the time of application, and that rate stays the same for the life of the loan regardless of what the market does. An adjustable-rate mortgage is a type of interest rate that adjusts with the market. Lenders will generally offer lower interest rates on an ARM and as they fluctuate they will generally be slightly lower than what fixed-rate borrowers are being offered at the time. A hybrid ARM is a loan type that remains fixed for a certain number of years (usually 3-5) and then begins to adjust annually after that.

 

You may have heard the phrase, “the devil is in the details”. In this case, it’s the angel that’s in the details because it is the details that make the hybrid ARM such an awesome option. A VA hybrid ARM starts out with a fixed rate, often called a “note rate”. Right now, Low VA Rates is offering two note rates: 2.25% and 1.75%. That rate stays the same for 3-5 years. After the fixed period is over, the note rate is scrapped and your new rate is calculated by adding together the margin the lender offers and the CMT index. Low VA Rates is currently offering a 2% margin if the borrower takes the 2.25% note rate, and the CMT index is currently at .13%. So a borrower who is finishing their 3-year fixed period around now will go from their 2.25% note rate to a 2.13% interest rate for the next year. You are reading that correctly – their rate will actually drop. Are you ready for some more angelic details?

 

VA Hybrid ARMs can only adjust once per year and they cannot adjust by more than 1% each year. Over the life of the loan, the interest rate cannot rise more than 5% from where it started. So in the above example, at a starting rate of 2.13%, that borrower can never have an interest rate higher than 7.13%, and it would take a minimum of 5 years to do so. So, to be clear, for the first three years, you could be at 2.25% (conventional loans for people with good credit are hanging out at around 4.5% right now), then for the fourth year, your rate would drop to 2.13%, then even if the market shoots up and your rate really does rise a full 1% each year, in the 5th year it would be at 3.13%, in the 6th year 4.13%, and only in the 7th year would you finally be paying more (and not that much more) as a person in a fixed-rate mortgage has been paying for the past 6 years. By that time, you’ve saved a bundle of money and have gotten through the years in which you would normally be paying the most interest with a hefty discount.

 

Since monthly payments are so much lower on a hybrid ARM for at least the first 5 years, and likely longer, many borrowers pay the same amount that they would have paid on a fixed-rate mortgage, which means they end up paying off a chunk of extra principal each month. This has two effects: you pay off your loan much faster, and you pay a lot less in interest. For more information on what a hybrid ARM is, you can check out the short ebook here on our website, or you can contact us via phone or chat!

 

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