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.

Mortgage for Active Military

If you’re on active duty, you’ve probably spent a good deal of time wondering whether it’s worth it to buy a house at your current station. The answer to that question might depend on whether you are married and/or have dependents, but it also depends on what your options for mortgages are.

A person in the active military has very different circumstances than any other person looking to buy a house, and so there are some things to consider when you’re looking at buying a home that will make a big difference in your experience and the effects the purchase has on your finances. We’ll talk about three tips to make sure you choose the right mortgage option for your situation.

Definitely, Absolutely, Positively Use Your VA Loan Benefits

VA Honors Military ServiceVA loan benefits are fantastic for any VA-eligible borrower, but there are some awesome things in the VA loan program you can utilize that solve the exact issues that an active military borrower runs into.

First is the IRRRL (Interest Rate Reduction Refinance Loan). The IRRRL is a refinance option that you can use to keep your home financed with a VA loan even after you’ve moved out. This can be very helpful if you decide not to sell your home when you receive PCS orders. IRRRLs can be closed on with literally $0 out of pocket and do not require you to be still using the property as your primary residence.

Second is the VA compromise sale. When you get PCS orders, you often need to move fast, and if you bought a home, this can make life pretty difficult. For many military homeowners around 2008, this became financially devastating to them because they could not sell their homes for as much as they still owed on them. The VA compromise sale is where the VA steps in on a short sale and makes up the amount owed to the lender. You will still lose out on any equity you’ve put in the house, but at least you won’t be at the lender’s mercy to let you out of your mortgage without taking your savings or car. These protections are only available if you are using a VA loan to finance your home already.

Consider the Hybrid ARM

Hopefully, you’ve been convinced to use your VA loan benefits. If not, give us a call, and we can give you more reasons why it’s probably in your best interest to do so.

Once you’ve decided to go VA,  you still have to decide which loan option to go with.

The VA hybrid ARM can be particularly useful for borrowers that are still active military. Why? Because you can get an ARM at an extremely low rate that is fixed for the first 3-5 years, by which point you may not even live there anymore.

Even if you do still live there when the fixed period is over, the VA hybrid ARM can only increase a maximum of 1% each year and cannot increase more than 5% over the life of the loan, so you have strong protections from radical fluctuations in the interest rate.

Not only that, but thanks to reamortization, your monthly payment might still go down even if your interest rate goes up. Ask one of our loan officers what the heck I’m talking about. A VA hybrid ARM will get you an insanely low interest rate, and it’s likely to be for as long as you’re going to live in that home.

Always Refinance with an IRRRL

Chances are, you’re not going to stay in your current house long enough to build up a substantial amount of equity anyway, let alone stay there long enough to enjoy the fruits of spending that equity on improving your house.

Since you really won’t ever need cash back, if and when you refinance your home, do so with an IRRRL. The VA Funding Fee is much, much lower on an IRRRL than on a normal refinance, you are allowed to roll closing costs into the loan if you wish, and you can get the entire refinance done from start to finish in as little as 10 days if you’re prompt in providing information to the lender.

A Note on Buying a House at Your Current Station

There’s a lot to consider when you’re looking at housing for you and your family at your new station. Financially, you need to keep Serving from afarin mind that it costs money to buy a home beyond the down payment and the monthly payments. Closing costs are mostly made up of money that doesn’t go into your equity; they’re essentially an entry fee into homeownership.

Is buying a house the best thing that you can throw $10k at right now? The answer may very well be ‘Yes’, but it may also be ‘No’. Finances aren’t the only thing to consider, however. Your family may very well need things that only a house can offer, and there may not be any good rentals that fit your needs.

Each situation is different. Give us a call if you’d like help deciding what would benefit your situation most.

 

VA Home Loan Milestones

You have to wonder how many times in life we pass up tremendous opportunities to progress for timidity. Timidity is akin to fear—we tend to fear the unknown. How many times are we robbed of significant advancement because we lack understanding or because we hesitate for the unknown?

 

Using your Veterans or military service entitlement, you have the chance to get into your own home. To most people, the task of getting into a home seems complex, stressful, and distant. It will surprise you to know that the process of qualifying for a VA home loan is simple and direct.

 

The truth is, getting into your home is a huge event.  Your journey should be one of hope and happiness. The experts at LowVARates not only know how to keep focus on the joy of the journey, they have the experience to guide you through the process to its completion.

 

Keeping it simple, then, here are the steps to the VA Loan Process:

  1. Prequalify with LowVARates.

The security of any adventure is in knowing you have a trusted partner. Finding experienced VA loan specialists is half the battle. The collective experience of the loan specialists at LowVARates is a decided advantage on your journey to home ownership. Don’t allow your inexperience or doubt be a factor here. We specialize in helping you find a way.

Start by giving us a call. Our loan specialists know exactly the information needed to qualify for a home.  If the time is not presently right, we can tell you the steps to take so that you will qualify.

  1. Getting Pre-approved.

LowVARates will take your personal information, and with professional precision determine if you can qualify for a veterans mortgage loan.  We have a long history of helping homeowners qualify for their home loan. You can be confident that LowVARates will have your loan package filled out and representing you to your greatest advantage.

The VA has specific requirements for you to meet. So expect to do your work.  We can help tee it up for you, but the swing is still yours to take.

Here are some of the documents you will need to provide:

  • Current pay stubs.
  • Tax returns and W2s
  • Employment history
  • Bank/Investment statements
  • Evidence of real estate assets

(*Here is a slightly different list of documents for streamline refinance loans.)

  1. Find Your Home.

You might have your home already picked out. Or, you might not know where to even start. LowVARates can help here as well, helping you find a reputable realtor who will listen to you and help you locate the property and neighborhood you want to live in.

  1. Make an Offer.

When you find that perfect home, you will make an offer on the home and negotiate a contract with the seller. Because we understand the VA home loan market and process, we can help you arrange the contract so you do not need any money down, if that is how you want to proceed.

Because VA loans do not require mortgage insurance, you can qualify for more home on your budget. We will help you structure the details to your greatest possible advantage.

  1. Processing and Closing.

The VA requires homes to be ready for move in.  The burden to have the home move-in ready lies with the seller. The person that determines move-in ready is the appraiser.  The appraiser’s job is to make sure the home is to verify the value of the home and to make sure it is in good repair. The appraisal protects you and protects your lender.

Once you are under contract to purchase your home, the loan documentation goes to an underwriter for review.  The underwriter verifies financial information and all other required documentation; he also ensures the loan meets VA requirements.

When your loan is approved, a closing date is scheduled, where you will review all information and sign the required documents. This will finalize your VA home loan and you can then take ownership. What a banner day!

VA Loan Assumptions for a VA-Eligible Parent’s Home

VA loan assumptions are a major gray area for many borrowers. There’s not a lot of widespread understanding on this topic, and yet to some it is one of the most advantageous things about the VA loan program. A common question about VA loan assumptions comes from the children of parents who used their VA benefits to purchase their home. Often, the parents pass away before the home is fully paid off, and one of the children inherits the home, which is financed with a VA mortgage. The child wants to know if they can assume the VA loan, who they can contact if that is the case, and what fees to expect in order to assume it. The first clarification is that yes, VA loans are assumable, but has to be done in coordination with the lender, and may be required to get VA approval in order for the assumption to take place.

VA Pamphlet 26-7 provides guidance on VA loan assumptions and what is required for them. It states that for any loans after March 1st of 1988, the transferring (or assumption) of a loan needs to be approved by the lien holder if they have automatic authority. If the lien holder doesn’t have automatic authority, then they have to send it up to the VA for the underwriting process. From the Pamphlet: “Transfers of ownership on properties securing loans for which commitments were made on or after March 1, 1988, must have the prior approval of the loan holder or its authorized servicing agent if either of them have automatic authority. If neither the holder nor the servicer has automatic authority, the servicer must submit a credit package to VA for underwriting.”

The Pamphlet also provides instructions to the lender about how to carry out the VA loan assumption. For a seller trying to have someone assume their loan, they must apply for approval before any transaction takes place. If the lien holder has automatic authority, then the lien holder assesses the application and makes sure that the request complies with all of the requirements for a VA loan to be assumed. Where the lien holder has no automatic authority, the VA takes over. The text from the Pamphlet: “A seller must apply for approval of the transfer prior to completing the sale. Servicers and holders with automatic authority must examine the application to assess compliance with the provisions of 38 U.S.C. 3714. VA will make the determination in a case where neither the servicer nor the holder has automatic authority, following receipt of a complete application package from the servicer.”

For the loan to be assumed, it needs to be current (on track with its payments). If it’s not current, it needs to be brought up to being current before the assumption can take place. Also, the person that will be taking over the loan needs to have sufficient credit to qualify. While it may not always be the case, it is always safe to assume that the new borrower needs to be in a credit situation that would allow them to make a new purchase of a home for the same value as the loan they are assuming. Additional restrictions on or requirements for new borrowers assuming a loan may vary lender to lender, but will always center around making sure that the chances of default on the loan do not increase with the assumption. If you’re considering assuming a loan, or letting someone assume your VA loan, make an appointment with your lender and discuss their expectations for a VA loan assumption. You’ll be glad you did.

If the assumption is able to take place (it’s approved by either the lender or the VA, depending on if the lender has automatic authority), there will be fees associated with the assumption. The fee can be collected in advance of the assumption, and is dependent on whether the lender has automatic authority. The fee may vary slightly from lender to lender and even from assumption to assumption, but the maximum fee that can be charged by a lender with automatic authority is $300 plus what the credit report actually costed. If the lender has no automatic authority, then the maximum fee that can be charged is $250 plus the actual cost of the credit report.

The Differences You’ll Find Lender to Lender For Your VA Loan

There is often a lot of confusion surrounding the nature of VA loans. Many mistakenly believe that simply being eligible for a VA-guaranteed loan means that they will be able to get one. The VA forces no lender to offer or approve any VA loans, so it may be hard to find a good lender that will approve your application for a VA loan. There are a lot of differences between lenders, and it’s important to find a lender that will treat you the best, has the lowest fees, and that you can get along with. It’s important to know what differences you can expect lender to lender so you can discern which lender is best for your loan. The most important differences you’ll find lender to lender are what types of VA loans they’re willing to approve, the fees they charge for their loans, and of course their personality and the culture surrounding their office.

First, the difference between what types of loans they are willing to offer. The VA offers plenty of different options for VA loans. Everything from purchasing an existing home, building anew with a construction loan, buying a manufactured home, buying a condo, buying a multi-unit home, to combining the VA loan benefits of two eligible veterans, having a non-veteran co-sign with a veteran on a loan, and even more options. However, for all these options offered by the VA, lenders are not required to offer them, even if they are a VA-approved lender. Many times, lenders or banks will choose to temporarily suspend one or more types of loans because of what the housing market is like. Currently, a VA-eligible borrower will find it very difficult if not impossible to find a VA-approved lender that will approve a new VA construction loan because of the higher risk involved and the current market.

It may also be difficult now to find a VA-approved lender to do a VA loan for a manufactured or mobile home. Reasons for this vary, and it may be worth asking a lender why they choose to not offer some types of VA loans. Often, their answer will be very enlightening. While these options may be difficult to utilize now, it doesn’t mean that they’ve gone away and will never come back; there may come a time when construction loans are the cat’s meow. For a prospective home-buyer, it’s best to approach the market with an open mind even if they have a preference of the type of loan they’d like to get. For types of loans that most lenders won’t offer, chances are that the lender you find that will is going to offer very unfavorable terms on the loan.

The next big difference between VA lenders is the terms they’ll offer you for your loan. Not everyone will offer you the same interest rate, and it’s best to shop around to different lenders to find the one that will offer the lowest interest rates. It’s usually best to do this with a direct question – e.g. “What is the rate for a VA loan today that’s good for 30 days on a $300,000 30 year ARM with no points?”. Getting rates from multiple lenders is often done via a loan officer and is much more convenient that way, allowing you to compare multiple quotes side by side. But the interest rate is not the only thing that separates lenders; they will also have different fees they charge. The one constant fee that won’t change across lenders is the VA funding fee, because it’s charged by the VA, not the lender. Finding out the closing costs of each lender and adding that to your consideration is a very important part of choosing one.

The last is the personality of the lender and the culture of their office. You’ll want to pick a lender that is going to be willing to work with you if something happens and you face defaulting on your loan. Can you imagine working with a lender that you just couldn’t stand or trust in a situation where you might lose your home? You’ll want to choose a lender whose office carries the type of culture that you might enjoy working in. While this may seem like a frivolous thing to look for in a lender, it becomes quite important in all the arranging of your loan, both before and after closing.

Mil-to-Mil Couples and VA Loans

A mil-to-mil couple is a couple where both spouses are members of the armed forces. Most anybody who’s served in the armed forces is familiar with this phrase, but what is often less familiar are some of the mortgage advantages that a mil-to-mil couple has.

You can figure out some of the advantages by considering all of the benefits a veteran is entitled to and then multiplying them by two, but there are some benefits that go beyond that.

VA Home Loan Benefits for Military Couples

There are multiple advantages available to mil-to-mil couples on VA loans. The option that will work best for you depends on your personal situation and goals.

Using One Spouse’s VA Loan Benefit

Mil-to-mil couples can elect to have one spouse use all of his or her VA loan entitlement on the mortgage, while the other doesn’t use any of it.

This can be helpful in a few scenarios. For example, if the couple ends up defaulting on the mortgage, they still have the other spouse’s VA loan entitlement to use on another home. Additionally, in the event of a divorce, one spouse has the option to find a new home and finance it with a VA mortgage.

The spouse not using their entitlement can still be financially obligated on the loan if they co-sign on the mortgage. While this is a common and very advantageous way to utilize the dual VA loan benefits a mil-to-mil couple has, it is certainly not the only option available to them.

Combining VA Loan Benefits

Another option that the couple has is to combine their two entitlement amounts onto a single loan.

In this way, the couple can double the guarantee to get a more expensive home – or perhaps even negotiate a better interest rate. When a couple does this, the financial obligation for the mortgage is divided in half between the two spouses, and each of the spouse’s entitlement amounts are equally drawn from in order to cover the amount of the loan.

This is most advantageous when the couple is not expecting to move or purchase another home again in the foreseeable future. In this way, they can purchase a home that their family can grow in and that they can eventually retire in.

If the couple is expecting to move again, even if it’s ten years from the date of closing the first loan, they may want to consider the first option and compare how much they’ll save in the long run with each option. When doing this, it’s best to consult with a VA-approved lender who is familiar with amortization schedules (like Low VA Rates) and will be able to help you understand your options.

Combining Partial and Full Benefits

A possibility for many mil-to-mil couples is to use the remaining entitlement for one spouse and all of the entitlement for the other spouse. This option can present itself after one spouse’s entitlement has been used and something happened that required the VA to pay money on his or her behalf.

In the case that that spouse’s entitlement was only partially used up, the couple could combine what is entitlement is left with all of the other spouse’s entitlement and still have a more advantageous loan than either would have on their own.

Another situation where a couple may want to use part of one spouse’s benefits is if one of the spouses had a loan that used up some of their entitlement before they got married.

It’s important to remember that anyone who purchases a home using a VA-guaranteed loan must be intending to occupy the home as their primary residence.

In Conclusion

There are all kinds of benefits available to mil-to-mil couples when it comes to VA loans. If you have any questions about your VA loan benefits, don’t hesitate to contact Low VA Rates. Our experts can help.

What Happens to My VA Loan If My House Is Destroyed?

Hopefully you never need to know the answer to this question. But if it comes up, it’s something you’ll be glad you knew in advance because it gets pretty complicated. If a tornado, earthquake, hurricane, freak ice storm, or some other natural disaster comes your way, you’ll have plenty of things to worry about even if you know exactly what to expect and what needs to be done in regards to your home.

We’ll cover the basics here, but we encourage you to do more research on any areas you would like more information on so that you can be prepared if a natural disaster were to strike.

The topics we’ll cover first fall under the category of loan origination issues. The first, which most people will probably qualify under, is a loan that was closed prior to the disaster. If your home was purchased with a VA loan and then was damaged by a natural disaster, the loan is still eligible for the VA guaranty. In all disaster areas, the VA strongly encourages lenders to extend every possible option to forbear a foreclosure for borrowers in distress.

One thing many do not realize is that prepayments or extra principal payments above and beyond the minimum monthly mortgage payment can actually be brought up and count as your mortgage payment in the event of a natural disaster. It’s also possible to have the loan terms modified without prior approval from the VA if certain circumstances permit (one of which happens to be a natural disaster). The VA also requests that late fees be waived and credit reporting be postponed for loans affected by the disaster, it is up to the lender to decide whether to honor this request.

For a VA loan, it is the loan holder’s responsibility to evaluate damage to a property from a natural disaster and advise the borrower on possible actions they can take. The loan holder then presents a report to the VA Regional Loan Center. Thankfully, the VA requires that a home be sufficiently insured against hazards, and the proceeds from the insurance can be the line that connects the dots in a disaster situation.

There will always be a few people caught in that awkward position of having had the home they’d like to buy appraised, and then damaged in a natural disaster before they closed on the loan. For those in this situation, all hope is not lost; that loan can still be eligible for a VA guaranty. However, in order for it to be eligible, there are some things that are needed.

First, you’ll need two certifications: a lender’s certification and a veteran’s certification. The purpose of the two certifications is for the two parties to both affirm that they have looked at the property and found that is was either not damaged in the disaster or it was returned to its pre-disaster condition. Before the home can be purchased with a VA loan, it needs to reach VA appraisal minimum property requirements.

In addition to the certifications, a VA loan summary sheet (VA Form 26-0286)  must be submitted. If there is any indication that the value of the property will be lower than it was before the disaster, even after repairs, then the VA appraiser must update the fair value estimate.

Finally, there needs to be a certification that the lender has confirmed that the borrower’s income and employment situation has not changed since the loan application was submitted.

So if you’re a VA loan holder, remember to contact your mortgage company as soon as possible regarding any losses that might have occurred during the disaster.

One important thing to remember is that you are not excused from making your monthly mortgage payments under any circumstances, even if your home is a pile of rubble.

Contact your insurance company as soon as possible (especially if your home is a pile of rubble), but do not be hasty in making a settlement. Get quotes for repairs of structural damage and anything else, and make sure that any checks from your insurance company are made payable to you and only you, or possibly to your mortgage company if the check is for damage to the home.

You’ll also want to contact FEMA (Federal Emergency Management Agency). They can help you find resources to help cover loans and obligations that might be very difficult for you to cover after a disaster.

A natural disaster can definitely throw kinks in the loan closing process, but many of these obstacles can be overcome.




The What, Why, When, and How Much of VA Loan Funding Fee

The Department of Veteran’s Affairs (VA) offers eligible veterans and servicemembers a special loan guaranty called the VA loan. The VA loan guaranty allows the eligible veteran to go to any VA-approved lender and apply for a loan that the VA will guarantee, either the whole thing or at least a significant portion. A VA guarantee means that the VA promises the lender that if the borrowing veteran defaults on the loan, the VA will make good on the remaining balance. As part of this program, borrowing veterans are charged a VA funding fee when they close a loan with a VA approved lender. But what is this funding fee? Why does it exist? When is it charged? and How much will it cost?

The VA funding fee is a certain amount the VA charges the veteran in exchange for guaranteeing a significantly larger amount on behalf of the veteran. The amount that a borrowing veteran saves on the favorable terms of a VA-guaranteed mortgage far exceeds the amount that is asked for in the VA funding fee. The VA funding fee is different from Mortgage Insurance Premiums (MIP) which are not charged on a VA loan, even if there is no down payment. Instead, the amount of the VA funding fee changes based on the amount of the down payment.

So why does the VA Loan funding fee exist? The funding fee exists because the money the VA pays anytime a veteran defaults on a mortgage has to come from somewhere. The VA loan program is supported in part by taxpayer dollars, but anyway there is to help make the program more self-sustainable, the VA is interested in. Why? Because it’s less likely to get cut in times of budgeting. If the VA can show that their Loan Guaranty program covers a significant chunk of its own expense and only relies a little on taxpayer dollars, the VA Loan program is more likely to survive and continue to be able to help veterans get homes when they otherwise might not be able to afford it. So the funding fee you pay for your VA loan is contributing to the program’s existence.

So when does the VA funding fee need to be paid? Typically, the VA funding fee is due at the time of closing of the loan. The fee can be paid in one lump sum or financed, but it must be paid (or the first payment made) at the closing of the loan. It takes place at this time because the VA needs the funding fee before they can guarantee the loan. By having the funding fee due right at the time of closing the loan, the VA can make sure they are covered in case of a default by the borrower, no matter when that default occurs.

So how much is the VA funding fee? That depends…. It depends on a variety of factors, including the amount of the down payment (as mentioned above), as well as the status of the borrower. Some borrowers are actually exempt from the funding fee completely. We’ll talk about those in a second. For those who are not exempt from the funding fee, the amount of the funding fee depends on whether you are/were a full-time service member or a guard/reservist, and how large the down payment on the loan is. The lowest amount of a funding fee charge that a veteran can get is 1.25% of the total amount of the mortgage. He or she can get that amount if they make at least a 10% down payment. For a guard/reservist, the lowest amount is 1.5%. If there is less than a 5% down payment made, the funding fee is 2.15%, and for guard/reservists, it is 2.4%.

You may be exempted from the VA funding fee under a variety of circumstances. If you are currently receiving disability checks from the VA, you are exempt. Also, if you would be receiving disability if you weren’t receiving retirement pay or active duty pay, or if you are a surviving spouse of a veteran who died of a service-connected disability. These exemptions have to be evidenced to the VA through a VA form 26-8937. It’s always good to check with a VA-approved lender to find out what your specific options are.




VA Loan Benefits in 2010 Compared to Other Loans

No Down Payment

One of the huge benefits in the VA loan program is that no down payment or mortgage insurance is required. Conventional mortgages require a minimum down payment of 5 percent. The VA program allows financing of up to 105 percent of the sales price or appraised value of the home, and borrowers can finance the closing cost of the mortgage as well. So a veteran can purchase a home without any money out of their pocket with a VA loan, unlike a conventional loan.  Even with FHA loans, VA mortgages offer so much more advantages regarding interest rates, credit scores, mortgage insurance and down payments.

A lot of concerns with getting a loan is if your credit score is good enough for the type of loan you want. The best thing about the VA loan program is they have looser requirements with credit score than FHA loans, and the conventional mortgage industry.  The government sets no minimum income or credit score standards for VA loans. In most cases if a borrower has a credit score of at least 580 they are able to be accepted for a VA loan, with a conventional loan you have to have at least a 620.  In some cases with a conventional loan and a borrower has a credit score under 720, the borrower must make a larger down payment of at least 20 percent.  The great thing about a VA loan is there is no down payment necessary with a lower credit score. They’re completely open to borrowers with bad credit, and the rates are reasonable.

Rates with a VA Loan are Very Low

Interest Rates with a VA Loan are very low compared to other types of loans. With non-VA loans, borrowers pay a higher rate for every 20 points their credit score drops below 720. But with a VA loan, borrowers get the same low rate, whether their credit score is 605 or 785. That’s one of the things that make VA loans such an amazing deal for any veteran or active-duty military families who need a mortgage. Veterans don’t need to worry about being refused because they don’t have money for a down payment or have a bad credit score. Having a VA loan, there are so many more benefits than negatives.  With other types there is, so U.S veterans are most likely making the best decision when choosing a VA loan.




Jungle Book of Financial Truth for Veterans

The Jungle Book

In his classic short story, the Jungle Book, Rudyard Kipling attributes the ability to manipulate fire as the dividing line between man and beast. Man’s “Red Flower” is understood by the animals as power, a means to dominion over those that fail to grasp its secrets. For years any further subtext into the metaphor was lost on me, probably reinforced by the (admittedly awesome) Disney animated film.

Recently, however, I re-read this story and found a more profound meaning that resonates with my job as a VA loan specialist. In the story and the cartoon for that matter, Mowgli ultimately decides to return to live in the village among humans. If we were to assume that the author meant fire to be a metaphor for something as basic and abstract as “power” the ending would seem sad. But when Mowgli watches those in the village from afar, they are hardly laying waste to the land with fire. Humans in the story are not maniacs, hell-bent on lording over their domain with flaming branches. They are living out a tame existence, using fire to cook, to heat their homes, to clear land for villages, to protect themselves from creatures, etc. This juxtaposition demonstrates how shifting one’s perspective can alter the fundamental nature we attribute to something. Fire as a barely bridled weapon of fear, destroyer of life when viewed narrowly. Fire as a sustainer of life for another providing heat, clearing land for shelter, cooking and perhaps most relevantly to keep animals at bay.

Regarding VA loans, the metaphor is less obvious at first glance but ultimately resonates with a similar meaning. For the majority of veteran borrowers, a VA mortgage is a partially understood vehicle that can provide a means to homeownership. An unfortunate few realize that a VA mortgage (like fire) is not something to be feared but rather a tool, which, if mastered can provide more than crude shelter, but a means to unlock financial opportunities to lead a freer more enriched life. While the responsibility rests ultimately on the veteran buyer (“Caveat Emptor”) to learn of fire, a more critical look at our society might suggest the basic principles of lending are adequately disclosed but not adequately transmitted to those people to whom mortgages are made available. This tragic phenomenon is less exclusive to veterans than it is to the access of debt we offer young and inexperienced borrowers. Billions of dollars are made each year at the expense of borrowers to whom the concept, power and scope of debt concepts are adequately explained. Like fire, as the recent American debt picture suggests, many have been “burned” by the lure of seemingly easy access to debt. However, more millionaires and Fortune 500 companies have been built on carefully leveraged debt models as a standard practice of modern business.

Looking back on the novel with this in mind, I now understand that maybe the solution set to the balance equation presented between fire/debt is less important than the scale by which it is measured. A scale that is one in the same, one I try to keep in mind when I discuss loan options with my clients. Though I was never a financial scholar, the knowledge I’ve accrued about basic finance working with VA home loan borrowers has and will serve me for the rest of my life. Therefore, I understand that the best and most honorable way for me to faithfully execute my responsibility as a VA loan Specialist isn’t to push a rate or an agenda, but to determine what the borrower knows, to demystify the concept of debt, to speak openly of its potential and liability, and to guide them to a place where a confident application can be made. It’s always surprising how a simple perspective shift can open doors of understanding to opportunity, just as re-reading a childhood classic can




Banks Usurping VA Authority BAD for Vets

Over the past few months, as the credit crunch has deepened, lenders have become increasingly strict with VA home loans. Instead of sticking to the VA guidelines, lenders are now implementing their own policies, and we aren’t happy about it. Gone are the days when no credit is needed. Gone are the days when an appraisal is not necessary for a VA streamline. Gone are the days when service to our country is the major prerequisite for a VA loan.

Now, to make matters even worse, lenders are pulling the rug out from under the nation’s veterans. Recently, AME Financial Corp decided that not funding loans already closed by veterans was in their best interest. Yes, that is correct. Loans that have CLOSED but not FUNDED will not be funded by AME. This means that Vets are left in a lurch on their VA loans. The locks that were guaranteed, are no longer valid. All time low rates are lost due to ineptitude on the part of the lender. A press release can be found here.

What does this mean for the everyday veteran?

It means that taking advantage of all time low rates just got that much more difficult. Sadly this sort of behavior is not actually all that uncommon of banks that are ready to implode. This website: ml-implode.com tallies a running list of failed banks and do not be surprised when AME becomes the next.

What you can do.

Start the process now to take advantage of historically low rates. We may never again see fixed rates below 5%. Take advantage before further tightening occurs. Contact Low VA Rates as soon as possible to get started. We can help you through the process quickly in order to avoid all the new changes and new policies that are coming. The Streamline loan process takes about 5 weeks start to finish and can save you hundreds each month. You can even forgo 1-2 mortgage payments with no penalty. Every penny saved is a penny earned and, with the holidays coming up, It’s time to earn all the pennies we can! (yes, preferably more than pennies, but you get what I’m saying.)




FAQ; Why Veterans Pay Origination Fees

Why Do Veterans Pay An Origination Fee?

I was on the phone the other day with a veteran borrower and they posed a great question, “Why do veterans have to pay an origination fee?”  I thought, hey that is a good question and I bet others have asked that very thing.  Veterans have access to the best mortgage financing available in America today, bar none.  The VA allows veterans to finance 100% of the home purchase price.  No where else can you find such a program.

With interest rates at 50 year record lows, many veteran families are taking advantage of the interet rate reduction loan offered by the VA.  Of course any time you refinance your loan there are going to be costs.  One of those costs is the origination fee.  It is almost universally 1% of the loan amount, or one point, as many call it.

Veterans pay this fee as part of the purchase or refinance and there are several reasons why.

1.  As a VA IRRL is processed it will be touched by nearly 20 people, from start to finish.  From processing, to the VA, to the current lender to the new servicer, the title company, the loan officer and many other in between.  There is work done by each of these parties and each party will receive compensation for the work done.

2. It is a fee for services completed– just like your taxes, or some other professional you trust, a lawyer or accountant.  You expect the refinance to be done correctly, quickly and completely,  as with any licensed professional.

3.There are a number of costs while processing a VA loan that the VA does not allow the veteran to pay for.  The largest of which is the underwriting fee charged by the new loan company.  It can be as much as $1000 and so any unallowable fee that is incurred as part of the refi must be paid out of that origination fee.

4.Finally there are some circumstances in which it is possible for the veteran not to incur an origination fee, or half of one etc.  Commonly when a veteran or other home owner who is looking to refinance wants to do a “low-cost” mortgage.  The lender will reduce their origination fee if the banks will pay for the refiance costs.  The banks do this by having a higher interest rate then what is available and will make up the difference on the loan.  This is not usually a great option because the rates on these “low-cost” loans can be up to 1.5% higher then the lowest rate that is being offered.  For example, 4.5% is a rate at which we have been refinances veterans for alomst 3 months.  You can do a “low-cost” loan at 6% but what good is that if you are already at a 5.5%.

Finally, you get what you pay for is what my Dad always said.  Over the years his words of wisdom have become more true to me.   See you around..




Attention Veteran Mortgage Lenders, Banks, and Correspondants

 

VA Lenders and VA Mortgage Companies Add Risk Overlays and Guidelines to VA Loans

In an attempt to manage risk, banks and mortgage lenders are going to war with our nation’s finest homeowners; veteran home owners with VA loans. In the past few months alone, lenders such as Wells Fargo, Citi Mortgage, and Countrywide now Bank of America have added all kinds of stricter than normal underwriting guidelines. I am not personally against making some needed changes to the way we lend money in this country, however; when the country is making veterans, many of whom have served on the front lines of war, go to extreme lengths and at times impossible lengths to refinance or buy a home, that I feel is unjust.

Right now our country is doing everything possible to help the housing recovery and at the forefront of these efforts is the Federal Government’s attempt to keep interest rates as low as possible. Why are they keeping interest rates so low? The lower interest rates get, the more likely veteran home owners and conventional home owners are to want to refinance. Refinancing can do wonders for a slow economy like we have currently. By refinancing, a home owner is able to lower his/her monthly mortgage payments. On average Low VA Rates says that their typical veteran refinance saves around $75-$150 a month and has even saved over $500 a month for some veterans. (after arriving at home page, read the customer feedback) Just imagine how an additional $200 a month in every home in America could turn our economy around! That would do more than any Federal bail out or stimulus act by Congress for sure.

New Underwriting Guidelines are Hurting Veteran Home Owners

So let me bring this back to my initial reason for this post in the first place; to shed light on the unjust act of many of our nation’s lenders. Here is a list of some of the underwriting changes that have taken place in the past few months, by some of the nation’s largest VA lenders:

1. FICO scores now required for a streamline refinance
2. FICO scores required for a purchase loan
3. Break-even or recoup test imposed for streamline refinance
4. Home value determination or appraisals required

NONE OF THESE ABOVE GUIDELINES ARE REQUIRED BY THE VA It is the VA mortgage lenders that are hurting veterans while trying to protect themselves.

To the Average Joe reading this blog, this may seem a bit strange, that a mortgage professional would be complaining about such changes. It is true that much of the housing crisis we are suffering from at this point, is due to reckless lending standards to start with. I agree with that. However, VA loans have never allowed a buyer to state his or her income higher that it really was, there was never a NO DOC or NO INCOME loan for a veteran. In addition, veterans have always had to be employed regardless of income or FICO score. What I am trying to portray is that very few, if any veterans ever bought a house that they could not afford. The loans that allowed this or encouraged this sort of reckless lending, were never available to veterans. If you have read my last two posts about streamline refinancing or VA IRRLs, you know how much I encourage loans that home owners can afford but allow them to refinance easily when rates drop. They are the perfect loan for hard financial times accompanied by low interest rates, like we see today. As much as veterans and this country could benefit from low interest rates and refinancing with the VA streamline loan, banks are making it harder and at times impossible to refinance and save money each month, due to the new underwriting guidelines that they have put onto these loans.

True Examples of Unjust Treatment to Veteran Home Owners

Here are some prime examples of this unjust practice being imposed on veterans: Veteran has a 700 FICO score and has never been late on his home payment. When he bought the house he added his wife to the loan even though she was a home maker and did not add any benefit to the home purchase, he simply wanted his wife on the mortgage. Now interest rates for VA loans are at 4.5% and he could save $233 by doing a streamline refinance. However, since the banks are now looking at both borrowers, (the wife’s credit now comes into play) the wife’s FICO score is a 615 (not that bad actually) and due to this score, the veteran cannot take advantage of the lower interest rates and has to stay where he is. Does this sound fair to you? Here is another disgraceful example. Veteran lives in California and has owned his home for 3.5 yrs. The veteran has stable employment with the government and has impeccable credit history. When he bought his house he paid around $400,000 for it and got an interest rate of 6.5%. The veteran recently applied for a refinance and was told he needed an appraisal. Remember the VA does not require this for a streamline refinance, but the bank does. Well almost nobody who purchased a home in California over the past 3 years has the value in the house that they paid for it. This particular veteran was denied the lower interest rate because his home is now only worth $300,000. I find these two examples on a daily basis and find it an outrage. Both of these cases hurt all involved. The veteran is stuck in a higher rate and payment than he should be, the United States government has it’s resources wasted since it is trying to keep rates low for these sort of individuals, yet the banks won’t allow them to take advantage and you the taxpaying citizen also loses because the economy will take longer to recover due to these unfortunate and foolish decisions.




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