by Tim Storm | Jun 5, 2017 | Blog, VA Loan Information, VA Loan PreApproval
One of the most common misconceptions of VA lending guidelines is how a VA Loan can help to buy a home in an expensive state like California. Whether you’re looking to buy near a local ski resort, a beach-side community, or your own slice of heaven somewhere in the middle, the cost of homes is heavily influenced by location. The good news is that the VA hasn’t set a maximum for the amount you can borrow with a VA Loan. The bad news is that there are or course, limits to how much “liability” the VA is willing to take on, and this will indeed affect the amount of money you can borrow. That brings us to the subject of your VA Entitlement.
First, let’s be clear that the Veteran’s Administration (the VA), is not in the business of loaning you money to buy a home. A mortgage Lender will loan you the money to finance your home, and all the VA does is “guaranty” those funds … up to a specific amount. This is what makes the VA Loan so appealing to mortgage Lenders; there’s little risk involved in making a loan with a VA guaranty. But this guaranty is limited to the lesser of 25% of the County Loan Limit or 25% of the actual Loan Amount. In situations where your credit and income are eligible and you know the specific amount of your Entitlement, you can multiply that amount by 4 and you’ll know exactly how much you can pay for a house without any down payment. Conversely, you can start with the Loan Limits for the County in which you’re looking to buy, then divide that amount by 4 and you’ll know precisely how much your Entitlement must be in order for you to buy a home in that County without a down payment. And since the VA Loan Limits are the same Loan Limits as the Federal Housing Finance Agency (FHFA), it’s quite easy to discover the limits in your area. You can find them here.
If you haven’t yet discovered what exactly your Entitlement is, take a look at my previous blog on that topic. In short, there are two types of VA Entitlement; Basic and Bonus. According to the VA website, “The basic entitlement available to each eligible Veteran is $36,000.” Using the 25% rule discussed above, four times that is equal to $144,000 – your maximum purchase price with no down payment. This made a lot more sense in 1944 when the VA first started guaranteeing home loans. However, since that time, both property values and loan limits have increased substantially throughout the country. Now, the Basic Entitlement by itself won’t do much if you’re trying to buy a $500,000 home. This is where the Bonus Entitlement comes in.
And before we go any further, it’s important to know that the eligible Veteran will have their full VA Entitlement determined by adding the Bonus Entitlement to their Basic Entitlement, even if their Basic Entitlement is $0.00. Initially, every eligible Veteran is given sufficient entitlement to adequately cover the VA guaranty up to the FHFA Conforming Loan Limit. For example, The Loan Limit in San Diego County, CA is $612,950. Therefore, the VA guaranty is 25% of that, or $153,237.50. In this situation, if the eligible Veteran has the full $36,000 Basic Entitlement, the Bonus Entitlement is the difference between the VA guaranty and the Basic Entitlement ($153,237.50 – $36,000 = $117,237.50).
How the VA Jumbo Loan Program Works
One final piece on this. If the eligible Veteran is looking to buy a home that is priced above the Loan Limit for the County in which it’s located, they will need to finance 25% of the difference in cash “out of pocket”, as a part of their Down Payment. Remember, the VA Guaranty is only 25%, so they won’t need to cover the entire difference.
Let’s do a quick example:
The eligible Veteran has “Full Entitlement” available to them and is buying a home for $700,000 in a County where the Loan Limit is $636,150.
- VA Guaranty is 25% of the lesser of the Loan Limit and the Loan Amount ($636,150 ÷ 4 = $159,037.50)
- 25% of the Purchase Price is equal to $175,000 ($700,000 ÷ 4)
- Down Payment Required: $175,000 – $159,037.50 = $15,962.50
VA requires that a combination of the VA Entitlement and any cash down payment must equal 25% of the appraised value or the purchase price, whichever is less. So in the example above, the eligible Veteran would like to buy a home that costs more than the 100% financing Loan Limit for that County, and using the Jumbo VA Loan Program, they can still do it using a relatively small down payment.
Despite the rising prices of homes across the state, using a VA Loan to finance your next home purchase, will allow you to keep most of the cash in your pocket and finance the bulk of your purchase price with rates that are still at historically low levels. Don’t hesitate to call if you have any questions. And thank you for serving our country.
Authored by Tim Storm, a California Loan Officer specializing in VA home Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.
by Tim Storm | May 30, 2017 | Blog, VA Loan Information
When it comes to financing a home in California, the options seem nearly endless. Even homeowners who’ve been through the process many times will tell you that it can be a challenging just trying to choose a lender. And each lender you speak with will have their own recommendations for what’s best for you. Because of this, many California Veterans who are perfectly eligible for a VA Loan, will frequently choose a non-VA loan. After spending more than 25 years helping Veterans finance their homes here in California, I can tell you that the most common reason for a Veteran choosing a non-VA loan product, is because the loan officer they worked with either didn’t know enough about the benefits or they simply didn’t offer it.
To be sure, many Veterans don’t understand the program well enough, or they may have been told that the process of obtaining a VA loan is too complicated or too expensive. If you are a Veteran who’s about to enter into the process of financing a home, the very best thing you can do is to get informed about how the VA Loan Program works. You need to become your own expert advisor. And if you want to avoid getting bogged down in the minutiae of program details, you might start with a more “bite-sized” approach like the Top Ten VA Loan Benefits for a California Veteran.
Let’s take a little bit of time to understand the primary benefits of using the VA Loan.
- Zero Down Payment
Most people have to save for many years to come up with a sufficient down payment necessary to buy their first home. That’s not the case for eligible Veterans or their surviving spouses. In most cases, this is absolutely the biggest benefit to the program. Even an FHA loan requires a minimum 3.5% down payment. On a $500,000 purchase, that’s $17,500. So if you haven’t yet saved up that kind of money, financing 100% of the purchase price could make a lot of sense.
- No Monthly Mortgage Insurance
You’re likely familiar with the term “skin in the game”. In the case of a Zero Down Payment loan, the homebuyer has no skin in the game. Statistically, when homeowner’s buy a home without putting any of their hard-earned savings into buying the property, they are more likely to walk away when unexpected events affect their household income. So Lenders impose something called Mortgage Insurance to offset the risk of that happening. Or at least, non-VA lenders do.
For example: Let’s say you’re buying a $500,000 home using an FHA loan with 3.5% down and 96.5% Loan to Value (LTV). You’d need to pay more than $300/month in addition to your mortgage payment. However, if you used your VA eligibility and financed 100% of that $500,000 purchase price, you would pay no Mortgage Insurance at all. That’s another Zero for you.
- Lower Rates than Conforming Loans
Not all 30 Year Fixed Rate Mortgages are created equal. As you begin your search for a suitable lender, you’ll 
begin to notice a difference in the interest rate lenders offer. Whether you’re looking at a Conventional Conforming, an FHA Conforming, or a VA Conforming 30 Year Fixed Rate mortgage, they all come with essentially the same terms; fully amortized with a fixed rate for the entire 30 years. However, one of the key differences is the rate offered on each.
Using our hypothetical $500,000 loan amount, a 0.25% discount to the rate works out to a little over $70 per month. That may not sound like much, but after a year, you save over $800. And after 30 years of making monthly payments on the loan, you would have saved approximately $26,000 in Interest. The choice is yours, you can either pay the bank that money, or use the VA Loan with a lower interest rate and save the expense altogether.
- Multiple Purposes
In the mortgage business, there are only 3 different types of transactions. Every time you finance a home, you will be engaged in one of these three types. You’re either buying a home, refinancing a current mortgage to improve your rate & terms, or you’re refinancing to take cash out of the equity in your home; a Purchase Transaction, a Rate & Term Refinance, or a Cash Out Refinance respectively. Unlike some other loan products (like the CalVet loan which can’t be used for refinancing), the VA Home Loan can be used for either of these transaction types.
The Purchase Transaction is pretty straightforward and is of course used for the purchase of a home using VA financing.
There are two types of VA refinance programs. Let’s look at the VA Cash Out Refinance. If your current mortgage is either a Conventional Conforming, or an FHA loan, you can use your VA Benefits to refinance your mortgage debt into a VA Loan. Many Veterans will use this approach to pay off non-VA loans, which often have costly Mortgage Insurance included into their monthly payments. In this situation, you might lower both the rate and the monthly payment AND get rid of your Mortgage Insurance at the same time. Even if you are not receiving cash “in hand” at the closing, VA considers the refinance of a non-VA loan into a VA to be “cash out”. If your home has appreciated in value since you bought it, you’ll have created Equity – skin in the game – in your home ownership. You can turn that equity into cash by refinancing with a VA Loan. This VA Cash Out Refinance is available to all eligible Veterans, even if your current loan is not a VA Loan. With this type of transaction, your home is now worth more than your current loan balance and you can use the VA Loan to borrower up to 100% of the value of the home, At the close of escrow, you will be issued the cash, which you can use for any purpose you choose. So if you have other debts at a higher interest rate, or you’re looking to make some home improvements, this option could be available to you.
And finally, no discussion of VA Refinance deals can be complete without talking about the Interest Rate Reduction Refinance Loan – “IRRRL“ (pronounced Earl). This is a Rate and Term Refinance since there is not cash out allowed. This is used when you’re refinancing an existing VA Loan in order to improve either your rate or your terms – or both. Remember when we said earlier that the mortgage process can be challenging for even the experienced home owners? Well, the IRRRL simplifies everything for eligible Veterans. In a normal mortgage transaction, applicants are required to provide their lender complete tax returns for at least 2 years, all W-2 Earning Statements for the previous 2 years, Paycheck stubs from the past 30 days, complete bank statements for the previous 2 months and a full appraisal. And that’s just to get your application in front of an underwriter. With an IRRRL, all of that goes away. It streamlines the process for Eligible Veterans, giving you a faster, less expensive and relatively stress-free option to improve the rate & terms of your mortgage debt. Read up on other facts about the IRRRL program here.
- Good for Condos
Some of the most affordable housing options for first time home buyers are condominiums. Both from a size and practicality standpoint, buying a condo when you’re young, gets you into the housing market. In many cities, a Condo might be your only affordable option. Unfortunately, many Realtors and lenders feel that financing a Condo with a VA Loan is either too difficult or can’t be done at all. One reason for this is that condominium projects must be approved by the VA before they can be financed with a VA Loan.
For all of these reasons, it’s important to work with a lender who is familiar with VA Approved condominium projects in your area. The VA keeps a list of all VA Approved Condo projects and that list is updated regularly. As a consumer, you (and your lender) have the ability to access this list and discover whether or not the Condo project you’re looking at is VA Approved. You can find that search engine here. All you need is the name of the project, the City, State & County, and you’ll be able to avoid a lot of unnecessary gridlock later on. You can even use this tool to find how many projects in your city are already approved by the VA. A California VA loan specialist can help with determining whether a condo project is VA approved. In Orange County there is a great website listing VA approved condos for sale.
- Surviving Spouses May Be Eligible
If you are the surviving husband or wife of a Service member who was killed in action, and you have not yet remarried, you can buy a new home with Zero Down Payment and no Mortgage Insurance using your fallen spouse’s benefits. Additionally, under these circumstances, your VA Funding Fee would also be waived. We’ll discuss the Funding Fee in more detail later. The VA Loan benefit was created to honor the debt of service our country owes Veterans. And although there’s no way to ever repay the debt paid by our fallen Service members, the program allows Surviving Spouses the opportunity to move forward after their loss. You can find more information about benefits for Surviving Spouses on the VA website.
- More Lenient Credit Guidelines
As our country continues to emerge from the “greatest recession since the Great Depression”, consumers all across the country are rebuilding their credit. Whether dealing with something as devastating as a Bankruptcy or a mortgage Foreclosure, or far more common like the overall Credit Score or a few late payments, VA Credit guidelines are among the most lenient in the mortgage industry. So when you go comparing lenders and the loan options they offer, a VA Loan makes it easier for eligible Veterans to get into a home loan.
Perhaps the best example of this can be demonstrated with Foreclosures. Consumers who have foreclosed on a property in the past, must wait 7 years before they can become eligible for Conventional Conforming financing. FHA guidelines require a 3 year waiting period, which is significantly better. However, the VA feels that Veterans need only wait 2 years before applying for a VA loan after foreclosure. Generally speaking, eligible Veterans who have experienced either moderate or significant credit challenges in the past, will have an easier time qualifying for a VA Loan. Again, the goal is to make home ownership accessible to eligible Veterans, and the VA Loan does exactly that.
- Potential Funding Fee Waiver
In order to offset the costs associated to offering the VA Home Loan program to eligible Veterans, the VA charges something called the VA Funding Fee. Depending on several variables, this Funding Fee can be as little as .50% or as much as 3.3% of the loan amount. While that may sound expensive, it’s important to keep in mind the objectives of the VA Home Loan program; to get more Veterans into homes without requiring a lot of money “out of pocket”. In other words, in most cases, this funding fee can be wrapped into the mortgage loan amount.
Some Veterans will not need to pay for the Funding Fee at all. If you are a disabled Veteran and part of your compensation is the result of a service connected disability, you may be exempt from the Funding Fee. A quick review of the Certificate of Eligibility will determine whether you are eligible for the Funding Fee Waiver. And one last point on the Funding Fee Waiver: Waivers can be given to more than just the Disabled Veteran. Spouses and Surviving Spouses of Deceased Veterans are also covered.
- Limit on Closing Costs
Since the VA Home Loan program involves a Veteran’s benefit, VA policy has evolved around the objective of helping Veterans use their benefit to buy a home when they might not otherwise qualify. In light of that goal, the VA limits the amount of fees that can be charged a Veteran to obtain a loan. More restrictive limits cannot be found with other types of loans.
One example of this is the Lender’s Fee. Unlike other loan products, the VA limits the amount a Lender can charge the Veteran to a flat rate of 1%. Additionally, there’s a list of Prohibited Fees, including Attorney’s Fees, Brokerage Fees, Inspection Fees and even some fees associated to appraisals In a Conventional Loan, these fees can add up to thousands of unexpected dollars, but are prohibited under VA guidelines.
- Reusable Benefits That NEVER Expire
Many Veterans believe that they can only use their VA Loan benefits once. However, the truth is far better. You can use your VA loan eligibility multiple times. many Veterans buy their first home when they are young and often single. And as their immediate family grows, so too do their needs for living space. When your family outgrows your current home, it begins to make sense to sell it and then buy a larger home that is better suited to meet your family’s needs. After you sell your home and pay off your original VA Loan completely, your VA Benefit entitlement is restored and you can use it again to buy another home. Even if you keep your home, Veterans can also receive a one-time restoration of benefits after they pay off their existing VA Loan. Even if you keep the home after refinancing into a Conventional loan, you can still receive this benefit restoration.
Saving the best for last, it’s crucial to know that your benefits Never Expire. So whether you served 10 years ago or 50 years ago, your VA Home Loan benefits never go away. The first step in home buying process is to retrieve your Certificate of Eligibility. The easiest way to do this is to have your California VA loan specialist retrieve your Certificate of Eligibility for you. You are also able to do it on your own by going to the the VA Benefits Gateway website and request a copy of your Certificate of Eligibility.
There are a lot of other real benefits available to eligible Veterans with the VA Home Loan program. And whether you’re a First Time Home Buyer, or a seasoned veteran of home ownership, the California VA Home Loan program may be right for you. Get informed about your eligibility, become your own best expert, and work with a Lender who is an expert in VA Home Loan financing in California.
Thank you for your service to our country.
Authored by Tim Storm, a California Loan Officer specializing in VA home Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.
by Tim Storm | Feb 22, 2017 | Blog, VA Loan Information
The Certificate of Eligibility (COE) is an important step in starting the VA loan process. This document declares your eligibility for the VA loan program. When looking to start the loan process, you can either get the COE yourself or have your California VA lender request it for you. The fastest and easiest way to retrieve your COE is to have your lender do it.
Regardless of which way you decide to obtain your Certificate of Eligibility, you will need to provide proof of service for your lender. If you served in the armed forces you will need to provide your DD214, which is also known as the Certificate of Release or Discharge papers, for your proof of service. Copy 4 of the DD-214 is the preferred version for the VA program because it provides the most details regarding your service. For members of the national guard and reserves, you will have to show your most recent annual retirement summary as their proof of service. You can still submit a request for a COE even if you don’t have a proof of service form because in some cases the VA can determine your eligibility based on their own records.
If you decide to go about obtaining your COE yourself there are a couple different ways that you can go about getting it. You can use the VA online ebenefits portal, visit your nearby regional loan center or mail in the needed documents. If you decide to have your lender get the COE it is a much simpler and quicker process. If you have your lender request the COE, all you need to do is provide them with your proof of service. In some cases, your lender may be able to retrieve your COE in minutes without the proof of service. Lenders are able to use the VA Automated Certificate of Eligibility portal to request your COE and determine your eligibility in a matter of minutes. In some cases, the automated portal will be unable to make a decision but it will still be a faster process for your lender to get the COE. Even if you have already received your Certificate of Eligibility, your lender will still go online to pull an updated version, so having the lender pull it in the first place is the best way to go in most cases.
Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.
by Tim Storm | Feb 6, 2017 | Blog, VA Loan Information
The VA loan program is an amazing benefit for our veterans in California. Surprisingly, there are thousands of veterans in California that haven’t used the program because of some longstanding misconceptions about VA loans. Here is the truth behind 4 of the most popular myths regarding the VA loan program…
Myth #1: You need to have perfect credit for a VA loan.
Any credit limit (minimum FICO score) that a lender gives you for a VA loan is a lender imposed limit. The VA does not have specific credit requirements for loans so every lender is different. Most lenders will look for a credit score of at least 620, but some will go even lower, with some lenders going as low at 580. If the first California VA lender you try doesn’t accept your loan request it may be worth looking to see if you can find a California VA lender that will.
Myth #2: VA loans take longer to close than other loans
Many think that the VA loan process is a slow and cumbersome process. However, it has become much faster and a much more streamlined process. According to Ellie Mae, VA and conventional loans both on average close in about 44 days. But for a California lender who specializes in VA loan, even 44 days sounds long. Under 30 days is possible in most circumstances. Also, VA loans are much more likely to close compared to conventional loans.
Myth #3: VA loans are much riskier
Since no down payment is needed for a VA loan many think it is a riskier loan. Even with no down payment, VA loans have the lowest foreclosure rate compared to any other conventional program. Other requirements like “residual income” help to solidify the safety of the VA program.
Myth #4: VA loans can only be used one time
This might be one of the biggest misconceptions about the VA loan program. There are many veterans that think this is only a one time perk or their eligibility expires after a certain period of time, but this is not true at all. VA loans are a lifelong benefit that can be used multiple times. Eligible veterans have a basic entitlement that represents their ability to use the program. As they pay off their first VA loan, that entitlement restores and are then able to use the VA program again. It is even possible to have more than one VA loan at a time. For example, in high cost counties like Orange County, CA, there is a “bonus entitlement”. The bonus entitlement allows a California Veteran to purchase another home with no down payment. For someone looking to see what their options are while still owning a home with VA financing a true California VA Loan Expert should be consulted.
Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.
Finding an accurate VA Loan calculator is not an easy task for California Veterans. Researching and doing your due diligence is important when in the process of searching for a VA loan to purchase or refinance a home. Some mortgage websites provide a loan calculator to help give a preview as to what your potential monthly payment could look like. While helpful, some of these loan calculators don’t provide a clear picture of what the full payment will be, including property taxes and home owners insurance.
