Brian Brady- America's VA Home Loan Broker

Most mortgage companies offer a VA no down payment option up to $417,000 but did you know that VA loans can be for much more?

The Veterans Administration works off of a "guaranty", meaning that they pay the lender 25% of the loan amount should the veteran default on her mortgage. Pragmatically, it would make sense that the borrower be allowed to invest 25% of the difference between the purchase price and the VA loan limit. That's just what the VA jumbo mortgage program allows.

Some high-cost counties have higher loan limits until 2012. In San Diego, that loan limit is $593,750. For Los Angeles and Orange counties, that loan limit is $737,500. Some Bay Area counties go as high as $1,094,750. That's over a million bucks for a zero-down VA loan.

What's a veteran to do if she doesn't live in a high-cost county but wants to buy a $700,000 home? Normal jumbo loan programs require as much as 30% down payment (in distressed markets). That high down payment prevents many buyers from owning a luxury home, offered at a healthy discount. Veterans, however, have another option. Use this formula to determine the down payment requirement for a VA jumbo mortgage.

In the aforementioned case, the required down payment for the $700,000 home purchase, for a property that is not in a high-cost county, is just over $75,000. That down payment requirement is just about 11%; far below some of the higher down payment conventional loans.

What about mortgage insurance? VA home loans don't require mortgage insurance; they charge a funding fee (which can be financed).

Are the rates really high? That depends on your definition of "really". VA jumbo mortgage and FHA jumbo mortgages are typically about .5% higfher than the loans under the county loan limits. Most of the VA jumbo mortgages we've funded this year are in the 5.5%-6.0% range.

Consider offering your property with a fiancing proposal drafted by a VA jumbo mortgage expert. Sometimes, showing that low down payment option could be the thing that attracts the right buyer for your luxury home.

I'm a Del Mar Race Track junkie. Actually, I've been a fan of horseracing since I was a kid, playing at the Garden State Park, in my hometown of Cherry Hill, NJ. When I moved to Solana Beach, I was attracted to the the beach, San Diego, and best of all, the proximity of the World Famous Del Mar Race Track.

One of my favorite things to do is to take my daughter to breakfast for the morning workouts. The horses start working out at 5AM and the track opens at 7:30AM. You can enjoy a delicious breakfast buffett for less than $10.00 (includes coffee and juice). From the Del Mar Turf Club website:

Early risers have a chance to catch morning workouts and breakfast in the Clubhouse Terrace Restaurant every Saturday and Sunday during the season. From 7:30 to 9:30 a.m., trackside announcer and former jockey Jeff Bloom will provide you behind-the-scenes information while you get an up-close look at many of your favorite horses while they tune up for their next race. A buffet with many breakfast favorites is offered.

To attend, park in the main lot off Jimmy Durante Blvd., then proceed through the Clubhouse entrance to the second floor. There is no charge for admission to the event, but an $8 parking fee applies. (Those buying two or more breakfasts will have the parking price deducted off the price of their bill.)

Above is the mural Pierre Bellocq painted for the 70th Anniversary of the Track. When I walk around the clubhouse, I'm reminded that I'm tracing the footsteps of Bing Crosby, Desi Arnaz, and Jimmy Durante. In fact, all of those men were ushers at St James Church (now in Solana Beach) during the race season. My daughter Maggie and I "substitute" as ushers when someone goes on vacation. As you can see below, Maggie always wants to be part of the Del Mar Scene:

The majesty of a thoroughbred race horse awes me:

Workout riders have their hands full. The success of a horse's next race is often in their hands:

The rider beckons the horse to run a bit as he starts the workout:

Here is nationally-known horse Zenyatta, breezing past the finish line. My home is just on the other side of the hill beyond the finish line:

When all goes according to plan, your horse will win and you'll be standing in the Winner's Circle, like Maggie.

The following Mission Valley Condo complexes are eligible for FHA and VA financing (as of 8/6/09):

Friar's Pointe
Friar's Hollow
Friar's Mission
Creekwood at River Run
The Franciscan
Friar Gardens
Union Square
River Scene
Mission Gate
Mission Greens
Mission Heights
Mission Playmor
Mission Plaza
Mission Village
Mission Ridge
Mission Verde
Park Villas North
Rancho Mission Villas
River Colony

This information is not guaranteed for accuracy. FHA condominium approvals can be searched at the HUD portal and VA condominium approvals can be searched at the VA portal. It is advised to search at the portal before visiting the complex.

Many conventional lenders are defaulting to the FHA approval as the bellwether approval for Fannie Mae or Freddie Mac eligible loans as well. While conventional loans aren't subject to the rigorous testing the FHA uses, the credit crunch has caused lenders to usurp the traditiional loan-by-loan approval process and only accept FHA approvals.

Contact me for specific requirements if you are looking to purchase a Mission Valley condo.

REQUIRED READING FOR MISSION VALLEY CONDO BUYERS:

Wondering if there really is a shortage of condos for sale? Read this.

Want to make sure you don't overpay for that condo? Read this.

How should you prepare for your loan application? Read this

Where are mortgage rates headed? Read the mortgage rates report

Underwriters look at three things:

READ: The Three C's Of Underwriting Approvals

Credit Reputation

• Credit Score
• Foreclosures, bankruptcies, liens and/or judgments
• Mortgage delinquencies
• Credit delinquencies, repossessions, collections, or charge-offs
• Credit accounts: type, age, limits, usage and status of revolving accounts
• Borrower's request for new credit in last 12 months

There is not a minimum credit score requirement, for VA Home Loans but a two-year good payment history is required. A late payment on a credit card shouldn't hurt you but a pattern of late payments, in the past 24 months, might.

Capacity

• Debt ratios: Qualifying monthly housing expense-to-income ratio or monthly debt payment-to-income ratio
• Salaried versus self-employed borrower
• Cash reserves
• Number of borrowers
• Loan Characteristics:
  • Product: a 15 or 30 year fixed rate, , an adjustable rate mortgages,
  • Purpose of Loan: purchase or refinance (cash-out or no cash-out)

The VA also uses residual income analysis for determining "capacity". From the VA website:

The primary method of evaluating a veteran's income is the residual income method. Under this method, the underwriter determines that a veteran has sufficient income to cover day-to-day living expenses after paying housing expenses, taxes, and other debts such as car payments and credit card payments.

For example, if an 0-2 (with three years service) were receiving a base pay of $3484, a BAH of $2000 and BAS of $300, her total monthly income would be $5784. We would deduct her taxes (on the base pay), of about $800. She's single, without dependents so there are no childcare expenses. This gives her contributory income of $5084. If she had $1200 in monthly expenses (credit cards, car loans, etc), her contributory income is reduced to $3884. The VA requires a residual income of $491. In order to "trump" the debt-to-income ratio analysis, we would need residual income of 120% of that, or about $600; this would allow for a maximum housing expense of $3,200.

Using the "eight dollars per thousand" estimate, Lt (jg) Smith would be approved for a $400,000 VA home loan.

Collateral

• Borrower's total equity or down payment
• Property type: a 1-unit or 2- to 4- unit detached property, Condominium Unit or Manufactured Home
• Property use: Primary Residence Only

No down payment is required for a VA Home Loan because the VA insures 25% of the balance for the lender. The VA charges the veteran a funding fee, which is added to the loan, to pay for that insurance. Why does the VA charge a funding fee?

How much is the funding fee?

Determining your monthly mortgage payment is based upon three components:

1- Principal and Interest- this is the amount needed to service the debt and retire the loan.You can determine that amount by using this calulator. In Lt (jg) Smith's example, a $400,000 mortgage, for 30 years, at 5.25% would have a principal and interest payment of $2208.

2- Property Taxes- In California, we estimate 1.25% of the purchase price, for property taxes. In Lt.(jg) Smith's example, The annual amount would be $5000 or $416 monthly.

3- Property Insurance- For single family homes, we would use the actual hazard insurance premium. That would be about $65/month. For condominiums, we would use the amount of the association fee because it includes the hazard insurance. Let's assume that the amount is $300 monthly

Lt (jg) Smith's housing expense, then, would be $2,916, well under the "eight bucks per thousand" guesstimate. She has monthly income of $5784 and expected monthly debts of $4116. She would fail the debt-to-income ratio test but be approved based upon the residual income analysis.

Brian Brady is considered to be San Diego's VA loan expert and can be reached at 858-777-9751

If you're buying a home in Contra Costa County, you need to let your REALTOR know that you served our country honorably. There is a credit crunch going on and the new VA loan limits, for 2009, allow Contra Costa County veterans to purchase a home, with NO MONEY DOWN, up to $1,094,000. Let me repeat that for you;

ZERO DOWN PAYMENT UP TO A MILLION DOLLAR PURCHASE PRICE IN CONTRA COSTA COUNTY

The word isn't out about this, yet. Contra Costa County REALTOR Wendy Cutrufelli made this observation today:

Let me preface my response with the following information: I am located in Contra Costa county (northern California) and VA financing hasn't been used in this market for close to 10 years. So the fact that his realtor got a bank to accept VA financing AND pay for Section 1 repairs.......every fiber of my being wanted to tell this buyer to genuflect at his realtor's feet for accomplishing a miracle.

This is my fault, not the Contra Costa County real estate agents'; I should be screaming this message to them at the top of my lungs. With a median price of $659,000 in Contra Costa County, more than half of the homes selling are covered by the new VA home loans. With the higher limits, that percentage steadily increases as prices drop there. Contra Costa County REALTORs would do well to ask homebuyers if the are eligible for VA home loan benefits. After all, one in ten Californians between the ages of 21 and 55 have VA eligibility.

How do VA home loans work? From an article I wrote on the HomeGain Blog:

The VA Home Loan Program is the only national 100% financing loan program. Veterans can purchase a home with no down payment and the seller can contribute up to 4% of the sales price for their non-recurring closing costs and impounds.

Often referred to as the VA No-No program, combining the max sellers’ closing cost contribution with a VA home loan affords buyers the chance to “get into a home”, for no money, at a below market rate.

There are no “stated income” options nor “interest-only” options for a VA home loan. Veterans must qualify on full income documentation. Their total monthly obligations (including the proposed mortgage payment) must be under 43% of their monthly income unless they meet the VA residual income qualification. Current service members receive an allowance for housing (BAH) and food (BAS) and those figures can be “grossed up” 115% for income qualification.

Appraisals are assigned by VA and ordered by the lender. Many lenders participate in a delegated underwriting program (LAPP) but some opt to let the VA underwrite the appraisal. General guidelines suggest that if the home is inhabitable, the loan can’t be made. VA appraisers, however, are not so stringent that the home needs to be “new home perfect”.

There is no minimum credit score requirement for a VA home loan although a 12-24 month history of good payments is required. Some lenders have imposed credit score minimums but a good mortgage broker always has a lender who will fund VA loans on the more relaxed VA-compliant credit requirements.

Frequently Asked Questions:

Are VA loans more expensive?

Heck no. A VA home loan, with a balance under $417,000, offers rates that are equivalent to what a conventional loan costs. Today, that interest rate is about 5.0%. Loans from $417,001 to the $1,094,000 limit carry an interest rate of about 5.25%. Compare that to the jumbo rates of 5.5% to 8% and the VA home loan program offers even better rates than the conventional loans.

Doesn't the VA funding fee make it more expensive?

I don't think so. For a first-time VA home loan user, a 100% loan requires a 2.15% charge (added to the loan) but eliminates the need for costly PMI. There are no 100% conventional loan options in Contra Costa County.

A 95% conventional loan (if you can get one) has an annual PMI charge equivalent to .875%. The VA funding fee for a 95% loan is just 1.5%; that money is "recouped" in 20 months. If you plan to own the home for at least two years, the VA home loan is much less expensive.

A 90% conventional loan requires an annual PMI charge equivalent to .625%. The VA funding fee for a 90% loan is just 1.25%. Again, the money is recouped in less than two years.

Do VA home loans have higher qualification standards?

Nope, Quite the opposite.

The appraisal can be a tad more onerous but that benefits you, the buyer, because they really analyze the property in greater depth than a conventional appraiser.

The VA credit requirements don't have a minimum credit score but most lenders require a 620 credit score today. Conventional loans become more expensive with credit scores under 740 and conventional loans over $417,000 require 660 credit scores.

Income calculations are more pragmatic as the VA home loan underwriters use residual income analysis in addition to the traditional debt-to-income ratios conventional underwriters use. The VA also uses residual income analysis for determining "capacity". From the VA website:

The primary method of evaluating a veteran's income is the residual income method. Under this method, the underwriter determines that a veteran has sufficient income to cover day-to-day living expenses after paying housing expenses, taxes, and other debts such as car payments and credit card payments.

For example, if an 0-2 (with three years service) were receiving a base pay of $3484, a BAH of $2000 and BAS of $300, her total monthly income would be $5784. We would deduct her taxes (on the base pay), of about $800. She's single, without dependents so there are no childcare expenses. This gives her contributory income of $5084. If she had $1200 in monthly expenses (credit cards, car loans, etc), her contributory income is reduced to $3884. The VA requires a residual income of $491. In order to "trump" the debt-to-income ratio analysis, we would need residual income of 120% of that, or about $600; this would allow for a maximum housing expense of $3,200.

Using the "eight dollars per thousand" estimate, Lt (jg) Smith would be approved for a $400,000 VA home loan.

VA home loans offer Contra County Homebuyers a great chance to take advantage of fallen property prices and more generous underwriting guidelines. I can't think of any other time, in my fifteen years of lending, where someone could buy a million dollar home with no money down.

Veterans in Contra Costa County can do that today. Remember to remind your REALTOR that YOU are eligible and call me at (858)-777-9751. You've EARNED it by proudly serving our great country.

PS: Ask some of the Navy and Marine Corps veterans, whom I've helped, about my VA home loan expertise.