Underwriters look at three things:
READ: The Three C's Of Underwriting Approvals
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.
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.
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.
Mortgage rates are 4.75%…No, wait a minute. They shot back up !
Welcome to January, 2009. It looks to be a rocky ride through Inauguration Day. After that, all bets are off. Here’s the good news, though; mortgage rates, while just over 5% this afternoon (up from 4.75% this morning) are still excellent.
Sean Purcell and I discuss why the lenders are raising rates on Radio Mortgage.
The economy is really sick:
Today's CPI report signals deflation, or a prolonged price slide, may become another hazard facing Federal Reserve Chairman Ben S. Bernanke and President-elect Barack Obama. Deflation could worsen the economic downturn by making debts harder to pay off and countering the impact of Fed interest-rate cuts.
``The economy's really just in horrific shape,'' said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. Fed officials will ``take rates as low as they have to'' to avoid ``a deflation-type scenario, which now all of a sudden is very possible.''
LaVorgna predicts the Fed will cut its main rate to 0.5 percent from its current 1 percent when it meets on Dec. 16.
Fed Vice Chairman Donald Kohn said today that while the risk of deflation is ``still small,'' policy makers must be ``aggressive'' in fighting the danger. The economy ``is declining right now'' and will record a couple of quarters of contraction, he said in answering questions after a speech in Washington.
Fed policy makers last month forecast the U.S. economy will contract through the middle of 2009, with some officials prepared to cut interest rates further in response, according to a record of the group's meeting.
If the Fed's thinking of cutting rates further, why aren't mortgage rates going down? I think it's because the Fed has done all it can do. Future rate cuts are like that eighth scotch. Drinking that eighth scotch isn't going to make you feel any better than the seven prior. It just might make you feel worse.
I advised folks, right after the election, to lock loans with rates under 6% if they were closing within 30 days. Today, I"m suggesting that you lock any loan that is closing this year. Today, a 45-day lock for a 6.0% rate would costs 1.25%. While you may see rates drop below 6% , in the next 45 days, the risk of them moving higher is greater.
Take 6% and run.
In my 2009 San Diego Real Estate Outlook, I suggested that lower loan limits could cause a convergence of home prices. I expect the mid-priced homes ($500,000 to $1,000,000) to decline towards the loan limits while lower priced homes (under $500,000) already dove in 2008.
Southern California Loan Limits For 2009:
Loan Type San Diego Orange Los Angeles
VA $697,500 $729,750 $729,750 (no change from 2008)
FHA $546,250 $625,500 $625,500
Conforming $546,250 $625,500 $625,500
Originally Posted on Millionaire Real Estate Lender
 |
|
|
America's #1 Mortgage Broker lending in all 50 states
ActiveRain Corp. is not responsible for the accuracy of the site's content (which is written by members of the ActiveRain Real Estate Network) and does not endorse the views of the real estate agents, mortgage brokers, and others listed here.
Powered by the ActiveRain Real Estate Network
© 2009 ActiveRain Corp. All Rights Reserved
