Why VA Loan PreApproval is Important

VA Loan PreApprovalHow important is it to have your California VA mortgage financing figured out before you have an offer to buy a home accepted? I would say it is Super Important. There are a lot of moving parts when it comes to buying a home, especially with regards to the financing. If the financing does not work out then the deal will fall apart, resulting in a loss of time and money for all parties involved in the home purchase. Which is why getting PreApproved for a VA home loan prior to even beginning to make purchase offers is critical if you intend to have a smooth transaction. This is just as important for California first time home buyers as it is for the move up home buyers.

A California Veteran Home Buyer Should Know These Things Before Shopping for a Home

  1. What makes up a “mortgage” payment? Many mortgage calculators found on websites only list the principal and interest portion of the payment. But what about the property taxes, home owners insurance, mortgage insurance (if needed), home owners association dues, etc.  A home buyer trying to getting an estimate of the mortgage on a $400,000 VA loan at 4.25% ($400,000 purchase price)  may just see a payment of $1,967. But using a typical factor of 1.25% for property taxes, the monthly taxes will be $416. And home owners insurance, using a factor of .3%, would be $100 per month. And with a VA loan, an impound account for taxes and insurance is required, meaning the actual monthly mortgage payment, including principal, interest, taxes, and insurance would be $2,484. That extra $500 in payment could be a real if the home buyer already had an accepted offer.
  2. What mortgage payment are they truly comfortable with? The home buyer should create a budget in order to make sure they can truly afford the mortgage payment. And they should also think about things that are outside of the mortgage payment, especially in the first year of their home purchase. Things like new furnishings, appliances, paint, etc. Also, there are maintenance costs for a home that should be considered in the budget.
  3. How much money will be needed to close escrow? Sometimes California Veterans using the VA home loan program automatically assume that since they will not need a down payment then they won;t need any funds to buy a home.  While it is possible to buy a home with VA financing and not need any funds for closing, commonly referred to as a VA No No, this is not something that is automatic. There are still closing costs that need to be dealt with. A California VA Loan officer can provide custom detailed loan scenarios which will give a complete breakdown of the estimated closing costs and prepaid expenses that would either need to be paid by the buyer, seller, or through a lender credit (if going for a VA No No).
  4. What comprises the closing costs and what are “prepaid expenses”? Closing costs are made up of costs involved in the purchase of the home and are one time items. There lender fees, inspections, the appraisal, escrow closing fees, notary, county recording fees, title charges, home owners association transfer fees, credit report fees, etc. It is important to get an accurate estimate of these costs during the planning stages of buying a home. As a home buyer, finding out you are short to close by $3,000 is not a good feeling when you are already in escrow to buy a home. And what about “prepaid expenses?” These are “recurring” items, including mortgage interest (prepaid interest), property taxes, and insurance. An impound account will need to be set up on a VA home loan for taxes and insurance. The number of months of property taxes that will be initially deposited into the impound account depends on what month the loan is to close. At certain times of the year it may be just 2 or 3 months. But at other times of the year it could be 8 or 9 months. On a $400,000 purchase, this could be a difference in funds to close of over $2,000.

VA Loan PreApproval Answers Questions the Buyer Needs to Know

By working with a California VA loan officer at the very beginning of the home shopping process the Veteran will get the answers to questions that they need to know. And learn things that they didn’t even realize they needed to know. And of course in the current real estate market, most sellers and their listing agents will not even entertain an offer from a buyer who doesn’t have a VA loan PreApproval letter in hand. Some lenders will charge a fee for PreApproval, but there are plenty of reputable VA lenders who will do a PreApproval for free. And depending on the complexity of the loan package, PreApproval can be completed anywhere from 24 hours to a week. The first step is a quick email or call to an experienced California VA loan officer.

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.

How to use a VA Loan to buy a home in Westchester, CA

VA loan for Los Angeles homeThe VA loan program is one of the most underutilized mortgage programs around. And while it’s true that the borrower needs to be “eligible” for VA financing, even those who have VA eligibility often don’t realize how good the VA program is, especially in neighborhoods with homes in the $700,000 to $1,500,000 range like Westchester and Playa Del Rey, CA.

VA Loan Limit for Los Angeles County

VA allows 100% financing up to a loan amount of $679,650 in Los Angeles County (2018 VA loan limit for 100% financing). This means that a Veteran can buy a home for $679,650 and not need a down payment. Not only that, but VA offers very aggressive fixed interest rates and flexible underwriting compared to standard Conventional and Jumbo financing. But $687,500 is not the maximum VA loan limit. It is just the maximum loan amount for $0 down financing. Some lenders will fund VA loans to loan amounts as high as $1,500,000. A VA loan over the 100% loan limit is known as a “Jumbo VA Loan”.

What is a Jumbo VA Loan?

A Jumbo VA loan occurs when the purchase price is higher than the Los Angeles VA loan limit for 100% financing. A down payment is required equal to 25% of the difference between the 100% limit and the higher purchase price. For example, let’s assume a Veteran with VA loan eligibility is buying a home in Westchester for $779,650 (an even $100,000 higher than the VA 100% loan limit). In this case, a down payment of only $25,000 is required and the new VA loan would be $754,650. So for only 3.2% down payment a Veteran can buy a $779,650 home, get a lower fixed rate and also have no monthly “mortgage insurance”, which is typical on other types of financing with less than 20% down. This also works for higher priced homes. Assume a home priced at $1,079,650 (and even $400,000 higher than the 2018 VA 100% loan limit). A down payment of $100,000 would be required (only 9%) and the VA loan would be $979,650.  Even if the Veteran wants to put 20% down, which would qualify them for standard Conventional financing, a comparison is worth a look since VA offers such aggressive fixed rate loan programs.

Credit Standard for VA Loans

Compared to Conventional and Jumbo financing programs, VA is very flexible. Veterans can have a FICO as low as 580 with some lenders.  VA is also very flexible when it comes to prior credit issues. Prior foreclosures and bankruptcies only need be “seasoned” two years to be eligible for VA financing on a new home. There is no seasoning requirement for short sales. And while with Conventional loan programs the debt to income ratio cannot go higher than 50%, it is not unusual to get VA loan approval for Veterans with a debt to income ratio above 50%. VA is more concerned with “residual income”, or income left after the mortgage payment, debt payments, maintenance, and income taxes are paid.

Who Actually Funds a VA Loan?

The Veterans Administration does not underwrite or fund VA loans. Lenders do. The Veterans Administration does “guarantee” the loan as long as it has been underwritten to VA issued loan guidelines. Not all lenders follow VA loan guidelines to the letter, often adding “underwriting overlays”, or tightening the guidelines. Working with a lender who specializes in VA financing is very important, whether the Veteran wants to refinance into a VA loan or purchase a home using their VA eligibility. The lender should be able to provide custom loan scenarios which will give details on the purchase price, loan amount, payment, and closing costs associated with a VA loan. Talking with a VA loan specialist and getting PreQualified prior to beginning the home search is an important first step in the home buying process.

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.

Approval for VA Home Loan After a Short Sale

CalVet vs VA for California VeteransGetting a VA home loan after a short sale is fairly easy since VA does not require a wait period after the closing of the short sale. VA home loan underwriting guidelines tend to be more flexible than any other type of financing when it comes to prior derogatory credit. Of course, it is important to have re-established credit.

Re-established Credit after a Short Sale

After a major “event” like a short sale, foreclosure, or bankruptcy, it is important to make sure your credit is perfect. Having a late payment on a credit account, or a collection can make it difficult to get VA home loan approval. The underwriter will want to see that the borrower is making payments on time. Even if you think that your health insurance should have paid a medical bill (most medical collections are in the $50 to $250 range), don’t let the bill go to collections. Pay it and work on resolving the issue later. Once it becomes a collection the true cost from the overall damage to your credit and FICO score will be more than the cost of just paying the bill.

VA Home Loan Wait Periods for Major Derogatory Events

The general rule of thumb for a VA home loan after a major credit derogatory event is Two years. Two years from the time of the foreclosure or Deed in Lieu, or two from the discharge of a bankruptcy. Something to be aware of is that not all lenders follow VA guidelines to the letter. Depending on several factors, like FICO score or loan amount, some lenders will have tighter guidelines. In the mortgage industry, these tighter guidelines are known as lender “overlays”.  A typical lender overlay with VA home loan lenders is in regards to foreclosures and loan amounts greater than $453,100. $453,100 is the 100% loan limit for most of the country. In most of the country, a loan amount over $453,100 is considered a “Jumbo VA home loan”. It is a little different in California, where there several “high-cost counties”. VA will allow higher zero down loan limits in high-cost counties. For example, in Orange and Los Angeles County, the zero down loan limit is $679,650 (in 2018).  Still, many lenders have “overlays” where they require between 4 and 7 years to go by before a Veteran can get VA financing if the loan is over $453,100. Because of these lender overlays (especially this one, because it is prevalent), it important for a California Veteran to know the standard VA guidelines, and know that if one lender says “no”, to keep looking, Because there are VA home loan lenders in California who will approve your high balance or Jumbo VA home loan two years after a short sale or foreclosure.

Pre-Approval for a VA Home Loan

The most important first step in the home buying process is Pre-Approval. Getting Pre-Approved before starting the home search will save time, money, and aggravation. Also, sellers will not even accept an offer if the buyer is not Pre-Approved or at least Pre-Qualified for a VA home loan. During the pre-approval process, the California Veteran will be educated on the loan process. Income and asset documentation is proved, and custom VA loan scenarios are provided which will provide details on the purchase price the Veteran will qualify for, along with the loan amount, payment breakdown, closing costs, and prepaid expenses.

Veterans will sometimes assume that there are no closing costs associated with a VA loan, or that the seller will pay all closing costs. Well, there are definitely closing costs associated with a VA loan (just like any loan), and the seller is not required to pay the closing costs. In the current real estate market, where many areas have recently seen a resurgence, an offer requesting the seller pay all the closing costs will have a tough time getting accepted if there are multiple offers not requesting closing costs. But there are still ways for a Veteran to purchase a home with no down payment and not come up with anything out of pocket to close. The Pre-Approval will help the Veteran understand all of their options. The first step is to contact a California VA home loan lender.

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.