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VA Loan Closing Costs in California: What to Expect

Veterans are sometimes caught off guard when they learn about the closing costs associated with a home purchase. While it is true that VA does not require a down payment, closing costs are still a thing when buying a home no matter what type of loan the buyer is using. In a survey done by ClosingCorp, 17% of buyers were surprised closing costs were required on a purchase and another 35% were surprised at how much the closing costs were for their home purchase. The total costs to purchase a home can be anywhere from 2% to 5% of the purchase price. Being prepared and knowing the numbers is very important for any Veteran looking to purchase a home with a VA loan. There are two main types of closing costs/fees to be aware of. Non-recurring and Recurring closing costs.

Non-Recurring Closing Cost

As the name implies, Non-Recurring Closing Costs include items that only occur during the actual transaction. For example, an appraisal is needed for the purchase, but will not be needed on an ongoing basis unless the borrower is looking to do another transaction or refinance the loan. Non-Recurring Closing costs include fees for the loan, property inspections, title and escrow fees, etc. Below is a list of fees that you may see on a California home purchase.

  • Appraisal - VA sets the Fee for an appraisal. In California it can range between $700 and $1,000 depending on the county the property is located. The VA appraisal cost in Orange County and Los Angeles County is $700. The California VA lender will order the appraisal.
  • Credit report - the VA lender will pull your credit. The credit report is a "Tri-Merge" report which included the FICO scores from all three bureaus which include Experian, Equifax, and Transunion. The cost of the report and any additional updates to the report and passed on to the buyer. The lender does not make a profit on credit reports (or appraisals). The credit report fees can range from $50 to $100. Some lenders include the cost of the credit report in their Origination Fee.
  • Origination Fee - this is charged by the lender. It can range from $500 to 1% of your VA loan amount. The Origination Fee on a VA loan cannot be more than 1% of the loan amount. The Origination Fee covers lender costs to Process, Underwrite, and close the loan. Some lenders automatically charge 1% on all VA loans. For example, CalVet charges 1% on all CalVet loans. It is important to understand the difference between the Origination Fee and Discount Points.
  • Discount Points - Discount Points are using the "buy" the interest rate down. Many VA borrowers don't realize it, but VA does not lend and does not have one "rate". Interest rates are formulated based on how Ginnie Mae Mortgage Backed Securities are trading on the secondary market. All lenders are starting from the same point when it comes to pricing a loan so there should be too much of a difference in rates from one lender to the next. But in some situations there is a big difference, so its important to know that just because one lender quotes a certain rate doesn't mean all lenders will quote the exact same rate and fees. When a California VA Loan Officer quotes an interest rate they are looking at a matrix of rates. The lower the interest rate the more the Discount Points to get that rate, The higher the interest rate, the lower the Discount Points or cost will be. It is quite often possible to accept a rate that is higher than the current market in order to get an offsetting lender credit to cover some or all of the closing costs. There are strategies here that a good VA Loan Officer can present to you.
  • Escrow Fee - this fee is charged by an Escrow Company. The escrow company is a neutral third party in the transaction whose primary role is to protect the interests of all parties involved in the sale, including the buyer, seller, buyers agent and the sellers agent. The escrow company handles the funds between the buyer and seller, making sure the buyer doesn't receive title to the property until all conditions of the purchase are met and making sure the seller doesn't receive funds from the sale until those same conditions are met. The escrow fee can range from $500 to several thousand dollars. Most escrow companies use a formula to determine the cost. For example, they may have a base fee of $500 plus $3 per $1,000 of price. So a $500,000 purchase price would have an escrow fee of $2,000 using this formula. The escrow fee is considered by VA to be a "non-allowable" fee. This just means that the escrow fee, combined with the Origination Fee and other Non-Allowable fees can't be more than 1% of the loan amount. The escrow company it typically chosen by the seller or sellers agent.
  • Title Insurance - this protects the lender and the borrower from financial loss from defects on title. Title insurance is quite often an afterthought, but there have been nightmare stories in Mexico where a home is bought with no title insurance, only to find after closing that the property was improperly deeded to the seller 20 years prior. The buyer in that case would lose the property and the money they used to buy it. Fortunately, the US has title insurance and any home buyer using financing will have it. Fees for title insurance range from $500 to $3,500 depending on the sales price of the home. The title insurance company is typically chosen by the seller or sellers agent.
  • Inspection fees - these include the termite inspection, Home inspection, and in some cases the well inspection, septic inspection, etc. In California you will always have a termite inspection. And while a Home Inspection is not required by VA, it is highly recommended. A termite inspection is typically in the $125 range. Repairs required by the termite inspection are typically paid by the seller but everything is negotiable. The Home Inspection can cost between $400 and $1,000 depending on the property. 
  • Recording Fee - fee paid to the county recorder for the recording of the Grant Deed and Deed of Trust.
  • Home Warranty - this is not required by the lender but is recommended. The home warranty covers things that go wrong with the home in the first 12 months after the purchase. Not all Home Warranty's are the same so it's important to do some research. But they will typically cover things like plumbing, appliances, etc. 
  • HOA transfer fee - If the home is a Condo or in a Planned Unit Development (PUD) then there will be a Home Owners Association. Most HOA management companies will charge a transfer fee when a home sells.
va home buyer

Recurring Costs - AKA Prepaid Expenses

Recurring costs are also know as Prepaid Expenses. These are expenses/costs that will continue after the closing of the purchase. For examples, there will be a fee for the annual Home Owners Insurance premium. This fee will be ongoing for as long as the home is owned. There are several Recurring Costs.

  • Homeowners Insurance Premium - the buyer will prepay for the first 12 months. The Homeowners Insurance protects the homeowner if the home is damaged by fire or some other catastrophe. Not all policies are the same. For example, if the property is near an earthquake fault then it may be important to pay extra to get earthquake coverage. If the property is in a flood zone then there will be an extra charge for the risk of flooding. The homeowners insurance will be chosen by the buyer.
  • Property taxes - and the time of closing taxes will be paid. Depending on the month of the closing, there may be prorated taxes due to the seller, or there may be prorated taxes due to the county. The escrow company will provide the correct estimate of the prorated taxes.
  • Escrow account for property taxes and insurance - VA loans will have an escrow account (also known as an impound account) for property taxes and insurance. An escrow account is essentially a savings account the lender holds on the homeowners behalf from which property tax and insurance bills are paid when they come due. The number of months of property taxes initially deposited into the escrow/impound account is determined based on the closing month and first payment month. As an example of how this works, assume the closing date is April 15. Even though the annual homeowners insurance policy was paid through the closing, 2 to 3 months of insurance are deposited into the impound account. And 1/12 of the insurance premium is paid each month as part of the mortgage payment. Also, approximately 4 months of property taxes are deposited into the impound account, and 1/12 of the annual estimated property tax bill is paid into the impound account along with the monthly payment. This is the T&I part of the PITI. Principal, Interest, Taxes and Insurance.
  • Prepaid Interest - this covers the initial interest due on the home loan that will not be part of the first payment. It's important to understand that mortgage payments are made "in arrears", are at the end of the month. This is the opposite of rent payments, which are made for the upcoming month. In the example above, where the closing date was April 15, the first payment would not be due until June 1, or 45 days after the closing of the loan. The June 1 payment will cover interest from May 1 through May 31. But what about the interest due from the closing date of April 15 through April 30? This interest is paid at the closing and is known as Prepaid Interest. 
  • HOA Dues - these are prorated. The escrow company will provide the breakdown, which will initially come from the HOA Management company. If the transaction closes on April 15, then there would be a prorated HOA payment covering April 15-April 30. The buyer will most likely also be billed the May 1 HOA payment. Some HOA's bill semi-annually.
california va mortgage calculator

Know Your Numbers Before You Close

It is important to know your numbers before the day of closing. The more time you have to educate yourself on the numbers and what to expect the less surprises you will have. A good place to get a solid estimate of the costs in a purchase is from your VA Loan Officer. The VA Loan Mortgage Specialist should be able to provide a solid estimate and breakdown during the initial Prequalification stage. Don't wait until your have an accepted offer to educate yourself. 

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 714-478-3049. 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 have started the loan process specializing in VA Loans. MLO 223456. – Please contact my office at Fairway Independent Mortgage Corporation NMLS 2289. My direct line is 714-478-3049. 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 have started the loan process

What is the Debt to Income Ratio on a California VA Loan?

The Debt-to-Income ratio is an important factor used when qualifying for a VA loan in California.  But what is the Debt-To-Income ratio and how is it calculated? 

california va mortgage calculator

The Debt-To-Income ratio, or DTI, is one of the factors lenders use to determine whether a borrower can afford their total payments, including the new housing payment, when purchasing a home. VA is fairly flexible with the DTI compared to other types of financing. VA's guidelines show 41% as the preferred DTI. But it is not uncommon for a VA loan to be approved with a DTI above 50%. Even 60% is not unheard of for a VA loan. It just depends on other factors, including a borrowers FICO score, reserves in the bank, and Residual Income. 

Debt: Monthly Debt Payments

In the case of the DTI, Debt should really be thought of as the debt "payment". Debt-To-Income sounds like a comparison of a Veterans (since we're talking about VA loans) total debts compared to their income. But it really is the monthly debt payments divided by the gross (before taxes) income. For example, if a Veteran owes $30,000 on a car loan with a monthly payment of $500, it is the $500 that is used in the calculation. Not the $30,000. The DTI will be calculated the same way whether the Veteran owes $30,000 or $10,000. Student loans are probably a better example. A Veteran may have $200,000 in student loan debt, but if the monthly payment is only $300 because they're on an Income Based Repayment plan, then the fact that they have so much debt won't hurt them when qualifying for a VA loan.

California VA Appraisal by CaliforniaVALoanExpert.com

Income: Total Gross Income before taxes

The income portion of the DTI is fairly straight forward. This is your gross monthly income. "Gross" meaning your income before taxes are taken out. If your annual salary is $120,000, then your gross monthly income is $10,000. If you also receive VA Disability income of $1,000 per month then your gross monthly income is $11,000. VA does allow for disability income to be "grossed up" by 25% since it is not taxed, but for now we'll leave that calculation alone. For self employed borrowers the Gross Income is calculated AFTER business expenses/writeoffs but before taxes. For example, a self employed person who "grosses" $300,000 but has $250,000 in expenses with an approximate taxable income of $50,000, has $50,000 of income for VA home loan qualifying purposes. Every situation is different, so make sure you have a VA Loan Officer who has experience with income calculation.

The Debt to Income Calculation

Now that we have the two main components of the DTI, lets do the calculation. Just divide the monthly payments by the gross monthly income.  Let's start out with an example where a California Veteran buys a single family detached home for $700,000 with $0 down payment. Below is a breakdown of the payment assuming a Note rate of 3.625% and APR of 3.876%. We are assuming this to be the "first time use" for the Veteran, meaning a 2.3% VA Funding Fee brings the full loan amount to $716,100. The full PITI payment is $4,150, which is made up of the Principal & Interest ($3,275), Taxes ($729), and Insurance ($146). 

Now lets assume our California Veteran has a car payment of $400 and student loan payment of $120. This means that his total monthly obligations, including the PITI, will be $4,670. If the Veteran's monthly income is $10,000, then the Debt to Income ratio is 46.70%. ($4,670 / $10,000 = 46.7%). In most cases, and as long as the Residual Income calculation is within guidelines, a 46.7% Debt to Income ratio on a VA loan will be lower enough for the Veteran to qualify to purchase the home. There are other factors that will need to be considered as well. For example, the credit and FICO score are very important. And of course, does this payment fit within the Veterans budget based on other potential expenses that the VA lender doesn't look at (going out for dinners on a regular basis, or vacation spending, tuition, etc). To have a solid idea of what payment will work and what will not, it's important to work with a California VA Loan Specialist. Below is a link to a complete breakdown of the numbers for buying a $700,000 home. When you click on the image you will also be able to watch a short video explanation of the VA Purchase Analysis.

The First Step in Buying a California Home with a VA Loan: PreApproval

The first step in buying a California home with a VA loan is to talk to a California VA Loan specialist. And we I say "California", I mean if you are planning to buy in California then make sure you are working with someone who also lives in California. If you are trying to get VA questions answered for a California home purchase from a VA lender in Missouri, good luck. California is unique. Our home prices tend to be higher than other states. Also, we have more condos, and to get a VA loan on a condo you need to find a VA approved condo project. That is not easy and an out of state lender will offer little help in determining which condo projects are VA approved. By working with a California VA Loan specialist, you will have the best chance at finding a qualified VA approved home and closing escrow with as little stress as possible.

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 714-478-3049. 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 have started the loan process

How a California Veteran Can Qualify for a VA Loan

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 VADD214 for California VA loan eligibility

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:

Apply for VA loan

 

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 VADD214 for California VA loan eligibility

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:

Apply for VA loan

 

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

Example of a $450,000 Home Purchase using VA Financing in California

va loan applicationBuying a home in California can be a challenge. The biggest hurdle preventing most potential homebuyers is the down payment. While there are loan programs, like FHA, that allow for down payments as little as 3.5% down, it can still take time to save that much money. Someone buying a home for $450,000 in California with 3.5% down would need $15,750 for the down payment. And that amount doesn’t include closing costs, prepaid expenses, etc, that could easily add up to another $10,000, bringing the total amount needed to close to over $25,000. But for California Veterans, there is a much better option. A program that doesn’t require any down payment. The VA loan program.

The VA Loan Program allows 100% Financing up to your County Loan Limit

The VA loan program has been around, in some form, since 1944. It was conceived as a way to help returning military Veterans purchase a home. (or farm, etc). Rather than give a cash bonus, VA would guaranty a percentage of the loan, making it a safe program for lenders to offer. In its current form, the VA guarantees 25% of the loan amount, for loans up to a specified county limit. That VA California county loan limit is determined once a year by the Federal Housing Finance Agency, or FHFA. The base limit for most counties in the country and throughout California in 2018 is $453,100. But there are higher cost counties in California, like Los Angeles County, Orange County, Contra Costa County, and many other, with limits as high as $679,650. In those high-cost counties, California Veterans can purchase a home for $679,650 with $0 down payment. For today I am going to give you an example of what a $450,000 purchase using VA financing will look like.

What Do the Numbers Look Like for a $450,000 Home Purchase with $0 Down Payment?

First, we do need to make a few assumptions. We are going to assume this is a single family detached home with no homeowners association dues. We are going to assume a property tax rate of 1.25%, which is fairly typical in California. There are some areas where tax rates are between 1% and 1.05%, and some areas where the property tax rate is nearly 2%. But most are close to 1.25%. I am also going to estimate the homeowner’s insurance using a factor at .25% of the loan amount divided by 12. The homeowner will need to shop for their own insurance, but .25% will work as a solid estimate.  I am also going to assume this is the California Veterans first time using VA financing, resulting in a VA Funding Fee of 2.15%. For members of the Reserves or National Guard, the VA Funding Fee would be 2.4% for being first-time users of VA financing. A Veteran with a service-connected disability rating will not have a VA Funding Fee. And lastly, I am going to assume a FICO score of 720+. The example will break down the total payment, including principal, interest, property taxes, and insurance. I will also estimate the required income to qualify for this purchase price. I will also give an estimate of the typical closing costs and prepaid expenses, and give strategies for potentially having the closing costs and prepaid expenses covered using a lender or seller credit.
Loan scenario for $450,000 VA loan

There is No Down payment required, so the VA loan will equal the purchase price. There is a VA Funding Fee equal to 2.15%, or $9,675 in this case, that is financed into the loan. This makes the total VA loan $459,675.

Interest rates vary from one day to the next, but as of February 12, 2018, and assuming a FICO score above 720, we’ll use 4.25% at 0 points (APR 4.521%). That results in a Principal & Interest (PI) payment of $2,261. Property taxes and homeowners insurance are also part of the payment. They are the “TI” in PITI. The total “PITI” monthly payment is $2,824.

What Income is Needed to Qualify for a $2,824 mortgage payment?

The Debt to Income ratio is the ratio or percentage that compares a borrower’s gross income compared to their monthly payments. The guideline Debt to Income ratio is 41% on VA loans. But realistically VA does not have a maximum Debt to Income ratio. It is not unusual for the DTI on a VA loan to be 50% or higher. If we assume that 50% of the California Veterans gross monthly income can go towards their total payments. And if we assume the Veteran has a car payment of $500 and a minimum credit card payment of $50, then the estimated income needed to qualify for a mortgage payment of $2,824 and other payments of $550 (total of $3,374) would be approximately $6,774. ($3,374/.50% = $6,674).

Closing Cost Breakdown

There are closing costs and Prepaid expenses on all real estate and loan transactions. Even on a VA loan. There are ways to have some or all of those costs paid for (by the seller) or credited by the lender, but one way or another the costs to close do need to be accounted for. Understanding this before getting an accepted offer is very important. Typical closing costs include lender fees, appraisal, credit report, escrow and title fees, and recording fees. In our example, I have estimated those fees to total $6,000. Some of these fees will adjust based on the loan amount or purchase price of the home. The choice of escrow and title companies are negotiated through the purchase contract, but in most cases in the current real estate market, the seller or their real estate agent will have the upper hand in choosing those companies.Also, for this loan example, I have chosen an interest rate at 0 points, meaning there are no Discount points associated with the interest rate. You do have the option of “buying” the interest rate down by paying Discount Points. One Point is equal to 1% of the loan amount. If the loan amount is $459,675, then 1 Discount Point would be $4,597, which would be added to the closing costs. One Point may lower the rate by .25%, which would lower the PI by $66 per month on a $450,000 Base VA loan amount. That may or may not make sense, depending on several factors that should be discussed with your California VA loan officer. On the flipside, it is also possible to go higher in rate. By doing this you would receive a lender credit that could be used to cover closing costs and/or prepaid expenses.

PrePaid Expenses

Prepaid expenses include mortgage interest, property taxes, and homeowners insurance.FAQ on VA cashout refi

  • Prepaid mortgage interest occurs when a loan closes at some time in the middle of the month. For example, if a VA loan closes on June 15 then there would be 15 days of “prepaid interest” due at closing. The time period covering June 16-June 30 is the 15 days. Your first mortgage payment would not be due until August 1, or 45 days after the closing, which is awesome. If the loan were to close on June 29, then there would only be 5 days of Prepaid interest. But the first payment would still be August 1, or only 31 days after the closing. Either way, the homebuyer is just paying for the interest covering the time period they are in the home that is not going to be covered by the first payment. In our example, we are estimating 15 days of Prepaid interest at $61 per day, or $910.
  • Property taxes are paid and/or prepaid/deposited to an escrow/impound account through the closing of the loan. Property taxes and homeowners insurance will be paid through each month along with your Principal and Interest. An Impound account is set up at the closing to make sure there will be enough funds to pay those bills when they come due. The number of months of property taxes deposited into the impound account is dependent on the month the loan closes. Loans that close in April will require 4 months of property taxes to be collected and deposited into the impound account. There may also be “prorated” taxes due to the seller based on property taxes they have already paid that will cover a time period the new buyer will be occupying the home. In the example, we are estimating 6 months of property taxes for the impound account, which is a good conservative estimate. This comes to $2,913. ($468.75 x 6).
  • Homeowners Insurance is also prepaid. At closing a 1-year premium is paid. Also, 3 months of insurance are deposited to the impound account. By depositing three months of insurance into the impound account, the lender is making sure there will be enough funds available for renewal 12 months after the closing. In our example, we estimate the 1-year premium and 3 months insurance to be $1,406.

The Impound Account is essentially a savings account for the VA buyer that is held by the VA lender. Your monthly mortgage statement will give you a breakdown of the balance, deposits, and disbursements in your impound account. It is important to keep on top of your impound account. It is also important to be aware that in many cases the lender will not pay the Supplemental tax bill when it comes due. The homeowner should be aware of the Supplemental tax bill in the first year after their home purchase.

In our example, the estimated Prepaid expenses are $5,129. The Closing Costs are $6,000. This means the total amount needed to close is $11,033. As mentioned earlier, the Veteran can negotiate to have the seller pay some or all of the closing costs and prepaid expenses. Another option is to choose a higher interest rate and then use “Yield Spread Premium” to help cover costs. For example, if you went with an interest rate of 4.75% (APR 4.874) you could get a YSP of 1.75%, or in this case, $8,044. ($459,675 * 1.75% = $8,044). This is enough to cover all of the closing costs and even $2,000 of the Prepaid expenses.

The important thing is to understand the numbers BEFORE you make an offer on a home. Make sure the total PITI payment will fit your budget. Make sure you have a way of covering the closing costs and prepaid expenses. Know ahead of time whether you will need to negotiate with the seller to pay costs because you’re not going to be able to negotiate after the offer is accepted and you’re in escrow.

Get PreApproved for a VA Loan Before you make an Offer on a Home

This all seems like a lot. But working with the right real estate professionals can help to make the process easy. You will want to get PreApproved for a VA loan before you make an offer on a home. At the very start of the PreApproval process, you will have a phone or in-person consultation with a California VA Loan Specialist. The VA Loan Officer will then be able to prepare custom loan scenarios based on your qualifications, taking into consideration your payment comfort level, credit, income, etc. Your California VA Loan Officer will also prepare a custom video of your loan scenarios, explaining the numbers and answering questions you may have. Going through this process will give you confidence when you begin making offers on homes.

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.

 

Do you qualify for a California VA loan right now?

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Do you qualify for a California VA loan right now? Do you know what it takes to qualify? California has one of the highest concentrations of Veterans throughout the country but many of them don’t even know that they are eligible for the VA loan program or don’t know what is needed to be qualified. It is very important to understand the basics first. What is the Debt to Income ratio and how high can it go? What are the FICO score requirements? What is Residual Income and how does it factor into qualifying for a VA loan? How long after a bankruptcy or foreclosure can you get a VA loan? What are the VA loan limits in your California county?

What is the Debt to Income ratio and how high can it go?

One of the primary calculations that VA lenders will look at when considering a potential borrower for a VA loan is the Debt to Income ratio. The debt to income ratio is a measurement that compares a Veteran’s monthly debt payments to their monthly gross income (before income taxes). The Department of Veterans affairs has set a guideline for VA lenders of 41% for the Debt to Income Ratio. It is still possible for a Veteran to qualify for a VA loan if their debt to income ratio exceeds that 41% mark, but additional scrutiny will be raised during the loan process. Most VA lenders will allow the Debt to Income ratio to be as high as 50%, while some will even go to 60%. If a VA lender tells you your Debt to Income ratio is too high, ask them what it is. Some lenders are more stringent than others.

What are the FICO score requirements?

The Department of Veterans Affairs doesn’t fund loans, but acts as an insurer for qualified lenders. Because of this, credit score requirements will vary from lender to lender. Many lenders have a minimum credit score requirement of 620, and some will approve a loan with an even lower credit score.(down to 580) If one lender won’t approve your loan request, it can be worth researching other lenders to see if you can find one that will approve your loan.

What is Residual Income and how does it factor into qualifying for a VA loan?

The residual income requirement is one of the reasons why the VA mortgage program is so successful. A veteran’s residual income is their remaining monthly income after they have fulfilled all of their current credit obligations. The VA has set different residual income requirements for veterans based on location and their family size. Residual income also has the ability to reduce the relevance of a veteran’s debt to income ratio. If a veteran’s debt to income ratio is above the 41% guideline, they can offset this if their residual income is 20% greater than the VA guideline.

How long after a bankruptcy or foreclosure before you can get a VA loan?

Foreclosures and bankruptcies are major financial events that many borrowers think will prevent them from getting a mortgage. However, with proper handling of these events and a little bit of effort put into credit repair, these hurdles that can be easily overcome. A Veteran can qualify for a VA loan 2 years after a bankruptcy has been discharged and 2 years after a foreclosure. It’s important to understand that applying for credit after a major credit event is the first step in restoring credit. And make sure to not have any late payments or derogatory credit after bankruptcy or foreclosure.

What are the VA loan limits for the California County I Live in?

Since home prices vary in different parts of the country and have risen since the beginning of the VA program, the VA has set county loan limits that dictate the maximum loan amount that a veteran can get without needing a down payment. In Orange and Los Angeles County’s, the VA county loan limit is $679,650. It is possible to get a VA loan that is above the county loan limit, which is known as a Jumbo VA loan. With a Jumbo VA loan a down payment equal to 25% of the different between the purchase price and the county loan limit is required.

Authored by Tim Storm, an California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at the Home Point Financial, NMLS 7706. 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.