David Leonard

The final part of our Illinois VA Loans series will explain different credit issues that may be discussed and questioned during the application process.

Lack of Credit
It is possible for a veteran that has never borrowed money to obtain a VA mortgage. If the veteran can show consistent and prompt monthly payments on items like utilities, rent, car insurance, and other similar items then a credit file can be built for the veteran to show their responsible nature.

Chapter 13 Bankruptcy
If the Chapter 13 trustee approves of the loan, then it is possible for a veteran currently enrolled in a Chapter 13 plan to qualify for a mortgage. The veteran must present proof that all payments to the court have been made on time for at least the past 12 months. The veteran will also need to demonstrate a strong work history and overall strong financial stability.

Chapter 7 Bankruptcy
The VA requires that a Chapter 7 has to be discharged for at least 2 years before a veteran can apply for a VA mortgage. The veteran will need to have re-established credit and a solid work history.

Collections and Judgments
Any collection that is minor in nature and amount will usually be ignored. However, any judgment must be paid in full prior to the closing of the loan.

Consumer Credit Repayment Plans
The guidelines for the people involved in a Credit Counseling plan are very similar to the bankruptcy guidelines. The veteran must demonstrate a solid history of repaying the debt for at least 12 consecutive months in order to prove their willingness to handle their finances responsibly.

For additional information, visit our Illinois VA mortgage page of our website. If you have questions or want to see if you qualify, contact me below or apply online!

In this part of our Illinois VA Loans series we will explain the VA Funding Fees.

The Funding Fees are assessed on all VA mortgages whether it is a purchase or a refinance loan. First time buyers will be asked to pay 2.15% of the total loan amount if they get a mortgage with no down payment. The fee is designed to provide funds for future loans in order to use less taxpayer money for the mortgage loans.

If a veteran chooses to sell the first home and use an Illinois VA mortgage on their next purchase, the fee increases to 3.3% if the second purchase is another no money down situation.

Keep in mind that if the veteran chooses to put up a down payment then the fee is reduced. For first time buyers the fee is only 1.5% if there is a down payment less than 10%. If the veteran chooses to pay more than 10% down then the fee drops to 1.25%

For refinances the rates are basically the same. However, if a veteran chooses to refinance the home with a streamlined Interest Rate Reduction loan, then the funding fee is only 0.5%

However, none of these fees have to be paid out-of-pocket. The VA guidelines allow veterans to add this fee in to the total loan amount, allowing the veteran to pay over time rather than pay up front.

The next part of our series will be the final installment and it will discuss credit issues that may come up in the application process.

For additional information, visit our Illinois VA mortgage page of our website. If you have questions or want to see if you qualify, contact me below or apply online!

Here is the table for all VA funding fees sorted by service type, down payment and whether it’s a first use or consecutive use: VA Funding Fee Table (pdf)

In this part of our Illinois VA mortgage loan series we will explain the debt to income ratios used to qualify a borrower for a VA home loan.

41% is the Magic Number
The ratio is a fairly simple math formula. The first step is to determine the borrower’s monthly gross income. This is income from all sources such as full time employment, military retirement or disability pay, money from the reserves, and any part time jobs. After determining the income amount the next step is to calculate the monthly debt. This is simply adding up all of the payments the borrower currently makes on existing loans such as credit cards, automobile loans, student loans, unsecured loans and other type of debt. The proposed mortgage is also included with this amount. This does not include items such as utilities, car insurance, groceries or clothing.

Once the total debt and total income are calculated the numbers are put into the following formula.

Total Debt/Total Income = Debt-to-income Percentage.

For example, if a person’s existing debt payments are $653 and the proposed house payment is $927. The two combined would be $1,580. If the person’s total monthly income is $4000 then their debt-to-income ratio is 39.5% which is below the 41% guideline.

Residual Income can Help
If a person has a ratio higher than 41%, they may still get qualified for the loan. If their residual income is $1,500 or more there is a good chance that the loan will be approved. This is a decision made solely by the lender and needs to be discussed with your mortgage loan officer before proceeding.

The next part in the series will explain the VA funding fee.

For additional information, visit our Illinois VA loan page of our website. If you have questions or want to see if you qualify, contact me below or apply online!

There was a time not that long ago that lots of people was getting involved with real estate transactions using various no money down mortgages. People would buy a home in need of repair, take ownership and then try to sell it quickly to a home renovator and make a quick buck. This practice led to some undesirable transactions and caused several default loans. FHA decided that they would stop approving loans for any home that had changed owners within the past 90 days. But now there is a waiver for this rule.

With the sudden rise in foreclosures many neighborhoods are watching bank owned properties deteriorate before their very eyes. The idea behind the FHA waiver is to give honest, hardworking investors a chance to buy a home in need of repair and try to renovate it in order to resell it to a new buyer. There are few caveats to the rule.

• The waiver is in effect until December 31, 2011.
• This must be the first time the home has been purchased by an investor.
• The original purchase by the investor and subsequent sell to the new owner must be arm’s length transactions.
• The home has to be marketed for sale to all buyers.
• If the new sales price increase more than 20% above the purchase price than the investor must provide documentation of the renovations that lead to the increase.

While this is not a perfect solution to the mortgage loan problems that have hit the country as a whole it is a way to allow experienced investors improve a community and provide affordable housing to a number of individuals. So far, the waiver has allowed transactions of over 21,000 homes across the country. FHA is keeping an eye on the transactions to make sure everything is within the law.

If you would like additional FHA information visit our FHA Loans page or if you would like to see if you pre-qualify, please contact us or apply online.