A reader asks;
“I currently owe an FHA loan at a ridiculously high 7% interest. I foreclosed another property in June, 2010. I was told that I have to wait 3 years from June, 2010 before I could refinance the loan.”
“I was also told that under VA guidelines, I only have to wait two years. I am a veteran with a good credit rating. I have not been late on my payments since the foreclosure. Can I start the process of refinancing now?”
The situation described here isn’t as common as some questions about foreclosure, VA refinancing, and the seasoning period required after a foreclosure or bankruptcy, but many of the same answers do apply.
While it’s true that the Department of Veterans Affairs requires a two year minimum waiting period following a foreclosure action before a borrower can apply for a new loan, that does not mean a lender is obligated to extend credit after only two years. Many lenders require three years instead, which is their choice and fully permitted.
That’s not to say that a borrower looking for a VA refinancing loan should not try to find a lender willing to work with the two-year minimum. Some lenders may consider refinancing loans after the two year wait if the borrower meets certain qualifying criteria.
That criteria would be determined by the lender and is not something we could give advice on–each bank is different and would require the borrower to meet specific standards. Is a loan in this case theoretically possible? Yes, if the applicant meets the requirements and the lender is willing to extend credit.
It’s important to note that only certain types of VA refinancing may be available in such cases–it’s best to consult with the lender to see what options are available.
A reader asks about a previously owned home up for sale with some work missing. “…(T)he last owner left the master bathroom unfinished, floor and wall tiles missing, sink, cabinet and toilet not installed but everything is in a closet including the tiles.”
“It is an approved short sale for less than the comparables, the bank will not do any repairs and will not let me because of liabilities.”
Will the VA inspector see a problem even if the house has two more bathrooms?”
It’s tough to answer a question like this for several reasons–one of which being that while there are VA loan minimum property requirements (MPRs), local building codes must be enforced where applicable. VA MPRs require a home to have dedicated cooking, living and sanitary areas, and a three-bathroom home with one bathroom unfinished might technically still be in compliance with VA standards.
But local building codes may have something different to say, and that’s the part we simply can’t answer–the local authority would have the final say in this situation as described here.
Homes that violate VA minimum property requirements are not always rejected for a VA loan–the appraiser may make recommendations for corrections, repairs, etc. as a condition of loan approval. In such cases the fixes must be made to the satisfaction of the MPRs or local codes as described in the appraisal report so the loan can move forward.
When in doubt about a specific condition that could affect the VA loan, borrowers can ask the lender what has traditionally happened in similar circumstances, but it’s important to keep in mind that the VA appraiser will review each home on an individual basis. What applies in one scenario may not apply in the next.
With recent headlines announcing discrimination charges filed against major lenders, landmark foreclosure settlements and other actions taken on behalf of consumers and home buyers, it seems like a good time to review important resources VA loan applicants should know about in order to be fully educated about their borrower’s rights and responsibilities.
There is plenty of recommended reading for new house hunters and those who are just now getting to know the VA insured loan system. Much of this information has been around for decades, but some of the most important–including the Real Estate Settlement Procedures Act–have revisions, addenda, or companion legislation which should be reviewed so you, the borrower have the most up-to-date information.
A very important piece of legislation directly affects VA loan applicants. It’s called the Consumer Credit Protection Act and one portion of the law gives borrowers the ability to correct bad information on their credit reports when doing a check before applying for a VA home loan.
That’s not all the act guarantees, but it is an important aspect of federal law a VA loan applicant needs to be aware of during the planning stages of buying a new home.
Just as important–the Equal Credit Opportunity Act of 1975, which outlaws discrimination in any credit action based on race, sex, marital status, color, religion, age, handicap, or national origin.
Recent headlines demonstrate that the mere existence of these federal laws will not end discriminatory practices (intentional or otherwise) when it comes to lending or property sales. That said, these laws help provide the house hunter a clear course of action when it comes to documenting and reporting illegal or discriminatory practices.
These laws helps the home owner get justice when warranted, and provides clear guidelines for lenders and sellers.
The VA is serious about all such regulations, but there is particular attention paid to Equal Housing Opportunity laws and the Fair Housing Act. These two federal laws combined prohibit housing discrimination, but in the case of the Fair Housing Act there is specific, detailed language that forbids any kind of discrimination in any real estate transaction.
There is plenty of recommended reading, we’ll cover additional laws in another blog post.
In our last blog post we discussed important home loan resources a VA loan applicant should become familiar with including the Fair Housing Act, which describes and forbids discriminatory lending practices for all home purchases, whether conventional, VA insured or otherwise.
These protections are very important–borrowers should know not only what is allowed and forbidden under federal law, but what actions they can take if they experience discrimination or other illegal practices at any stage during the VA loan process.
Anti-discrimination laws are only part of the picture–there are also federal regulations house hunters should know about when it comes to fair business practices associated with buying a home. Since the late 1960s, many laws have been enacted, refined, or revised to protect VA loan applicants and other real estate buyers from misleading, unfair and dishonest business practices in the financial sector.
One of those is the Truth in Lending Act, also known as the Federal Consumer Credit Protection Act, which was passed in 1969. The act requires financial institutions provide the VA loan applicant with terms, conditions and requirements of a VA mortgage loan–or any other type of credit–before contracts are signed and the credit terms become enforceable.
RESPA is another major federal law VA loan applicants should be familiar with. RESPA, which is short for the Real Estate Settlement Procedures Act, was first passed in 1974. RESPA got important updates and revisions in 2008 which became effective and enforceable in 2010.
Under the terms of RESPA, lenders must provide VA home loan applicants with information about settlement costs, an estimate of closing costs and monthly payments, and other important details. The borrower has the right to know exactly how much the loan will cost, when it is due and other conditions. RESPA helps insure that information is actually passed on to the borrower.
RESPA guidelines are also designed to prevent kickbacks between lenders and real estate agents, brokers and other parties with financial interest in a particular real estate deal. These rules keep VA borrowers from being pushed or directed toward properties they not otherwise want, can’t afford, or might purchase only because they don’t know about other sales in the area thanks to inappropriate relationships between a participating VA lender and an agent.
All of these laws are designed to protect home buyers regardless of what type of loan they choose to buy a home with–it doesn’t matter whether you’re applying for a VA mortgage, an FHA insured home loan or a conventional mortgage. Federal law protects all house hunters with the same legislation.
Knowing the VA loan funding fee process is very important—if you are new to the VA home loan system, how do you know the funding fee has been correctly calculated and applied?
It’s true that you may have little to worry about when dealing with a reputable participating VA lender, but human error, miscalculation and other factors are always possible. Knowing how the process works helps the buyer avoid surprises, miscalculations, and wasted time.
VA home loan funding fees are listed on a funding fee table the lender uses as a reference. The amount of the fee can vary depending on the borrower’s status as an active duty military member, whether the applicant serves in the Guard of Reserve, and whether the borrower is exempt or not exempt from paying the fee at all.
The type of loan is also a factor. Are you applying for a construction loan, existing construction, or refinancing a current loan? The amount may vary based on these factors.
There are also questions the lender must answer–all of which can potentially affect the VA loan funding fee amount. Is the VA loan applicant making a down payment? The amount of the VA funding fee may be reduced based on the amount of that down payment.
Does the purchase price of the property exceed the VA appraised value? If so, the veteran must pay the difference between the purchase price and the value of the home “in cash” according to VA requirements, the borrower can’t finance that amount as part of the VA mortgage. That affects the amount of the VA funding fee as the loan amount itself is different than the sale price.
When it’s time to calculate the fee, does the borrower wish to finance the it as part of the loan amount? Some do and some do not–but if you choose to have the funding fee added to your VA mortgage loan, the lender must calculate the VA fee without adding the fee amount into the loan. Doing so would inflate your fee artificially.
Sounds complicated, doesn’t it? It’s one reason why it’s a good idea to understand your VA loan funding fee–you can double check the amount to make sure the fee is the proper amount and has been calculated properly.
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