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Tips from a VA mortgage expert.

Wednesday, March 10th, 2010

Statistics show that only 25% of all eligible VA home buyers actually utilize their hard-earned veteran loan benefits. I have dedicated my entire professional career to assisting veterans use and understand these VA benefits as they pertain to buying or refinancing a home mortgage. Life is full of difficulties and even things we may feel are unfair, and if I can play a role in making something less difficult for our Nation’s veterans then I will do all I can to assist!

I have put a lot of thought and effort into this article and hope that all those that come across it feel that it has made the VA home loan process much easier to navigate from start to finish because truthfully, the VA home loan is a very simple and straight forward tool that can make home ownership a reality for hundreds of thousands of eligible veterans and active military.

Step 1 is getting your preapproval letter.

Getting a preapproval letter from your VA lender is one of the first steps that all veteran homeowners should take when trying to purchase a home. Before you go out and try to start buying a home you need to get a preapproval letter from your VA loan officer. The reason it is so important to have a preapproval letter in your possession is because sellers and real estate agents will not take you seriously until you have the preapproval letter. Once you have your preapproval letter you can start making offers on different home. Have you ever seen the movie Willy Wonka’s Chocolate factory? In this movie, those lucky holders of the golden ticket are granted access to Willy Wonka’s chocolate factory. I like to compare your preapproval letter to the golden ticket given to these lucky recipients in the movie. Without the golden ticket there is no entry into the chocolate factory; however once the golden ticket is presented the doors to this amazing chocolate factory are opened. Veterans, you will notice once you have received your preapproval letter you too will have many more doors opened to you. Realtors and sellers will be much more likely to take you seriously with your preapproval letter.

What will you need to send to your mortgage representative to get your preapproval started?

For a VA purchase loan you will need the following:

· your last two year’s W-2 statements.

· One month’s worth of pay stubs.

· Form DD214 (not necessary but helpful)

This information is needed on all applicants which is normally the veteran and his/her spouse.

The reason we need your last two years W-2 statements is to verify how much money you make on average each year. The reason we will need eight months worth of pay stubs is to get an idea on average of how much money you are currently making with your current employer. In addition, to determining how much money you make your pay stubs also verify current employment. Your form DD 214 allows your VA lender to expedite ordering process of your certificate of eligibility. Approved direct lenders with the Department of Veterans Affairs have the ability to order your certificate of eligibility, which will determine if you can or cannot get a VA loan, over the internet directly from the VA. most veterans or active duty military who are applying for a home loan do not realize that the speed upon which they are getting approved is determined by how quickly they can get these necessary documents to their VA loan officer.

What will the VA loan officer or VA lender do once they have your information as described above?

Once your VA loan officer has the three items outlined above, he will plug all of your information such as employment, income, assets and liabilities if applicable into his loan origination software. Once your information is entered into the software a VA loan analysis must be run by an approved VA processor or loan officer. The VA loan analysis is a form which will indicate to the lender whether or not you can afford the home that you were trying to purchase. The VA loan analysis is a relatively simple calculation. The calculation is outlined below:

(Monthly Income)- (proposed mortgage payment+insurance+taxes+utilities for that house+monthly credit card payments due) = RESIDUAL INCOME.

What is residual income?

Reschedule income is how much money you have left over to survive with after having paid all of your necessary obligations. The VA does not want someone to buy a home that is so expensive that home does not allow them to make all of the necessary payments on time. The VA has set up certain criteria for necessary residual income based on what part of the United States who have been, how larger family is, the age of your children and older variables. For example, the amount of residual income needed for a single person living in eastern Ohio will be lower than the residual income required for a family of six living in Northern California.

The VA loan process from application to loan closing/funding.

Once your VA loan officer has done your VA loan analysis and determine whether or not you can afford your home your loan will be submitted to an automated underwriting engine. The most common used automated underwriting engine is DU or desktop underwriter. Within moments of submitting your loan to the automated underwriting system, your loan officer will know whether or not you are eligible for the loan and at that point you will be denied or preapproved! As you are already aware if you are preapproved venue will be issued a preapproval letter so you may start making offers on different homes of your choice.

Let’s now assume you have made offers on a bunch of different homes and decided to pursue the home of your choice. At this point in time you will need to be working with a real estate agent and you will need to execute a purchase contract or purchase agreement with the seller. After you have unexecuted purchase agreement you will return that purchase agreement to your loan officer and your loan process will now begin. Your loan process could take anywhere from about two weeks to five or six way depending on a couple different variables. Though it is very easy to blame your VA loan officer should things not go as quickly as you have intended, there is a lot that you can do to speed up the process. The following is a list of things involved in the loan process that may take time over the next 2 to 5 weeks:

· Title insurance must be ordered and issued

· An appraisal of the property must be done

· Home owner’s insurance must be set up and put in place

· Verbal and written verification of employment will be done on applicants

· any adverse credit may need to be cleaned up or discussed

· a VA underwriter needs to review all documents and issue final approval

· closing needs to be scheduled

though the list above may not appear complex or detailed, it is important to understand that in today’s tight economy with increased financial guidelines your loan approval and processing will take longer than it has in the past.

So what can you do to make sure you are well prepared to buy a home with a VA loan?

As I mentioned in the very first paragraph I have spent my entire professional career working with veterans and active-duty military in getting approved for their hard earned VA home loan benefits. If you take anything away from this article it is that you should be educated and make sure you’re working with a legitimate VA approved lender, bank or mortgage company. Here at www. lowVArates.com we have taken the guessing game out of your hands. If you submit your loan in Cory for preapproval on our website you can rest assured that we will put your information into the hands of an approved VA lender in your area. Our website is designed to educate all those looking to find out more about their hard earned VA home loan benefits.

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Posted in Loan Processing, VA Loan, VA Purchase, underwriting | No Comments »

The New 2010 GFE

Sunday, December 27th, 2009

 

Well the time is upon us, 2010 is nearly here and with it we will see a myriad of changes in mortgage lending and the industry in general.  Most importantly of all these changes are imposed by nearly exclusively by “big brother”.  So only time will tell if they will indeed help the average consumer be more informed and help them to understand what fees they are paying for and whom them went to.  Right from the outset, let me say I don’t think the new GFE is easier to read and understand.  Furthermore, it is at least twice as long as it is now, and it  seems to me and many to be twice as hard to decipher.

Now with that said let me outline just a few of the “highlights” of what the proposed “improvements” are going to require, thanks Federal Government for sticking your nose in yet another industry that doesn’t need it.  They take effect on January 1, 2010.

The GFE provides the potential mortgage applicant with cost details associated with closing the loan.   GFEs have not been standardized and commonly they are different looking state to state and loan type to loan type.   For example in Texas on a VA loan it may not look identical to lets say a Conventional loan in California.  Even after 7 years in the mortgage industry some are still a jumbled mess.  Also GFEs have been just that, estimates, not an actual amount because it is nearly impossible to know what the actual charges and payoffs etc are going to be on a loan before the loan officer has the opportunity to see the “numbers”. 

That seems to be a prevailing factor, that the new GFEs be accurate, or more so.  Normally I would say initial GFE’s have been off by 10-15%.  The new rules will create a standardized, three-page GFE and require that the itemized list of estimated fees and charges be accurate. This is supposed to make it easier for borrowers to understand what charges are involved in their proposed loans.  It will allow for a very small variance in the charges.

These new rules also apply and attempt to standardize the HUD, commonly called the settlement statement.  The list of actual fees and charges the borrower has to pay. The new settlement statement or HUD also will be three pages long and will include a chart on the last page attempting to show the borrower to compare the estimate charges in the GFE with the actual charges paid. 

Well that is the short of it, certainly there is more involved but you get the idea and I hope it will be beneficial to everyone.

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Posted in General Veteran Information, Loan Processing, VA Loan, underwriting | 1 Comment »

VA loans: A Call to action

Monday, November 23rd, 2009

In the quickly changing landscape of mortgages VA loans stand alone. The VA backed mortgage is very advantageous for those who are able to take advantage of it. Worries about appraisals for refinances? Gone. Worries about help making payments in hard times? Gone. Stress over a down payment for your first home? Gone.

From the outset the VA has worked to make VA loans both affordable and smart. Many veterans may not have the requisite 15-20% for a down payment on a conventional loan. The home that they are buying may not fall within the guidelines for an FHA purchase. The VA mortgage fills this gap for America’s Veterans and allows a nice home to be purchased with 100% financing. Along with this purchase the VA has services available when times are tough and the mortgage payment is in jeopardy of not getting made. Perhaps the easiest of the programs is the streamline refinance, where without an appraisal the veteran can refinance the loan in to a lower rate or shorter term with no cash out of pocket for the refinance transaction.

By using a VA loan veterans can ensure an increased level of stability, increased cash flow from lower payments, and access to the lowest rates at any given time through the VA streamline program and VA loans are the same whether you are in need of a Texas VA Loan or a California VA Loan.

To help with your purchase or refinance transaction, contact LowVARates.com to see how you can get on the road to home ownership, and lower monthly payments.

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Posted in Loan Processing, VA Loan, VA Purchase, VA Refinance, VA Streamline Refinance, underwriting | No Comments »

Follow up to VA Residual Income

Sunday, November 22nd, 2009

Last week I posted some information regarding VA residual income, but I didn’t really go into a lot of detail as to how its calculated and the factors that affect it.  Here is a link to that last post – VA residual income. Residual income is basically the income left after all the expense of the house, day care if applicable and state and federal taxes.  The VA has this requirement because they want to make sure the Veteran can afford the home and not get into any financial hardship.  Remember too, that the VA will guarantee a portion of the loan to the lender so there is some level of risk for the Dept of Veteran Affairs.

Factors in VA’s Calculation for Residual Income

As I briefly mentioned above there are some specific calculations when determining a Veterans residual income.  The way its calculated is all the same, but the outcomes can be very different.  Another term for residual income is balance available for family support.  Here is a list of deductions from a Veterans pay that will be used to calculate the left over balance:  Federal taxes, State taxes, Social Security, Medicare, Debts and Obligations and Monthly Shelter Expenses.

Federal Taxes – We can all count on 2 constants in life, death and taxes.  Anyone who makes money understands taxes so I wont go into detail about it.

State Taxes – See comment above.

Social Security – This is a depleting fund the government has set up to pay for others retirement and maybe your own.  I doubt in my life time I will never see any money from SS when I retire.

Medicare – Another Government health insurance plan.

Debts and Obligations – This is all the debt – example – car payments, credit cards, installment loans, etc.  This also includes child support and alimony. 

Monthly Shelter Expenses – VA uses this to determine the amount of monthly expenses for the utilities like gas, electric, water/sewer and garbage.  How much a Veteran actually spends each month for these housing expenses can and are obviously different from one Veteran to another, so the VA set the standard by multiplying the square footage of the home by .14 cents.  For example if the SQ footage of a home is 2500 X .14 the monthly housing expense would be $350 per month. 

Now that we know what to deduct from a Veterans pay, lets actually calculate the residual income. 

Veteran (Mike) makes $4875.25 GROSS every month and has a wife who doesn’t work and 1 child and lives in the state of Utah and wants to buy a home for $150,000 that has 1850 SQ feet.

Federal Taxes Deducted $361.29
State Taxes Deducted $225.14
Social Security $301.27
Medicare $70.69
Debts and Obligations (including new mortgage payment PITI) $850 for debt
$1072.23 for mortgage
Total debt $1922.23
Monthly Shelter Expense $259
Total Deductions $3139.62

So the gross is $4875.25 and the total deductions are $3139.62 which leaves Mike with a total amount balance of $1735.63 available for family support.  In the last post I gave a table for residual incomes required by region and loan amount.  The amount required for Mike is $990 (West, loan amount over $80,000 and family of 3).  Based on this scenario Mike would be able to qualify for his home.

With this post and my last post I would think I have hit on all points of VA Residual income and can be used as a reference.

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Posted in Loan Processing, VA Loan, VA Purchase, underwriting | No Comments »

Reusing VA eligibility: Can I obtain another VA loan?

Tuesday, November 17th, 2009

 The short answer is yes. Basically, once you’ve established eligibility, it’s sort of like establishing a credit limit. Your eligibility is for a specific maximum entitlement; some individuals may be able to purchase a home without using his or her full entitlement. In that situation, it is possible to put the remaining entitlement towards financing a second property. Additionally, it is possible to restore the full entitlement amount by meeting certain requirements and applying for restoration of entitlement with form 26-1880. The simple version of the restoration requirements are that the loan is either fully paid or transferred to an eligible veteran. There is a one-time-only option for restoration of entitlement if the original property secured with the paid-in-full-loan is still in the veteran’s possession. Once again, your loan officer will be able to handle all this for you.

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Posted in Loan Processing, VA Loan, underwriting | No Comments »

Banks usurping VA authority BAD for Vets

Wednesday, October 28th, 2009

Over the past few months, as the credit crunch has deepened, lenders have become increasingly strict with VA home loans. Instead of sticking to the VA guidelines, lenders are now implementing their own policies. Gone are the days when no credit is needed. gone are the days when an appraisal is not necessary for a VA streamline. Gone are the days when service to our country is the major prerequisite for a VA loan.

Now, to make matters worse lenders are pulling the rug out form under the nations veterans. Recently, AME Financial Corp decided that not funding loans already closed by veterans was in their best interest. Yes, that is correct. Loans that have CLOSED but not FUNDED will not be funded by AME. This means that Vets are left in a lurch on their VA loans. The locks that were guaranteed, are no longer valid. All time low rates are lost due to ineptitude on the part of the lender. A press release can be found here.

What does this mean for the everyday veteran?

It means that taking advantage of all time low rates just got that much more difficult. Sadly this sort of behavior is not uncommon of banks that are ready to implode. ml-implode.com tallies a running list of failed banks, and do not be surprised when AME becomes the next.

What you can do.

Start the process now to take advantage of historically low rates. We may never again see fixed rates below 5%. Take advantage before further tightening occurs. Contact your LowVARates.com preferred lender, Flagship Financial Group, as soon as possible to get started. The Streamline loan process takes about 5 weeks start to finish and can save you hundreds each month. And with the holidays upcoming you can forgo 1-2 mortgage payments with no penalty.

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Posted in Loan Processing, VA Loan, VA Refinance, VA Streamline Refinance, underwriting | No Comments »

VA Loans Underwriting Process

Tuesday, June 23rd, 2009

Veterans have often heard the term Underwriting when is comes to their purchase or refinance.  I think this is a term that is said but really never understood.  Perhaps there are misconceptions about this person or process.  In reality its both.  An underwriter is a person and underwriting is a process.

WHAT IS A VA UNDERWRITER?

An underwriter is a person hired by a Lender (i.e. Wells Fargo, Bank of America) to make sure the loan meets the guidelines of the investor or lender.  They really have a tough job because a lot rides on them and they are responsible for bad loans that get approved.  VA underwriters will take a file and look over it very carefully and make sure that the originating loan officer packaged the file correctly and make sure nothing is missing or fraudulent.  Underwriters must understand VA loan qualifications and mortgage approval based on the Veterans credit history, income, debt, down payment, equity and compensating factors.  They issue approvals, clear to closes and denials.  They are basically the last line in the home buying or refinancing process.  If a Veteran can make it past an underwriter then its usually clear sailing until closing.

What is the VA underwriting process?

So now that we have established who and underwriter is, I want to explain the underwriting process.  Once the loan officer has established the value of the home, obtained title work, income documentation and VA loan disclosures, the file is now ready for Underwriting.  The loan gets sent to the Underwriting and they will review everything the LO put together.  They have most of the analytical tasks.  They will follow all the guidelines established by the VA for approval.  They looks most at the 3 C’s.  Credit, Capacity and Collateral.  Credit is obviously the documentation used to determine the Veterans ability to make payments on time.  Capacity is the Veterans income, debt, reserves and job time.  Does the Veteran have the income capacity to make the payments.  Collateral is the home and its value.  If you can pass the 3 C’s then an approval will usually be issued. 

Once the file comes out of Underwriting there are almost every time conditions.  This is still an approval, but the LO will have to meet additional criteria and sometimes provide additional documentation from the Veteran to get a final approval.  Once the underwriter is satisfied and all the VA conditions are met then you will be to close your loan.  An important thing to remember is that the Underwriter will also issue funding requirements.  This means after closing there might be additional work that needs to be done in order to have funds dispersed.

The whole process of Underwriting can take up to 60 days.  I have personally seen it take this long because of too much volume and not enough underwriters.  Usually though it takes about 1 to 2 weeks.  Don’t look at underwriters as someone who doesn’t want your loan, in fact its just the opposite.  They want to have the work and approve files.  They plan an important role in the VA mortgage industry and will continue to do so.

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Posted in VA Loan, underwriting | 2 Comments »