by Tim Storm | Aug 25, 2021 | Blog, VA Loan Information, VA Loan PreApproval
The VA Home Loan Program is designed to help California veterans who served honorably, and their surviving spouses, buy homes as they start to lay down roots here in California. The VA loan program does not require a down payment or mortgage insurance and offers interest rates that are usually below market. Best of all, there are no loan or income limits. Find out how a California Veteran can qualify for a VA Loan and get started today!
Here are the steps to qualifying for a VA loan.
=>STEP 1: Decide if the VA Home Loan is right for you
There are many reasons why someone might want to decide if the VA Home Loan is right for them. Some people may be interested in a VA home loan because they have very little money saved, or because qualifying for a Conventional loan is more difficult. Another big reason is that there is no down payment required with the VA loan. And of course, since interest rates tend to be low on VA loans and no mortgage insurance is required, the mortgage payment will be lower with a VA loan when compared to another loan (like an FHA loan). Lastly, another great benefit of getting a VA home loan is that there are no income limits and no loan limits.
=>STEP 2: Determine your eligibility and entitlement with the VA
The easiest way to determine eligibility for a va loan is to have a VA Lender submit your DD214 through the Va Lenders portal and retrieve your Certificate of Eligibility. But if you’re wondering what the basic requirements are then the information below will be helpful.
When did you serve? You meet the minimum active-duty service requirement if you served for at least this amount of time: Between September 16, 1940, and July 25, 1947 (WWII)
- 90 total days, or
- Less than 90 days if you were discharged for a service-connected disability
Between July 26, 1947, and June 26, 1950 (post-WWII period)
- 181 continuous days, or
- Less than 181 days if you were discharged for a service-connected disability
Between June 27, 1950, and January 31, 1955 (Korean War)
- 90 total days, or
- Less than 90 days if you were discharged for a service-connected disability
Between February 1, 1955, and August 4, 1964 (post-Korean War period)
- 181 continuous days, or
- Less than 181 days if you were discharged for a service-connected disability
Between August 5, 1964, and May 7, 1975 (Vietnam War), or
February 28, 1961, to May 7, 1975, if you served in the Republic of Vietnam
- 90 total days, or
- Less than 90 days if you were discharged for a service-connected disability
Between May 8, 1975, and September 7, 1980 (post-Vietnam War period), or
Between May 8, 1975, and October 16, 1981, if you served as an officer
- 181 continuous days, or
- Less than 181 days if you were discharged for a service-connected disability
Between September 8, 1980, and August 1, 1990, or
Between October 17, 1981, and August 1, 1990, if you served as an officer
- 24 continuous months, or
- The full period (at least 181 days) for which you were called to active duty
Between August 2, 1990, and the present (Gulf War)
- 24 continuous months, or
- The full period (at least 90 days) for which you were called or ordered to active duty, or
- At least 90 days if you were discharged for a hardship, a reduction in force, or for convenience of the government, or
- Less than 90 days if you were discharged for a service-connected disability
You separated from service after September 7, 1980, or
After October 16, 1981, if you served as an officer
- 24 continuous months, or
- The full period (at least 181 days) for which you were called or ordered to active duty, or
- At least 181 days if you were discharged for a hardship, a reduction in force, or for convenience of the government, or
- Less than 181 days if you were discharged for a service-connected disability
If you’re on active duty right now then you just need 90 continuous days.
=>STEP 3: Find a lender that works exclusively with the VA
You may know this already, but the VA is not a lender. But VA does guarantee the loan for the lender as long as it is underwritten to VA guidelines. It’s up to you to find a lender who specializes in VA loans.
Here are some things to look for when you’re looking for a lender:
-Is the lender a VA-approved lender? If not, they can’t approve your loan documents with the VA and will need to coordinate this through another company.
-Does the lender have a good reputation? You’ll want to see if other veteran borrowers say something positive about their experience working with them.
-Can you reach someone on the phone to ask questions? This is important. Working with a VA lender who is difficult to get on the phone will be frustrating as you get through the process. The best of all worlds is to find a California VA Loan specialist who not only answers the phone but can also answer your questions and effectively guide you through the home buying process.
If you can answer ‘yes’ to these three questions, then they might be worth your consideration. You’ll want to make sure they have the ability to originate VA loans in California before you give them any personal information.
=>STEP 4: Submit a formal application with the lender to get PreApproved for the VA Loan program. The following is a list of steps that you will need in order to submit an application:
1) Complete and submit the VA Application Package online. The California VA lender will be able to provide a link to their secure online loan application. The application should be very intuitive and easy to complete.
2) Provide any additional required documentation (i.e., DD214, tax returns, W2’s, paystubs, LES statement, bank statements, etc). The lender should have a secure method that you can use to upload the documentation to them for review.
3) Stay in contact with your California VA Loan specialist. He will be able to answer your questions and will stay with you all the way to the end, acting as your “Home Buyer’s Guide.”
=>STEP 5: Begin house hunting – your VA loan is just a signature away!
You should now be PreApproved for your VA loan. It’s important to know that PreApproval means different things to different lenders. Some lenders will issue a “PreApproval Letter” without even reviewing the file or documentation. This is should be more of a Prequalification if even that. The best PreApproval is a “fully underwritten” PreApproval. This is where the lender processed your loan application as if you already have an accepted offer. You’re not going to get a fully underwritten PreApproval in 10 minutes or even 24 hours. It could take more than a week, maybe two, to get a fully underwritten PreApproval. But once you have it you are as strong as a cash buyer. All that is needed is a purchase contract, clear title, and appraisal.
Most house hunting is done online these days. But it will be helpful to work with a Realtor who is familiar with VA financing, especially if you intend to buy a condo. If you ARE planning to buy a condo then you’ll want to limit your search to VA-approved condos. And this again is where working with a VA loan specialist is critical. Otherwise, you could end up frustrated while looking at homes that are not VA-approved. Depending on where your home search is there are websites that can help narrow down the search to only condos in VA-approved condo projects. For example www.CaliforniaVeteranHomes.com and www.OrangeCountyVACondos.com.
=>STEP 6: Make an offer to purchase and close on your home.
It’s no secret that the housing market in California is tough. You have to be patient and persistent when buying a house. But with your VA loan PreApproval letter in hand, you will be in a very strong position when competing with other offers. Make sure to keep your California VA Loan Officer involved in the process so that he can provide updated numbers for the homes you are interested in. Remember, your California VA Loan Officer will be your Guide and is there to answer all of your VA loan questions.
=>STEP 7: Move into your new home
This is the best part. After a typical 30 days in “escrow”, you should be ready to close and then own your home. Schedule the moving van and make your new home your own. And again, keep your VA Loan Officer in the loop if you have any questions on how or where to make your payment. A good California VA Loan Officer will make sure you have a solid understanding of what to look out for after your loan closes, like Supplemental Property taxes which can be a surprise to new home buyers.
Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at Arbor Financial Group NMLS 236669. My direct line is 949-829-1846. I will prepare custom VA loan scenarios that 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 hav
The VA Home Loan Program is designed to help California veterans who served honorably, and their surviving spouses, buy homes as they start to lay down roots here in California. The VA loan program does not require a down payment or mortgage insurance and offers interest rates that are usually below market. Best of all, there are no loan or income limits. Find out how a California Veteran can qualify for a VA Loan and get started today!
Here are the steps to qualifying for a VA loan.
=>STEP 1: Decide if the VA Home Loan is right for you
There are many reasons why someone might want to decide if the VA Home Loan is right for them. Some people may be interested in a VA home loan because they have very little money saved, or because qualifying for a Conventional loan is more difficult. Another big reason is that there is no down payment required with the VA loan. And of course, since interest rates tend to be low on VA loans and no mortgage insurance is required, the mortgage payment will be lower with a VA loan when compared to another loan (like an FHA loan). Lastly, another great benefit of getting a VA home loan is that there are no income limits and no loan limits.
=>STEP 2: Determine your eligibility and entitlement with the VA
The easiest way to determine eligibility for a va loan is to have a VA Lender submit your DD214 through the Va Lenders portal and retrieve your Certificate of Eligibility. But if you’re wondering what the basic requirements are then the information below will be helpful.
When did you serve? You meet the minimum active-duty service requirement if you served for at least this amount of time: Between September 16, 1940, and July 25, 1947 (WWII)
- 90 total days, or
- Less than 90 days if you were discharged for a service-connected disability
Between July 26, 1947, and June 26, 1950 (post-WWII period)
- 181 continuous days, or
- Less than 181 days if you were discharged for a service-connected disability
Between June 27, 1950, and January 31, 1955 (Korean War)
- 90 total days, or
- Less than 90 days if you were discharged for a service-connected disability
Between February 1, 1955, and August 4, 1964 (post-Korean War period)
- 181 continuous days, or
- Less than 181 days if you were discharged for a service-connected disability
Between August 5, 1964, and May 7, 1975 (Vietnam War), or
February 28, 1961, to May 7, 1975, if you served in the Republic of Vietnam
- 90 total days, or
- Less than 90 days if you were discharged for a service-connected disability
Between May 8, 1975, and September 7, 1980 (post-Vietnam War period), or
Between May 8, 1975, and October 16, 1981, if you served as an officer
- 181 continuous days, or
- Less than 181 days if you were discharged for a service-connected disability
Between September 8, 1980, and August 1, 1990, or
Between October 17, 1981, and August 1, 1990, if you served as an officer
- 24 continuous months, or
- The full period (at least 181 days) for which you were called to active duty
Between August 2, 1990, and the present (Gulf War)
- 24 continuous months, or
- The full period (at least 90 days) for which you were called or ordered to active duty, or
- At least 90 days if you were discharged for a hardship, a reduction in force, or for convenience of the government, or
- Less than 90 days if you were discharged for a service-connected disability
You separated from service after September 7, 1980, or
After October 16, 1981, if you served as an officer
- 24 continuous months, or
- The full period (at least 181 days) for which you were called or ordered to active duty, or
- At least 181 days if you were discharged for a hardship, a reduction in force, or for convenience of the government, or
- Less than 181 days if you were discharged for a service-connected disability
If you’re on active duty right now then you just need 90 continuous days.
=>STEP 3: Find a lender that works exclusively with the VA
You may know this already, but the VA is not a lender. But VA does guarantee the loan for the lender as long as it is underwritten to VA guidelines. It’s up to you to find a lender who specializes in VA loans.
Here are some things to look for when you’re looking for a lender:
-Is the lender a VA-approved lender? If not, they can’t approve your loan documents with the VA and will need to coordinate this through another company.
-Does the lender have a good reputation? You’ll want to see if other veteran borrowers say something positive about their experience working with them.
-Can you reach someone on the phone to ask questions? This is important. Working with a VA lender who is difficult to get on the phone will be frustrating as you get through the process. The best of all worlds is to find a California VA Loan specialist who not only answers the phone but can also answer your questions and effectively guide you through the home buying process.
If you can answer ‘yes’ to these three questions, then they might be worth your consideration. You’ll want to make sure they have the ability to originate VA loans in California before you give them any personal information.
=>STEP 4: Submit a formal application with the lender to get PreApproved for the VA Loan program. The following is a list of steps that you will need in order to submit an application:
1) Complete and submit the VA Application Package online. The California VA lender will be able to provide a link to their secure online loan application. The application should be very intuitive and easy to complete.
2) Provide any additional required documentation (i.e., DD214, tax returns, W2’s, paystubs, LES statement, bank statements, etc). The lender should have a secure method that you can use to upload the documentation to them for review.
3) Stay in contact with your California VA Loan specialist. He will be able to answer your questions and will stay with you all the way to the end, acting as your “Home Buyer’s Guide.”
=>STEP 5: Begin house hunting – your VA loan is just a signature away!
You should now be PreApproved for your VA loan. It’s important to know that PreApproval means different things to different lenders. Some lenders will issue a “PreApproval Letter” without even reviewing the file or documentation. This is should be more of a Prequalification if even that. The best PreApproval is a “fully underwritten” PreApproval. This is where the lender processed your loan application as if you already have an accepted offer. You’re not going to get a fully underwritten PreApproval in 10 minutes or even 24 hours. It could take more than a week, maybe two, to get a fully underwritten PreApproval. But once you have it you are as strong as a cash buyer. All that is needed is a purchase contract, clear title, and appraisal.
Most house hunting is done online these days. But it will be helpful to work with a Realtor who is familiar with VA financing, especially if you intend to buy a condo. If you ARE planning to buy a condo then you’ll want to limit your search to VA-approved condos. And this again is where working with a VA loan specialist is critical. Otherwise, you could end up frustrated while looking at homes that are not VA-approved. Depending on where your home search is there are websites that can help narrow down the search to only condos in VA-approved condo projects. For example www.CaliforniaVeteranHomes.com and www.OrangeCountyVACondos.com.
=>STEP 6: Make an offer to purchase and close on your home.
It’s no secret that the housing market in California is tough. You have to be patient and persistent when buying a house. But with your VA loan PreApproval letter in hand, you will be in a very strong position when competing with other offers. Make sure to keep your California VA Loan Officer involved in the process so that he can provide updated numbers for the homes you are interested in. Remember, your California VA Loan Officer will be your Guide and is there to answer all of your VA loan questions.
=>STEP 7: Move into your new home
This is the best part. After a typical 30 days in “escrow”, you should be ready to close and then own your home. Schedule the moving van and make your new home your own. And again, keep your VA Loan Officer in the loop if you have any questions on how or where to make your payment. A good California VA Loan Officer will make sure you have a solid understanding of what to look out for after your loan closes, like Supplemental Property taxes which can be a surprise to new home buyers.
Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at Arbor Financial Group NMLS 236669. My direct line is 949-829-1846. I will prepare custom VA loan scenarios that 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 hav
by Tim Storm | Feb 26, 2018 | Blog, VA Loan PreApproval
There are many reasons a California Veteran should by a home. Property values in California have fully recovered in most counties compared to values in 2008 after the “mortgage meltdown”. Mortgage underwriting standards are now much stricter than they were prior to the crash, which has helped to stabilize the real estate market., Homebuyers are still optimistic about searching for and purchasing a home. Home prices have experienced nice appreciation rates over the past few years are expected to continue that trend in 2018.There are many reasons that it makes financial sense, especially for California Veterans, to purchase a home now. Here are a few of those reasons:
A home is one of the best leveraged investments currently available
When purchasing a home, the purchaser stands to potentially make significant gains on their investment. For example, say a borrower pays a 20% down payment on a $400,000 home. That is $80,000 down payment. If the value of the home they purchased rises 10% to a value of $440,000, they will have realized a 50% return on their initial investment. For every percentage point the value rises the borrower gets a 5% return on investment. If a mortgage has a smaller down payment, then the increase in ROI is even greater. In the case of a California Veteran that uses the VA program where no down payment is required, a rise in value would mean an exponentially immeasurable increase in ROI. It is, of course, important to also compare the total mortgage payment to a comparable rent payment and make sure the mortgage payment fits your budget.
Whether you own or rent, you are still paying for housing
In either case, you are likely paying someone’s mortgage principal. When renting you are paying the landlords principal plus a rate of return to help cover their costs. When owning, you will be paying your own principal and moving towards paying off your mortgage. You also get much more favorable tax treatment when owning your home.
Owning is a form of “forced savings”
Many individuals will delay saving money for the future due to current debt and current costs. Owning a home acts as a storage of value and can serve as a long-term asset. When purchasing a home with a mortgage, you have to pay into your home by paying off your mortgage. This is a forced savings since the money you paid to close out your mortgage is stored in the long-term value of your home.
There are significant tax benefits to owning
Compared to renting, there are many more tax-related benefits if you own your home. When you own your home, you are able to deduct property taxes and mortgage interest from your income. Of course, it is always important to consult with your CPA or tax preparer to see if there will be a tax benefit for you or not. Recent tax changes may have reduced or eliminated the tax benefit of owning a home at certain price ranges. Every situation is different.
Owning your home is a hedge against potential inflation
For potential homeowners with a fixed rate mortgage, their housing costs could be essentially fixed with only utility costs, insurance, and property taxes changing over time. When renting a home, rents and related costs will change over time with higher rates of inflation. The potential for future inflation provides homeowners with an attractive possibility for future savings. And in California, because of Proposition 13 (passed in 1978), property taxes are severely limited to increasing in step with inflation. Proposition 13 only allows the county to increase your properties assessed value by a maximum of 2% per year. Since 2000, the average annualized property appreciation rate in California is 5.03%. (from 1st Quarter 2000 through 3 Quarter 2017 – source https://www.neighborhoodscout.com/ca/real-estate ) That even takes into account the downturn in 2008. Somebody who bought a home in 2000 for $300,000 is now sitting on a home valued at $708,120. But their property tax bill is not based on the estimated value of $708,120. Because of Proposition 13, the assessed value would only be $420,000. Since the property tax bill is based on the assessed value, this works as a great hedge against inflation. The base annual property tax bill would be 1% of $420,000, or $4,200. But if someone new move into the neighborhood and buy a home valued at $708,000, their base property tax bill would be $7,080. The sooner you buy a home the better. Lock in that payment before property values go higher.
It is very important to make sure you have a clear understanding of the numbers involved in purchasing a home with VA financing. You want to make sure you know your budget so that after you buy a home you are still able to save for retirement and go out to dinner now and then. To understand the numbers, call a California VA loan officer prior to shopping for a home.This should always be your first step. Similar to shopping for a car, you need to know what payment you can afford and what that payment equates to in purchase price. Your California VA Loan Officer will be able to quickly assess your situation and prepare custom VA loan scenarios for you.
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. www.CaliforniaVALoanExpert.com. 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.
by Tim Storm | Jul 17, 2017 | Blog, VA Loan Information, VA Loan PreApproval
Buying a home can be a difficult proposition for most non-Veteran Californian’s. The biggest hurdle to buying a home in California is the down payment. But this is where California Veterans have a big advantage over non-Veterans, because the VA loan program eliminates the need for a down payment. The VA mortgage is an amazing program that has helped Veterans across the country purchase homes. The VA doesn’t fund the loans but acts as an insurer or guarantor to reduce the risk for VA approved lenders. Since the VA guarantees a portion of the loan (25% of the loan), VA approved lenders in California are able to fund loans with no down payment and competitive interest rates.
No Down Payment Required up to County Loan Limit
The best thing that can be said about the VA mortgage program is that there is no down payment required. Based on the county VA loan limits that the VA announces each year, a California Veteran can purchase a home with $0 down payment. This enables Veterans to save thousands of dollars out of pocket while qualifying to purchase a home.
No PMI on VA Loans
Another big benefit for California Veterans that can save them thousands of dollars over the life of the loan is that there is no Private Mortgage Insurance (PMI) required. With other types of home financing that are used by non-Veterans, when there is a down payment less than 20%, PMI is required. This is designed to protect lenders against the risk of the borrower defaulting. Since the VA guarantee 25% of the VA loan, there is no need for lenders to require PMI. With no PMI, California Veterans can save hundred’s of dollars a month and thousands over the life of the loan.
Competitive Interest Rates on VA Loans
VA loans also tend to have lower interest rates when compared to Conventional programs for non-Veterans. VA loans tend to have interest rates that are anywhere from .125% to .5% lower than Conventional programs, depending on factors like FICO score and loan to value. Lower interest rates means veterans will save thousands of dollars over the life of the loan. Lower interest rates is also a big reason why the VA program may be better for a Veteran than a Conventional loan, even when the Veteran has a down payment of 20% or more. It makes sense to always include VA financing in your loan comparison analysis no matter how much down payment will be used.
Underwriting and Credit Flexibility on VA Loans
On top of these benefits, the VA program doesn’t have a prepayment penalty and also has more flexible underwriting and credit guidelines than other types of home loan programs. The VA program has provided the ability for thousands of California Veterans to be able to get a loan for a home that wouldn’t have been able to otherwise. When it comes to securing financing for a home, in most cases the VA loan is the best option for California Veterans.
The first step in determining whether you qualify for a VA loan is a quick phone call to your trusted California VA Loan Specialist. After a 5 minute consultation the VA loan specialist should have enough information to prepare custom loan scenarios and then can carefully educate you on the numbers to make sure you stay within your budget.
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. www.CaliforniaVALoanExpert.com. 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 | Jun 15, 2017 | Blog, VA Loan PreApproval
“How much VA Mortgage can I afford?” is one of the most commonly asked questions a California Veteran has during the process of buying a home, And whether it’s you asking that question of yourself, or a lender calculating it for you, at some point along the way, you’ll need an answer to this question, along with “what is needed to qualify for a VA loan?”. So the sooner you understand how this is calculated, the sooner you’ll discover what price range of home you should be looking at.
Lender Lingo
Before we get too deep into the weeds of mortgage industry lexicon, let’s take a look at some basic terms used in this analysis.
- Qualified Income: This is the amount of income your Loan Officer feels confident will be approved by underwriters. Let’s say you make a base salary of $108,000 per year, but you’re also eligible for Overtime and Bonus Income. Typically you will need to have earned overtime and bonus income for two years before it can be added to your Qualified Income. A two-year average of the Overtime and Bonus Income is used. This is also true of Commission Income. Most importantly, the income used to qualify you will always be your Gross Income; i.e. before taxes. (for self-employed borrower, the income after expenses, net profit)
- Debt to Income Ratio (DTI): What percentage of your Qualified Income is being used to pay all your monthly debt obligations? This is just simple division, where you take the amount you owe monthly and divide that amount by your Qualified Income. Your monthly debt will not include things like taxes, car insurance, groceries, utilities, etc., but will include car payments, minimum credit card payments, student loans, and any other monthly payment that appears on your credit report.
- Maximum DTI: Underwriters cannot let you spend more than the lender guidelines allow for your specific loan product. There needs to be room in your Qualified Income to pay state & Federal taxes, buy groceries, gas for your car, etc. And if after a full review of your financial documentation, your Loan Officer calculates your DTI to be higher than the maximum allowed, then you may want to lower your price point for the new home. The good news for California Veterans is that VA loans have the highest DTI allowance of all mortgage products. Technically VA does not have a maximum DTI. While VA does not institute a maximum DTI, most lenders do. Some lenders will not allow the DTI to be higher than 50%, and some cap it at 55%. But there are lenders that will follow VA and not have a maximum DTI, instead relying on VA’s Residual Income calculation.
- Residual Income: The only loan program that uses the Residual Income calculation is VA. This carries more weight the DTI when it comes to VA loans. Residual Income is essentially what is left of your income after paying your PITI, car payments, student loans and other debt payments, income taxes, and home maintenance. Yes, this calculation takes into account home maintenance and changes based on the size (square footage) of the home you buy. The calculation also takes into account how large your family is. For example, a family of 5 will need to have more Residual Income than a single Veteran.
- Housing Expense: How much money are you obligated to pay each month to sustain the home in question? Lenders call this your PITI(A). It’s the full monthly cost, including Principal & Interest payments on your mortgage, Property Taxes to the County, and the monthly cost of your annual Homeowner’s Insurance policy. Additionally, if your home is located in a community managed by a Homeowner’s Association, your housing expense will need to include your monthly HOA dues. Note that whenever a Lender discusses PITI, it is assumed that it’s “all-in”, including any HOA, 2nd mortgage payments, Lease Payments, etc.
Examples of Debt to Income Calculations
Now that we’ve reviewed some basic definitions, let’s run thru a couple of examples to see how it all comes together
Here’s a fairly typical example of Consumer Debt for an average household:
- Car Payment #1 $300
- Car Payment #2 $450
- Visa Card $25
- MasterCard $150
- Student Loans $250
- Total of Consumer Monthly Debt Obligations $1,175
Now let’s look at a hypothetical breakdown of PITI for the house you’re looking to buy. We’ll assume the property is in Orange County where the High Balance Conforming Loan Limit is the highest in the state, according to the FHFA. If we use 100% VA financing, we’ll have a loan amount of $679,650 (2018 Orange County loan limit for 100% financing). *Note: Because your PITI will require knowledge of current interest rates and the subsequent Principal & Interest payment, as well as qualifying estimates for Taxes & Insurance, you will need to speak with an experienced Mortgage Loan Originator – VA Specialist to get an accurate estimate for PITI.
- Principal & Interest on new mortgage (P&I) $3,244 (using 4.25% note rate, 4.37 APR on Jan 7, 2018, assuming no VA Funding Fee)
- Property Taxes (T) $707 (1.25% of purchase price / 12)
- Homeowner’s Insurance (I) $141 (.25% of Loan Amount / 12)
- HOA Dues (A) $0
- Combined total of PITI $4,092
- The total amount used for DTI calculation ($1,175 + $4,092) $5,267
Now that we have an accurate number for the total amount of debt required to be serviced each month, we can look at the Qualified Income and come up with a DTI. If we find after a full review of your complete income documentation that you have Qualified Income of $9,000 per month, then we can derive your DTI immediately by the following calculation:
$5,267 ÷ $9,000 = .626 (58.52% DTI)
This DTI is too high for either FHA or Conventional mortgages, but could still work with VA Financing depending on the Residual Income and other compensating factors. However, since many lenders max the DTI for 100 % VA Financing at 55%, and because we want to make sure you have money left over to go out to dinner or maybe even take a vacation, we should work our initial plans to be at or below 55%. (Even 55% is very high. But for someone who has income that is not being used in the debt to income calculation, pushing the DTI to 55% may not be a big deal.).
In an analysis like this, we know that certain things cannot change. For example, we cannot increase your income without clear, complete and acceptable documentation to support it. And on the other side, you have the monthly consumer debt. We’ll assume that none of those debts can be paid off and therefore must remain in your DTI calculation. It follows then, that if: a) your income and debt cannot change; b) the DTI maximum is fixed, and c) your DTI is too high, then the only other variable that can change is the PITI on the new home. Therefore, we simply take 55% of your Qualified Income ($9,000 x 55% = $4,950) and subtract out the Consumer Debt of $1,175. This leaves us with an all-in PITI that cannot exceed $3,775 since doing so would put your DTI over the declared maximum.
The rest of it is up to your Loan Officer. Again, calculating the monthly PITI will require guidance on current rates for your specific transaction. But let’s lower the hypothetical purchase price to $600,000 and see if it works using the same assumptions as before.
- Principal & Interest on new mortgage (P&I) $2,952 (using 4.25% note rate, 4.37 APR on Jan 7, 2018, assuming no VA Funding Fee)
- Property Taxes (T) $625
- Homeowner’s Insurance (I) $125
- HOA Dues (A) $0
- Combined total of PITI $3,702
- The combined total for both consumer debt and the proposed PITI $4,877
Using the same formula as before, the DTI calculation would look as follows:
4,877 ÷ 9,000 = .5234 (54.18% DTI)
In our examples above, we started with a hypothetical purchase price of $679,650 but quickly discovered the DTI of 58.52% was higher than many lenders will allow. In our second example, we found that a purchase price of $600,000 provided us a DTI of 54.18%, which may be more feasible for our test borrower. We can, therefore, conclude that the approximate maximum amount of mortgage that you can afford is very near the $600,000 level. To go out shopping for homes much higher than that would potentially put you in a situation where you couldn;t afford to do anything beyond making your house payment.
One final thing to remember about maximum DTI: Every loan product, mortgage type and indeed, every individual loan application, will each have their own limits. We’ve used a maximum 55% in our VA examples above, but the VA is in the habit of helping Veterans get into homes, and it’s not at all uncommon to see an underwriter make an exception if there are what we call “Compensating Factors” on your application. Things considered as compensating factors include excellent credit, large amounts of assets in savings and retirement plans, several years in the same job, etc. Conventional loan guidelines are less forgiving, and you will find that the 50% maximum DTI on most Conventional loans is fixed without exception. Always work with an experienced Mortgage Loan Originator to find out what will apply in your situation.
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.
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 | Jun 10, 2014 | VA Loan PreApproval
California Veterans can sometimes have a difficult time getting their offers to buy a home accepted by home sellers. As a matter of fact, it happens quite a bit. But by being proactive, there are things a California VA Lender and the Veterans real estate agent can do that will help increase the odd’s of getting an accepted offer. First, it’s important to understand why sellers and the real estate agents listing their homes tend to shy away from VA offers.
The Myths/Reasons Why Sellers and Agents Don’t Accept Offers with VA Financing
- Sellers and/or their agents fear than since a buyer using VA financing will not need a down payment then this somehow makes their offer to purchase more of a risk. A risk of falling out or getting declined.
- Sellers and/or their agents believe that they will be required to pay closing costs for the California Veteran buying their home.
- Sellers and/or their agents believe that the VA appraisal process is more difficult and more conservative than an appraisal for other types of financing.
- Sellers and/or their agents believe that it takes longer to close a VA loan than other types of financing.
None of this is true. Let’s first take a look at the fact a VA buyer does not need a down payment to buy a home (up to the county’s 100% Financing Limit). The fact that there is no down payment has nothing to do with whether the loan gets approved or not. As a matter of fact, VA loan underwriting guidelines are more lenient than Conventional guidelines when it comes to debt to income ratios, credit, prior derogatory credit (bankruptcy and/or foreclosure). Also, as with any home buyer, the California Veteran should already have a PreApproval from a California VA Lender prior to even making the offer. With the PreApproval, the lender has already reviewed the borrowers credit, income and assets, just like any other type of financing. There are many cases where the Veteran does have plenty of savings in the bank, but when the VA loan program allows for 100% financing and has no monthly mortgage insurance, why bother with down payment? The fact that many VA loans are closed where the Veteran has solid reserves in the bank after closing may be one of the reasons why VA loans have the lowest default rate of any type of financing.
Seller not Required to Pay Veterans Closing Costs
The seller is not “required” to pay any closing costs for a California Veteran. This does get confusing because there are “non-allowable” costs which the Veteran can’t pay. But actually, in many cases they can. VA does allow the Veteran to pay up to 1% of the purchase price in “non-allowable” costs. The primary “non-allowable’s” are the lender “junk fees” and the escrow fee. For most homes priced over $300,000, the 1%, or in this case $3,000 tolerance, is more than enough for the buyer to cover the non-allowable’s. It is also fairly common with VA financing for the lender to offer a “lender credit” which will cover some or all of the non-allowable’s AND closing costs, resulting in a “VA NO NO“, where the Veteran buys a home with no money out of pocket. And again, this doesn’t mean the seller had to pay any of the buyers costs. Also, the seller is not even required to pay for repairs, if needed.
To make sure the seller is clear on the fact that they don’t need to pay closing costs for the VA buyer, the following wording should be included in the purchase contract:
“Seller not responsible for any buyer closing costs or prepaid expenses for this VA loan. All “non-allowable” closing costs will be paid by a combination of the buyer and lender”.
VA Appraisal Process is Easy
The VA appraisal process may have seemed somewhat arduous compared to a Conventional loan appraisal prior to 2009. But in 2009, the Home Value Code of Conduct, or HVCC, went into effect for Conventional appraisals. Lenders could no longer choose their favorite appraiser or even communicate with the appraiser. HVCC is actually more strict than the VA appraisal process. Also, VA appraisers tend to be very experienced since it’s not easy to get on the VA appraiser list. Sales comparable’s are reviewed in the same manner as any other type of appraisal. If there are safety issues with the property, like loose wires hanging from an outlet or a hole in the floor, that will be called out by a VA appraiser and would need to be repaired. There are rarely repairs required, and if there are they tend to be for items that ANY buyer with ANY type of financing would want fixed. And the VA buyer is allowed to pay for the repairs if the seller is adamant about not paying for repairs.
VA Loans Close in 30 Days or Less
It does not take longer to close a VA loan than other types of financing. As mentioned above, in most cases the California Veteran should already have been PreApproved for the VA loan prior to even making the offer. The lender is just waiting for an accepted off to get the ball rolling on the appraisal. Closing within 20 to 30 days should not be a problem if the loan is being handled by a California lender specializing in VA loans.
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 the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.
