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.

 

Conclusion

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.

 

VA Home Loans: Common Questions and Answers

Buying a Home is a big deal, one of most important events and decisions in a person’s financial life. There are probably a hundred questions to be answered about securing a loan for that new home. For military veterans and current service members wanting to exercise their VA home loan entitlement, several questions come to the front as they ramp up for this big event.

You might be surprised at how easy it can be to get your veterans mortgage financing. VA mortgage interest rates are still at historic lows.

Q. What can I use the VA-guaranteed loan for?
A. To buy a home, either existing or pre-construction, as a primary residence, or to refinance an existing loan.

Q. What are the benefits of a VA-guaranteed loan?
A. This is going to require a list!

  • No down payment (unless required by the lender or the purchase price is more than the reasonable value of the property)
  • No mortgage insurance
  • Equal opportunity for all qualified Veterans to obtain a VA loan
  • Reusable
  • One time VA funding fee that can be included in the loan
  • Veterans receiving VA disability compensation are exempt from the VA funding fee
  • VA limits certain closing costs a veteran can pay
  • Can be assumed by qualified persons
  • Minimum property requirements to ensure the property is safe, sanitary, and sound
  • VA staff dedicated to assisting veterans who become delinquent on their loan

Q. Who is eligible for a VA home loan?
A. Generally, the following people are eligible:

  • Veterans who meet length of service requirements
  • Service members on active duty who have served a minimum period
  • Certain Reservists and National Guard members
  • Certain surviving spouses of deceased veterans

Other people are also eligible. Check eBenefits  or contact the VA Eligibility Center at 1-888-768-2132.

Q. What are the underwriting requirements?
A. Here are some of the principal requirements:

  • No maximum debt ratio; lender must provide compensating factors if debt ratio is over 41%.
  • No maximum loan amount; however, VA limits its guaranty to $417,000 without a down payment in most of the country.
  • Published residual income guidelines to ensure Veterans have the capacity to repay their obligations while accounting for all living expenses.
  • No minimum credit score requirement; instead VA requires a lender to review the entire loan profile to make a lending decision.
  • Complete VA credit guidelines are published at www.benefits.va.gov/warms/pam26_7.asp .

Q. How do I get the process started?
A. Start by downloading the required forms.

VA provides policy, guidelines and oversight of the program. Lenders provide financing for eligible Veterans. The guaranty allows Veterans to obtain a competitive loan without a downpayment. Lenders need a Certificate of Eligibility (COE) to prove your entitlement. Most Veterans can obtain the COE online through eBenefits (www.ebenefits.va.gov). Lenders also have the ability to request the COE on your behalf.
The VA appraisal is not intended to be an “inspection” of the property. Get expert advice from a qualified residential inspection service before legally committing to a purchase agreement. Veterans are also encouraged to have radon testing performed.

Q. Is there any possibility of getting a VA loan if I’m having trouble on my current mortgage?
A. VA loan technicians are trained to help Veteran borrowers retain their homes and avoid foreclosure. You can call toll-free 1-877-827-3702 to speak to a VA loan technician.

If you have questions concerning your military qualifications for a VA mortgage loan, you can contact the VA directly. For those living in the Intermountain West and Pacific Northwest, the VA Regional Loan Center is in Denver. Here’s how to contact them:

Department of Veterans Affairs
VA Regional Loan Center
155 Van Gordon Street
Lakewood, CO 80228
(Mail: Box 25126, Denver, CO 80225)
1-888-349-7541

 

Get Started With Your VA Loan Today

Mortgage Rates at Record Lows

Don’t sleep through the opportunity of a lifetime! I’m talking about acting on this simply astounding historical opportunity to get a VA refinance home loan. What makes this opportunity historical is the record low VA home mortgage rates. About 75% of mortgage applications last week were for refinancings, according to the Mortgage Bankers Association. The low rates are projected to draw even more buyers into a housing market that has already heated up considerably.

“The housing market is getting a boost, with mortgage rates hovering at or near record lows,” said Frank Nothaft, Freddie Mac’s chief economist. According to CNN, he noted an increase in the rate of existing home sales to nearly 5 million a year during the first quarter of 2013, which is the most since the fourth quarter of 2009.

Maybe you are already in a comfortable mortgage situation. But is there something sort of moving around in the off-stage portion of your brain that keeps ringing the bell for you to find out if you might improve your circumstances? It does not hurt a bit to just run a quick check on your VA loan numbers.

Of particular interest to you should be the low 15-year rate, where you can benefit from substantial savings by refinancing from their current 30-year fixed rates. This strategy isn’t going to work for everyone, but it offers some very attractive possibilities to certain homeowners, for example, those having a 30-year VA home loan with an interest rate at 4.75 or higher and 20 years or more left on the loan.

These are exciting times for veterans looking to take advantage of their VA mortgage loan and VA refinance options. Let’s run the numbers for a veteran home loan owner with a current 30-year VA home loan of $100,000 at 5% interest. Refinancing with a 2.6 % 15-year loan means your interest payment will be around $21,000 for every $100,000 borrowed over the course of the loan—compared with more than $93,000 in interest on the 30-year loan. (On your 15-year VA refinance you pay only 22.6 % of the interest that you would have paid with the 30-year loan.)

Low VA Rates is one of only a few lenders in the nation allowing veterans homeowners to refinance a VA home loan without an appraisal, AVM (Automated Value Method) or FICO score requirement.

“We have a unique situation where we are basically able to refinance any veteran with a VA home loan,” owner of LowVARates.com, Eric Kandell said. “With the rates as low as they are right now we have helped hundreds to thousands of veterans with subpar credit get locked in at lower interest rates.” LowVARates.com actually specializes in working with veterans whose credit scores are lower. They have helped many veterans get into homes with credit scores 150 points lower than what other lending institutions were requiring.

Here’s more good news for you: home appraisals are standard procedure for veterans looking to purchase or refinance their home. LowVARates.com does not require an appraisal to refinance an existing VA loan, saving the typical borrower from $400-$500.

One thing is certain: you won’t know how you can personally benefit from record low-interest rates and the accommodating policies for veterans mortgage loans at LowVARates.com unless you reach out and see what can happen!

Get Started With Your VA Loan Today

How Not to Sell a VA Loan

I do not view myself as a salesman. I think the secret to “selling” a loan or anything else for that matter is simpler more honest than many may think. If I do nothing more than push an interest rate, then “I” am not selling anything; only the rate is. Too often many of us are conditioned to chase low-interest rates simply because the perceived wisdom tells us to. In fact, there is no “one size fits all” loan program, rate or fee structure. Realizing this, helps us better serve our VA loan clients, helps our veteran clients make more sound decisions, and establishes a relationship of trust between the veteran and their loan officer.

I can see how reading this title at first might lead one to think this post was meant for people who work with or for me. I share this here to give my veterans an insight into my personal philosophy and how when it comes to giving a veteran the best deal and best service I can, our interests are more closely aligned than one might think.

7 steps to take on every VA loan.

1. Get the data and identify the veteran. This information gives a context to a veteran’s motivation for investigating a loan. Sometimes a veteran is unaware of the best option or, in some cases, convinced an alternate option is better than what you suggest. This helps frame basis of your advice. Questions might include: How much debt do you have, how much do you owe on the home, what is your payment.

2. Find out the veterans goals – This can be open-ended: What are your intentions with a potential VA refinance? Or pointed requiring a yes or no answer:

· “Are you looking to free up money to pay down other debts?”

· “Are you looking to free up money to supplement your income?”

· “Are you looking to pay the home off faster?

3. Check the time – “What is the minimum amount of time that you are sure you will own the home?” This question provides scope to the mortgage options you present.

4. Run the numbers & create a plan – At its most essential, a refinance is an investment. You agree to pay/add a certain amount of closing costs in exchange for incremental savings over time. When the cumulative amount you have saved has equaled the costs of the refinance, you have achieved the “breakeven point” in the loan. From this point forward any savings experienced are now “true” savings. The optimum quote will be one where the loan program, rate and fee combination saves the veteran the maximum amount of money between the “breakeven point” and the end of the length of time they were sure they would own for.

5. Identify the risk – By determining the potential risk, advantages and drawbacks of the various options available you alleviate unknowns. Unknowns create uncertainty, and uncertainty prevents good decision making. A fixed rate loan is often thought to be the safest loan available, but not necessarily for someone who has a large amount of higher interest rate credit debt. By taking a VA Hybrid ARM, the veteran might save significantly more. Since credit cards calculate the interest rates on the ending monthly balance, the faster one pays off credit card debt, the more money they free up each month. I have often been able to show veterans how paying off credit card debt faster can free up enough money to offset the maximum “worst case” rate/payment they could ever reach on the loan.

6. Clarify details and explain the options – encourage the veteran to ask questions. It is often the case that veterans object to the Hybrid ARM simply because it is an ARM. To disregard all ARM loans simply because of the ARMs with unfavorable terms that have hurt many homeowners is like refusing to ever drive a car simply because Toyotas are currently being recalled.

7. “You sell ME.” – If a loan officer has completed the preceding steps perfectly, then a sale is no longer the issue. Once you have devised a plan that best meets their goals, mitigates their fears and ultimately saves them the most money, you are talking about common sense. Though I don’t directly ask this of my veterans, my philosophy is “you sell ME as to why you shouldn’t do this.” In my experience, following these steps through with this approach helps the veteran arrive at a clear and meaningful decision.

Veterans have many loan options and there are many lenders and brokers who they could work with and may even be able to offer the same deal you can. Following these simple rules help me to distinguish myself among the choices, and hopefully earn their business.

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