VA Loans Part 2: Basic Requirements

By Brian Willingham, Senior Mortgage Banker

Last week we discussed the basics and benefits of a VA home loan and I promised to come back this week to discuss the qualifications and basic requirements of VA loans.  

Who qualifies for a VA loan?

In general, active duty members or veterans of the United States Armed Forces, and some government agencies, are eligible for VA home loans provided they have met some minimum service times and did not receive a dishonorable discharge from service.  The minimum time required to qualify for a VA loan depends on when you served. Click here for the full list.   

For members of the National Guard or Reservists, a minimum of six years of service in the Guard/Reserves is required.  However, periods of active duty service during wartime or peacetime could qualify a member of the National Guard or Reserves with less than six years of service.    

How do I know if I qualify?

The first step in obtaining qualification for a VA Home Loan is to obtain a Certificate of Eligibility (CoE).  The easiest way to do so is through contacting a mortgage lender and have them request the certification for you through the VA’s lender website.  Your mortgage lender will need some basic information from you and can then obtain your CoE instantly.  In some cases, the CoE is not available online and your lender will have to submit documentation to the VA in order to establish your eligibility.  Typically, a copy of your DD214 is required (or a statement of retirement points for a reservist).   You can also request them yourself through the VA’s website here: https://www.ebenefits.va.gov/ebenefits-portal/ebenefits.portal. 

What are some of the common qualifying rules for VA?

VA Home Loan guidelines are similar in many respects to standard mortgage rules.  Although the VA itself doesn’t have a minimum credit score requirement, most lenders establish their own minimum requirements. As I mentioned in my first blog, most VA loans don't require a down payment. However, you may need to document that you have enough cash to pay the closing costs associated with buying a home. Oftentimes, you can negotiate for your closing costs to be covered in part or in full by the seller, or receive a credit from your lender. VA loans don't require that you have reserves (assets left over after paying closing costs) unless you own another property.

VA loans do have some unique rules when it comes to debt and income.  All types of mortgages have limits to the amount of debt payments, including the proposed mortgage payment, that you can have when compared to your income (debt-to-income ratios or DTIs).  VA takes this a step further and requires what is called a “residual” income calculation, which factors in debts and income along with other factors, such as the size of the house you are buying and the number of children you have.   Unlike other types of mortgages, VA takes the cost of childcare into consideration.  The rules on these calculations are complicated and outside the scope of this post, but you should consult with your lender on these issues before beginning your home search.   In most cases, despite the additional qualification rules, using a VA loan will allow you to qualify for as much or more than other loan programs due to the lower payments and more flexible approval guidelines for debt-to-income ratios. 

 

Everyone’s situation is different, so check with your lender at the onset of the process for specifics on your personal situation. If you have any further questions, feel free to contact me and I’m happy to help! Feel free to check out our mortgage calculators, request a copy of our homebuyers guide or get started on your mortgage application.

About Brian:
Brian Willingham in a Senior Mortgage Banker with Apex Home Loans and served in the United States Marine Corps from 1993 to 1997.

The Basics & Benefits of VA Home Loans

By Brian Willingham, Senior Mortgage Banker

For veterans who qualify, a VA home loan is usually the best option to finance the purchase of a home.   In this blog, I’ll quickly go over the benefits of a VA loan compared to other types of mortgages.

What are the benefits of a VA Home Loan?

VA loans offer several benefits compared to other mortgage programs available:

• In most cases, no down payment is required (see below for more information)
• In addition to not having a down payment, there is also no mortgage insurance on VA loans
• VA loans often provide better interest rates than conventional loans

VA Home Loans do not require a down payment if the veteran has not previously used their home loan benefits and the price of the home is within established VA limits. These limits are based on the state and county where the home is located. You can find those limits here:  http://www.benefits.va.gov/HOMELOANS/purchaseco_loan_limits.asp

For veterans who have used their home loan benefits before, no down payment could still be an option but this is dependent on other factors.  Other than VA loans, there are very few mortgage options with no down payment.  Keep in mind, conventional loans require at least 5% of the sales price for a down payment, and FHA loans require 3.5% down.  Although, some counties and states have first-time home buyer programs that provide assistance for the down payments and closing costs required by conventional or FHA loans, they typically don’t provide the low interest rates that a VA loan does and most usually have mortgage insurance requirements as well.

 

Mortgage insurance is an extra fee paid by the home buyer on loans with less than 20% down which provides additional protection for the lender in the case of a default on the loan.  Mortgage insurance rates vary depending on loan types, credit scores and other factors, but regardless, they raise the cost of buying a home.  Since VA loans don’t have mortgage insurance like other types of loans, this provides an additional opportunity to save money. 

VA loans do have a “Funding Fee” which is paid to the Veterans Administration at the time of settlement.  The amount of the funding fee varies depending on if the veteran has used their VA Home Loan benefits before and if there was any down payment requirement.  However, even with the funding fee, VA loans can often save veterans money compared to conventional and FHA loans because of their often lower rates and lack of down payment requirement and mortgage insurance. 

Next week, we’ll take a look at the basic requirements and some of the more common rules with VA loans. Until then, feel free to check out our mortgage calculators, request a copy of our homebuyers guide or get started on your mortgage application. 

How is my credit score determined?

By Amy Smith, Mortgage Planner

 

Credit scores are driving forces for nearly everything these days.  A low credit score may mean having to put a deposit down when opening utilities or not being able to obtain new credit for an auto loan, credit cards or a new home.  With a low credit score you can also count on higher rates on any new financing.  Here’s a breakdown of how your credit score is derived:

1. Payment History – 35% Impact – Paying debt on time and in full are positive marks on your credit report.  Late payments, collections and judgments all have a negative impact on your credit score.
2. Outstanding Credit Card Balances – 30% Impact – A high outstanding balance compared to the available credit can have a big impact on your score, especially if multiple accounts have balances that exceed 50% of the available credit.
3.   Credit History – 15% Impact – The longer you have credit the better your score. 
4. Type of Credit – 10% Impact – A mix of loans (auto, student, credit)  is always better than having a high concentration of one type of loan, especially credit cards
5. Inquiries – 10% Impact – This is based on how many people have pulled your credit in the last 12 months.  If you pull your own credit there is not an impact to your score.

There are quite a number of credit sites that will monitor your credit scores/report for you.  You can also access a free credit report from each bureau through www.annualcreditreport.com once a year.  For a more information on the points above you can click here. Feel free to also visit us online to try our mortgage calculators, request a copy of our insider's guide to credit scoring and home financing, request a copy of our  homebuyers guide or get started on your mortgage application!

To be 20% Down Payment, or Not To Be

By Chong Yi, Senior Mortgage Banker

Today’s mortgage industry is quite different than the days of our parents and grandparents.  I remember the day my dad and I discussed the interest rate that he was able to get for the house I grew up in as a child.  It was not the 4% that we are enjoying today.  In 1980, the best rate my parents were able to secure was 18% and this was considered the norm back then.

It was also the norm to put as much of a down payment as possible when purchasing, and to pay off your mortgage as quickly as possible.  At the very least, most homebuyers would put a 20% down payment so they could eliminate needing mortgage insurance. 

With interest rates being at all-time lows, putting 20% down or more may not always be the best option.  Particularly when you consider what your rate of return could be if instead, that down payment was invested elsewhere.   

For example, if a buyer were to purchase a home at $400,000, and put 20% down, the buyer would be financing $320,000.    A principal and interest payment at 4% would equate to $1,527.  If that same buyer instead put 10% down, they will be financing $360,000 with a slightly higher interest rate to offset the monthly mortgage insurance (a topic I’ll discuss further in another blog).   In this scenario, the principal and interest payment will be $1,770.  

The average buyer would look at this situation and determine it unbeneficial for them because they will be paying an additional $243 per month.  However, the savvy buyer may consider the return on investment (ROI) from the $40,000 that the buyer is saving on the down payment.  The buyer will pay an additional $243 per month so it will be an additional $87,480 in 30 years. However, if the $40,000 were to be invested in an investment vehicle that is returning at 7%, that 40,000 will be $324,659.  This will give the buyer a net ROI of $237,179 after the 30 years.

The bottom line is it’s important to not only look at the interest rate and down payment when considering your mortgage. Since there are many factors to consider, it’s imperative you work with a knowledgeable mortgage lender who is able to provide you with all of your options.

Visit us online to try our mortgage calculators, request a copy of our homebuyers guide or get started on your mortgage application!