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VA Funding Fee – Which Veterans Pay it and Which do Not?

Wednesday, June 3rd, 2009

The VA funding is a fee paid by Veteran home loan borrowers when they use the VA’s home buying program. It is paid upfront and is allowed to be included in the final loan amount itself. VA loans do not have monthly mortgage insurance – sometimes called PMI or Private Mortgage Insurance. This VA funding fee goes directly to the VA and allows them to continue to offer veterans home loans. This funding fee in essence “takes the place” of that mortgage insurance. The VA guarantees the loan to the lender and the fee varies depending on the type of loan, if it is a first time use, manufactured home, disabled veteran and so on.

The Funding Fee is paid by nearly every veteran home buyer.  The only exception is for veterans who collect disability from the VA.  The fee is waived in that case. It is paid on all VA home loan transactions unless VA disability is received by the veteran.  The VA funding fee can vary  based on the type of service, whether you have been active duty or reserves and if the loan is a purchase, streamline refinance or cash out transaction.

Purchase & Construction Loans

Type of Veteran

Down Payment

First Time Use

Subsequent Use for loans 1/1/04 to 9/30/11
Regular Military None
5% – 10%
10% or more		 2.15%
1.50%
1.25%		 3.3%*
1.50%
1.25%
Reserve/National Guard None
5% – 10%
10% or more		 2.4%
1.75%
1.5%		 3.3%*
1.75%
1.50%

Cash-Out Refinances

Type of Veteran

Percentage for First Time Use

Percentage for Subsequent Use
Regular Military 2.15% 3.3%*
Reserve/National Guard 2.4% 3.3%*

* The higher subsequent use fee does not apply to these types of loans if the veteran’s only prior use of entitlement was for a manufactured home loan.

Other Types of Loans

Type of Loan

Percentage for Either Type of Veteran Whether First Time or Subsequent Use

Interest Rate Reduction Refinancing Loans (IRRRL)

 0.50%
Manufactured Home Loans 1.00%
Loan Assumptions 0.50%

Should you want to see this chart directly on the VA website, click here.

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Posted in Loan Processing, VA Loan, VA Purchase, VA Refinance | 2 Comments »

Veteran Home Owners – Why do Veterans Pay an Origination Fee?

Monday, May 18th, 2009

Why Veterans Pay An Origination Fee

I was on the phone the other day with a veteran borrower and they posed a great question, “Why do veterans have to pay an origination fee?”  I thought, hey that is a good question and I bet others have asked that very thing.  Veterans have access to the best mortgage financing available in America today, bar none.  The VA allows veterans to finance 100% of the home purchase price.  No where else can you find such a program.

With interest rates at 50 year record lows, many veteran families are taking advantage of the interet rate reduction loan offered by the VA.  Of course any time you refinance your loan there are going to be costs.  One of those costs is the origination fee.  It is almost universally 1% of the loan amount, or one point, as many call it.

Veterans pay this fee as part of the purchase or refinance and there are several reasons why.

1.  As a VA IRRL is processed it will be touched by nearly 20 people, from start to finish.  From processing, to the VA, to the current lender to the new servicer, the title company, the loan officer and many other in between.  There is work done by each of these parties and each party will receive compensation for the work done.

2. It is a fee for services completed– just like your taxes, or some other professional you trust, a lawyer or accountant.  You expect the refinance to be done correctly, quickly and completely,  as with any licensed professional.

3.There are a number of costs while processing a VA loan that the VA does not allow the veteran to pay for.  The largest of which is the underwriting fee charged by the new loan company.  It can be as much as $1000 and so any unallowable fee that is incurred as part of the refi must be paid out of that origination fee.

4.Finally there are some circumstances in which it is possible for the veteran not to incur an origination fee, or half of one etc.  Commonly when a veteran or other home owner who is looking to refinance wants to do a “low-cost” mortgage.  The lender will reduce their origination fee if the banks will pay for the refiance costs.  The banks do this by having a higher interest rate then what is available and will make up the difference on the loan.  This is not usually a great option because the rates on these “low-cost” loans can be up to 1.5% higher then the lowest rate that is being offered.  For example, 4.5% is a rate at which we have been refinances veterans for alomst 3 months.  You can do a “low-cost” loan at 6% but what good is that if you are already at a 5.5%.

Finally, you get what you pay for is what my Dad always said.  Over the years his words of wisdom have become more true to me.   See you around..

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Posted in Uncategorized, VA Purchase, VA Refinance | 3 Comments »

Veterans-Discount Points to Lower Your VA Rate

Thursday, May 14th, 2009

Veterans often hear the term “discount points” or buying down the rate and immediately think this is negative or bad.  I would like to explain how this works and to define these terms.  Veterans have the ability to get a better interest rate when buying a home or refinancing.  Interest rates change daily and are affected by what happens in the market.  Lenders offer these rates at certain pricing levels.  These levels either pay back money to them or cost them money.  The amount is determined by percentages, so for example if the rate is paying the lender 1.5 percent and the loan amount is $100,000 then amount being paid to the lender would be $1500.  This also goes the opposite way.  If the rate is costing 1.5 percent then the lender gets charged $1500 for offering that rate.

WHO PAYS FOR THE DISCOUNTED RATE?

Veterans pay for a rate that is discounted.  This is why its called discount points.  This is not a bad thing because it means lower monthly payments and more savings over the life of the loan.  In a  streamline refinance these points can be rolled into the loan and with a purchase the seller can pay up to 6% concessions and discount points can be included in that. 

VETERANS BE CAREFUL

There is some caution to be taken when paying discount points.  If a Veteran is refinancing a home and is paying discount points, he/she must realize their long term goals with the house and the length of time they plan on living there.  Veterans should be able to recoup the amount of money used to buy the rate down shorter than the length of time in the house.  In addition to this remember that the higher the rate the more the lender/broker is getting paid to do the loan.  This should be gauged on what other companies are offering and the nature of the market.  There was a time that the best rate being offered was over 12% and that was considered good.

SHOULD I PAY DISCOUNT POINTS?

Only you the Veteran can answer that question.  Like I stated before, paying discount point is not a bad thing.  Remember the old saying – “you get what you pay for”.  This absolutely applies to discount points.  Although it costs more up front, the only drawback is spending too much  up front and then selling right away and then you lose a little money but thats all.  By spending too little, you risk more because the cost of interest over time will be devastating compared to the cost of discount points.  Its an Economic truth that its seldom possible to get the most by spending the least.

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Posted in Uncategorized, VA Loan, VA Purchase, VA Refinance | No Comments »

Refinancing a VA Loan – Why Your FICO Score is Important

Monday, May 11th, 2009

Having good credit is key when refinancing or purchasing a home. Mortgage lenders look at lots of criteria regarding credit when deciding an applicant’s credit-worthiness. The main thing that lenders look at is the veteran’s FICO score. A FICO score is a number which represents an individual’s credit rating. It is based off of the compilation of the veteran’s current credit score, forms of credit used, new credit, the length of the credit history and the payment history. When refinancing or purchasing a new home you want to make sure that the borrower has the highest possible score they can have to get the lowest interest rate available. The better your FICO score is, the better your chance is of getting the best rate available. Most VA lenders today are requiring a FICO score of 620 or above but if you currently don’t have a 620 FICO score, don’t worry there are ways to increase it.

By using online sources such as CreditXpert, a program designed to help processing determine what action can be taken to increase a borrower’s FICO score, a borrower can increase their FICO score by following simple steps. CreditXpert gives specific instructions for the veteran to take to improve the his/her overall FICO score. These actions usually require paying down credit card debt or fixing a collection notice. In using CreditXpert, numerous borrowers who at one point had too low of a FICO scores to refinance were able to increase their FICO and ultimately get the lowest interest rate available. So remember if you think your FICO might be too low for the current interest rates available, always call and check because you may be missing out on historically low rates on VA loans.

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Posted in Loan Processing, VA Purchase, VA Refinance | 1 Comment »

VA Loans vs. Conventional Loans – Which is better?

Friday, May 1st, 2009

What should you choose?  VA or Conventional?

At some point Veterans will come to a dilemma when deciding what type of loan to use when buying a home.  This is a very valid question or concern as both have their place in the home buying process.  Having worked with Veterans for the past 7 years I can shed some light on this subject.  First let me start by saying that owning your own home is still one of the best financial decisions an individual can make if its done right.  What I mean by that is simply don’t bite off more than you can chew.  Once you sign on that dotted line you are now responsible for making payments for the next 15 to 30 yrs.  BE SMART ABOUT IT.  OK, lets analyze the VA loan and Conventional loan.

VA loans allow NO MONEY DOWN 100% financing

VA loans  allow for a Veteran to borrow 100% of the purchase price.  This now is one of the only loan programs that allow for 100% financing.  Unlike Conventional loans, you don’t have to pay any mortgage insurance premium (MIP) on Veteran Home Loans.  MIP is a separate insurance that covers the lender in case of loan default.  The amount of MIP is paid on a monthly basis and is completely risk based and can be very expensive.  The reason why a Veteran does not have to pay this is simple.  The Department of Veteran Affairs is guaranteeing a portion of the loan to the lender.  This is what is commonly known as your VA entitlement.  For the Dept of Veteran Affairs to guarantee a VA loan to the lender there is a fee assessed by the VA.  This is called a VA Funding Fee (VAFF).  The amount of this fee is usually 2.15% of the loan amount and it CAN BE financed into the loan.  This fee can be decreased if the Veteran puts money down and will also be waived is the Veteran is receiving 10% or more VA disability.  In this day and age, who has $20,000 just laying around to put down on home.  This is just my opinion, but if you have that much money saved its better left in an interest bearing account.  Besides, all the interest on home loans is tax deductible so on that $20k you will will gain interest and be able to deduct more interest on your home.

Do I need to have great credit?

Credit Qualifications on VA loans are much different than conventional loans.  With VA loans its based on timely payments within the last 12 months whereas Conventional loans are score driven.  A Veteran who has a credit score of 620 can get them same rate as someone with an 800 credit score.

How much money do I have to make?

There is an additional step with VA loans.  VA is not so concerned about Debt to Income (DTI) but rather Residual Income (RI).  The Department of Veteran Affairs has established a calculation based on family size, loan size and location and takes into account net income (after taxes).  Conventional calculates DTI on gross income (before taxes).

These are the main differences between VA loans and Conventional Loans.  If a Veteran has served his country and helped the cause of Freedom and is given the ability to use a VA loan, there is no reason why he/she should not use it.  I’ve done both VA and Conventional loans.  VA LOANS provide lower monthly payments.  This industry is changing so much. It isn’t what it used to be but the VA loan has remained constant.  Good luck and happy house hunting.

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Posted in VA Loan, VA Purchase | 1 Comment »

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