Making a Move
Many people often either do not know anything about the VA Loan, or they have questions about the VA loan that they can never find a straight answer to. Here I am about to explain everything I possibly can about the VA Loan to you. Hopefully at the end, it will all make sense.
First obviously you must have some military affiliation to use the VA Loan, whether you are active duty, reservist or a veteran. Here I am going to talk about the VA Loan for Active Duty. To use the VA Loan, you must have been Active Duty for at least 90 Days before attempting to use this loan. Along with that you must also have a COE (Certificate of Eligibility).
There are some benefits with using the VA Loan vs using another Loan. Some of the benefits are:
- No Down payment required
- No PMI (Property Mortgage Insurance)
- Lower Interest Rates
- No prepayment Penalty Fees
- Two Refinance Options (If you already have one VA Loan you can have your monthly payment with a new interest rate, or refinance a different loan to a VA Loan)
- Assumable Mortgage – Another eligible person can take over your mortgage
- VA Foreclosure help – VA can negotiate with lender on the borrower’s behalf if a mortgage payment can not be made (If you have a loan other than VA and are struggling with payments you can still call the VA for help 877-827-3702)
You may use a VA Loan for the following purchases:
- A house
- A condominium Unit
- To build a home
- To improve a home
- A manufactured home
- To refinance
Keep in mind some of these, like a manufactured home, are harder to get approved by a lender to purchase.
Credit and DTI Ratio
First off DTI is Debt To Income Ration. The VA prefers your DTI Ration to be at 41% or less. However, many lenders (not all) will allow your DTI Ration to be higher than 41%. Along with that the VA has no minimum credit score requirement, BUT many lenders do. Most lenders want a minimum of at least a 620 credit Score.
P.S. if you need help raising your Credit Score look up my Credit Score Blog there is a lot of useful and helpful tips in there!
Residential Income
Many lenders will also check you Residential Income. Your Residential Income is what covers your basic living expenses and bills. Most of it is based on family size, as well as the part of the country you are in.
VA Appraisal
The VA will send in a person to appraise the house you want to buy. The appraisal is the market value and condition of the house. The appraisal is a required step to make a purchase. It will compare the house to other comparable homes around it and create an estimate of the value of the house.
If the appraisal value is LESS, then what you have offered it then creates a problem. You basically will have three choices.
- Ask for a Reconsideration Value
- Make up the difference yourself by basically paying out of your own pocket
- Walk away and look for another house
Also, if there are issues with the property, the property must be fixed before the loan can close. This then leads me on to suggest a very important step in buying a house. It is not a requirement, but it is a good investment. Invest in a HOME INSPECTION.
Limitations on Closing Costs
The seller actually can pay all of the buyer’s loan related closing costs as well as up to 4% concessions (Property tax, and home owners insurance)
Closing Costs
- Credit Report
- Loan Origination Fee (1% of loan cost)
- Discount Points
- Title Search and Title Insurance
- Recording Fees
- State and/or Local Transfer Tax if Applicable
- Survey
- No Commissions Brokers fees to be charged to buyer
Buyers Can Pay
The Buyer can pay maximum Reasonable and Customary amounts for itemized fess and charges that are designated by the VA + 1% flat charge by lender + reasonable discount points
- Recording Fee
- Prepaid Items
- Hazard Insurance
- Survey
- Credit Report
- Flood Zone Determination
- Title Examination and Title Insurance
Buyers Can Not Pay
- Loan Closing Settlement Fees
- Document Preparation Fees
- Preparing Loan Papers, Conveyance Fees
- Attorney Services other than Title Work
- Photos
- Interest Rate Lock – in fees
- Postage and other mailing Fees
- Stationary, Phone Calls, and other overheads
- Amortization Schedules
- Pass books, Memberships, and Entrance Fees
- Escrow Fess/Charges
- Preparation and Assignment of Mortgage to another secondary market purchasers
- Trustees Fess/Charges
- Loan Application and Processing Fees
- Preparation Fees of Truth In Lending Disclosure Statement Fees charged from loan broke, financers 3rd party, tax service fees
Owner Occupancy
You must show proof that you will reside in the property within a certain amount of time from the closing date. Most of the time it is a 60-day time window. However, if you are away from the are or are on deployment they do have an extension for up to 12 months. Also, a spouse is the only other person that can qualify as a person to live in the house once you close on it. Most proof, however, is just stating you will be living there as a primary residence.
USDA Loan
There is one other 0 Down Payment Loan. This loan requires you to live in a rural area. Make 115% or less of the property’s areas median income. Has a 2.75% Funding Fees that must be paid upfront, and you must pay .5% Mortgage Insurance annually. This Loan is also harder to get.
Funding Fee
The basic Funding fee is 2.5% which goes to the VA. You can make a 5% down payment and the funding fee drops to 1.5%. If you pay 10% down payment it, then gets dropped to 1.25%.
The basic funding fee can be either paid in cash OR it can be incorporated into the loan (however this means you will be paying interest on it as well).
Renting
If later in life the military takes you somewhere else, which it usually does, you can have the option of selling it, or you can rent it out. In order to rent it you must have lived there for a minimum of two years prior to renting it out.
Interest Rates
In January of 2018 the average interest rate was 4.10%. Now the interest rates are at a 5.52% here in California and they are just expected to climb even more! Now is the time to buy if you were planning on trying to buy here in beautiful California. I was able to get a 4.75% interest rate, however I bought it down 1.32% for rounded $7,000.
I will be uploading another blog about the realtor we used. Until then here is her information if you would like to use her! I highly recommend her and her lender she works with as well (and yes I did shop around and he was the best to choose from).
