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Pros and Cons of the VA Hybrid Loan

Thursday, January 27th, 2011

The current economic downturn has put many homeowners in financial hardship. With many people being financially strapped, a good question to ask is whether or not the VA Hybrid loan is a good option for saving money.

A VA hybrid ARM is a combination of an adjustable rate mortgage (ARM) and a fixed rate mortgage. The introductory rate period is fixed, usually for 3, 5, 7, or 10 years of the loan. Generally the shorter the fixed rate period chosen, the lower the rate. After the introductory period is over the adjustable rate begins.  After this period the rate can only adjust every 12 months and there are adjustment rate caps that protect the borrower from the rate jumping too high right off the bat. There are also lifetime caps of 5% so that the loan will never exceed their fixed rate plus 5%.

Many veterans might be uncertain about this type of loan because of what may happen with interest rates in the future. While it is good to be cautious, present financial issues may be more important than future costs. This loan allows for monthly savings right now, which could allow for savings later as well. There are pros and cons to every loan option. Borrowers must look at each side and decide which the right alternative is for them and their current situation.

There are a few disadvantages to keep in mind. If the interest rates skyrocket after the introductory period, the borrower could end up paying a considerably larger interest rate over the term of the loan. On the other hand, if the borrower chooses a long fixed rate period and the market’s interest rates lower, then they will end up stuck in their high fixed rate. It can go both ways. The borrower has to accept the interest rate risk after the fixed rate period.

However, there are definitely some advantages to the hybrid ARM! First of all the borrower will  gets a guaranteed fixed rate for the first 3 to 5 years, or however long they opt for. Then after that the rate can only adjust every 12 months, and keep in mind that the rate can go down during this time as well! Many homeowners may choose this option for a loan because it hardly makes sense to pay for a fixed rate for thirty years when they will mostly likely be out of their homes and loans before then anyway. If the borrower is looking for a jumbo loan, an ARM is probably the best choice for them. It will offer them substantial savings over a thirty year loan because the rates are normally quite a bit higher, while jumbo hybrid ARM rates are generally much lower.

VA Hybrid ARMs offer safety and savings that seem to be too hard to pass up. Yet, borrowers still need to decide if they need to weigh their options and decide which loan option is the best for them.

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Posted in VA Loan, VA Refinance, VA Streamline Refinance, va hybrid arm, va interest rates | 1 Comment »

Top 3 Reasons to Use a VA Hybrid Loan on Your Next Refinance

Friday, January 14th, 2011

The VA Streamline Loan is one of the most popular refinances right now due to its ease and the benefits that can be received through it. Not only can the veteran basically avoid jumping through all of the hoops that come along with obtaining a loan, but here are just some of the benefits that a streamline offers: no appraisal, an optional down payment, lenient credit requirements, no income verification, the possibility of deferring two months payments, and the possibility of getting an escrow refund of the money that is in the escrow account when the loan is paid off.

Now these benefits do depend on what lender you work with. The VA sets all of the rules in place, but since it is the lender that is lending the money and the VA is only guaranteeing the loan, the lender can determine if they wish an appraisal or a certain credit score is required.

The VA Hybrid loan is becoming more and more widely used for VA refinances now. Now hearing the word hybrid, you may think of a car. It’s actually the same idea. Just as the car combines gas and electric, the hybrid loan combines an adjustable rate mortgage (ARM) and a fixed rate mortgage. The VA took the best of each loan and made this one! Most veterans lifestyles requires them to move frequently and are not able to remain in their home for the duration of their entire 30 year fixed rate mortgage, so that type of loan was not working out the best for them.

Hybrid loans are a combination of a fixed rate and an adjustable rate mortgage. The introductory rate period is fixed, generally for a period of 3, 5, 7, or 10 years of the loan, with the lowest interest rate usually coming with the 3 or 5-year option. After the introductory period is over the adjustable rate begins. Studies show that many home owners only stay in their homes for 7 to 10 years, so a hybrid loan allows these buyers to take advantage of the very low rates in those first few years of their mortgages. After the adjustable rate begins, the rate can only adjust every 12 months and it can only adjust up to a max of 1% up or down per year, with a lifetime cap of 5%.

There are many benefits to this combination loan. Here are the main three:

  1. 1. LOWER INTEREST RATE DURING FIXED PERIOD

One of the main reasons people choose a hybrid loan is for the lower interest rates going into the loan. Hybrid loans typically have an initial start rate of 1-2% lower than that of a 30 year fixed rate. This can lead to savings of $100-200 monthly! The 3 and 5-year options tend to have the lowest rates. These rates are guaranteed fixed for the set option you choose (3, 5, 7, or 10), which is a considerable amount of time.

  1. 2. ADJUSTABLE RATES CAN DECREASE IN A DECLINING INTEREST RATE MARKET

When the borrower’s introductory rate is over, and the rates are lower than what your fixed rate was at then your rate gets even better during that time. This would reduce the payment even more and can save the borrower even more money!

  1. 3. FLEXIBILITY TO END THE LOAN

This may be one of the largest benefits of the loan. The borrower can enjoy all of the benefits of this loan, but avoid a possible rising interest rate. As mentioned before, most veterans and regular homeowners are not in their home for a full 30-year term. Most choose to take out this type of loan and terminate it by refinancing or selling (if they are moving) at the end of the fixed term. This is one of the main reasons they choose a hybrid over any other type of loan.

Of course there are a few drawbacks, but there are to every loan. The rate could jump up and then the borrower would be stuck paying a higher rate, but also as stated before there is an option to refinance and terminate the loan.

VA Hybrid loans offer savings and safety that many veterans are taking advantage of already.

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Common VA Streamline Questions

Thursday, December 16th, 2010

Common VA Streamline Questions:

What is the difference between a VA streamline vs. a normal refinance?

The difference between a VA streamline and other refinances has to do with the qualifications as well as the documents required to qualify. For a normal refinance, you must qualify for the loan and provide all of your income, banking, credit, and liability information as well as an appraisal. Typically the loan cost will be higher than a VA streamline refinance. The VA streamline is a very quick and non-stressful process.

Historically interest rates on a VA loan have never been this low before.

With the way the market currently is,VA interest rates are at an all time low.  With government funding and other factors many people predict that lower rates not to last much longer.  Most investors think that it is wise to hedge the risk of rates going back up and take advantage of the refinance now.

How long does a VA streamline refinance take?

The VA streamline process normally only takes 3-4 weeks. This will vary dependant on the conditions that the lenders ask us for and the cooperation of the borrower.

What is a VA streamline refinance loan?

VA streamline refinance is simply a mortgage refinance of an existing VA loan with limited amount of documentation and qualifications thereby “streamlining” the loan process.

What does a VA streamline cost?

With the VA streamline there are no out of pocket costs, meaning that the borrower doesn’t have to bring anything to the table at closing.  All the costs associated with doing the loan are rolled back into the loan itself.  Making it easier for the veteran to afford the refinance and easier to pay off the house faster.

What are the other benefits of the VA streamline?

Besides being an easy and non stressful process, the VA streamline allows the borrower to defer two payments after closing, and also replaces the escrow account refunding the old one to the borrower making it easier to pay off other debt that they might have.

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Benefits of a VA streamline refinance

Tuesday, November 9th, 2010

The VA Streamline refinance home loan is without a doubt the best mortgage refinance loan on the market. No other refinance loan program is as simple and easy to qualify for and there are so many unique benefits that come along with it. Although, In order to do a VA Streamline refinance, your current loan must be a VA home loan.

One of the biggest benefits of the VA Streamline refinance is that you do not have to go through credit qualification.  There is absolutely no need for lenders to pull your credit history and look at your scores. However, your existing mortgage must be current and you cannot have had any more than one thirty- day late mortgage payment within the last 12 months. In order to do a VA Streamline refinance, your current loan must be a VA home loan.

Another benefit is that the regular underwriting process does not apply. Your lender is not going to check to see how much money you make. So you do not need to send in bank statements, W2’s, paychecks, etc. Since you have been making your mortgage payments, they know that you have the means to keep it up. Along with this, lenders are not going to be calling your employer to make sure that you are still working with them before considering giving you a loan. With a VA Streamline refinance a income verification is no issue to you at all, since they will not be doing that.

VA Streamline refinances in most cases can allow you to arrange your refinance to be completed with absolutely no out of pocket expenses. All of the closing costs and pre-paid can be rolled into the new loan amount and on top of that there is no appraisal required. As you can see there are so many unique benefits of a VA Streamline refinance as listed above, if it sounds like this is for you, take advantage of this amazing opportunity.

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How VA loans can put money in your pocket

Wednesday, November 3rd, 2010

Have you recently looked into your wallet and noticed there is less money in there? No not because your teenagers are cleaning you out but because the economy and times in general are just tougher. Well because of this situation and the current market for homes and interest rates, it may be the time you have waited for to refinance, using the VA’s VA Streamline IRRRL loan. IRRRL stands for Interest Rate Reduction Refinance Loan. This is not a new program; the VA has offered it for years and years. Because interest rates are so low right now, many people are finally getting around to it and in some cases taking advantage of the program again from just a couple years ago.

Let’s look at the program.

The VA allows for current VA mortgage holders in good standing, those who have been current on their payments for 12 months, and those who have had the loan for less than 12 months can still qualify, just have to meet qualifications that include that the refinance is beneficial to the borrower.

Commonly having a second mortgage or home equity line of credit (HELOC) make the process more difficult but not necessarily impossible. You see because these liens are subordinate to the current first mortgage- the VA loan- the lien holder on the 2nd or HELOC has to agree to remain in a second lien position when the VA loan is refinanced. This is called subordination. Most companies agree to subordinate to the new VA first mortgage.

Ok so let’s continue to look at how the refinance can put cash in your pocket. As part of the refinance process the current VA loan servicer, the company that the payments are made to now, will be paid off. When that loan is paid off, the interest that is due on a payoff is included. So commonly, there are two months in which the veteran/homeowner will not have to make payments, they are simply deferred. That frees up two months worth of current house payments, in some cases like with larger loans that could free up $5000 or more.

Next, as part of that payoff to the current servicer, they are no longer able or required to pay out escrows, tax and insurance payments, on the loan. So they will return whatever is left in the escrow account when the higher refinanced loan is paid off. The new loan includes those prepaid taxes and insurance built into the loan so when the new payment comes due, there are already taxes and insurance built into the account for when they are due later that year.

So let me give you an example with actual numbers. I have a client where the current monthly payment on their 6.25% loan is $1956. They will not have to make that payment for the next two months, since the interest is included in the payoff, so $1956 x 2= $3912. Then the escrows refund is $4623. So $3912 + $4623=$8535 cash in their pocket from the VA streamline rate reduction refinance.

You can see how easy it is to put money in your pocket from taking advantage of the VA refinance program. Oh yeah don’t forget this example above, not only are they putting $8535 in their pocket but they are also lowering their monthly payment by $276 a month

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Top reasons to use a VA streamline refinance

Wednesday, October 27th, 2010

The VA Interest Rate Reduction Refinance Loan (IRRRL), or VA streamline refinance, is an excellent way for veterans and active duty service members to reduce their monthly mortgage payment by lowering their interest rate. And let’s face it, we could all use lower monthly payments these days!

The VA streamline loan is only available to those who already have a VA loan. There are a lot of advantages to streamlining your VA loan:

  • No appraisal required!
  • The VA does not require you to credit qualify.
  • No down payment, and all closing costs are rolled into the loan, so you bring nothing to closing!
  • Lowering your interest rate and monthly payment can save you money every month.
  • You don’t make a mortgage payment for two months after you close, saving you two month’s worth of mortgage payments!
  • You can choose to reduce the term of your loan (i.e. Go from a 30-year to a 25, 20, or 15-year loan) to save thousands on interest over the life of the loan.
  • You can refinance from an Adjustable Rate Mortgage (ARM) to a Fixed rate, avoiding costly interest rate hikes when the ARM rate adjusts.
  • You can refinance from a fixed rate to a VA 3/1 or 5/1 Hybrid ARM, lowering your interest rate and monthly payment considerably.
  • The streamline process is painless and relatively quick. You could be refinanced in just a few weeks and saving money!

Rates are at an historic low right now, so if you have a VA loan, chances are good that you will be able to benefit from lowering your interest rate with a streamline refinance.

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Top 5 Reasons to Use a VA Streamline

Monday, October 18th, 2010

Using a VA streamline loan is a smart idea for anyone with the opportunity to do so. There are a number of benefits to the veteran, which will be presented in the following paragraphs. VA loans tend to have more flexibility and to be more attainable, due to the fact that more lenders offer them. It is often easier for the veteran to qualify, making it a convenient choice compared to other types of loans. Here are just five of the main reasons to choose a VA streamline loan!

  1. The qualification process for that of a VA loan is much easier than for one of a conventional loan. A VA loan is a specific type of loan available to  US Armed Service veterans, who have served at least 90 days during wartime or 181 days during peace time and were not “dishonorably discharged”. They may be a retired veteran or the spouse of a veteran who died in the war or due to service related wounds and have no re-married. There are many ways to qualify for a VA loan.
  2. Credit standards are much less strict. Typically this is where many borrowers have trouble with their loans. The VA looks for a clear 12 month credit history. Also, credit scores do not affect the rate of the loan.
  3. There is no down payment required. This payment could be used for many other things, such as savings, paying off other debts, possibly a payment on the home later, or maybe a family trip! If the borrower chooses, they can make a down payment, but just keep in mind that it is not a requirement!
  4. The amount that the VA allows the veteran to qualify for is generally quite a bit larger than that of a conventional loan, while also having lower interest rates. (Rates follow the market, but can become even lower if the veteran does opt to make the optional down payment.) A veteran can get a home for $0 money down and up to $1 million! Most states in the United States have a loan limit of $417,000, as chosen by lenders; however, in some states the max goes up to $625,500. Specific lenders in any state will allow higher loan amounts to fund, up to a maximum of $1,000,000.
  5. The government limits the amount that can be charged in closing costs, origination fees, and appraisal fees. There are also no mortgage premiums required. Lenders are prohibited from requiring one. This is because of the guarantee put on the loan.

Veterans should take advantage of the VA loan if they can qualify for this option. Another perk to the veteran is if they have any kind of service disability. They can look into getting their funding fees waived as well. There are so many benefits to the VA streamline that it would be hard to not look into it. It is definitely one to take into consideration when buying a home.

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The Dodd-Frank Wall Street Reform & Consumer Protection Act’s Affect on Mortgages

Tuesday, September 21st, 2010

For those of you wondering how the Dodd-Frank Wall Street Reform & Consumer Protection Act is going to affect your chances of getting a mortgage, I would say – just go read the bill. Yeah right! It’s only 383,013 words long and has had 16 different titles as it’s gone through the process of changing 243 rules. So we are keeping it simple here and answering the question of how it will affect mortgage seekers. Please enjoy the graphic below.

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Dodd–Frank Wall Street Reform and Consumer Protection Act

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Eligibility and benefits of VA loans

Tuesday, September 7th, 2010

The government tries to provide some benefits to members who serve the country. Among the other benefits that are available, is the department of veteran affairs loan program for home buyers. VA loans are mortgage loans that are designed to offer long term financing to all eligible veterans or their surviving spouses. In case you want a loan from a private lender and things are such that you can’t pay your lender then VA stands behind and guarantees that the lender’s money will be paid.
Not all are eligible for the VA loan. You will be required to have a certificate of eligibility to get a VA loan. The people who are eligible for a VA loan are as follows.

  • Active duty personnel
  • Veterans of different fields
  • Some National Guard members
  • Surviving spouses of persons who have died while on duty
  • The spouses of personnel who are missing in action or taken captive

The VA loan has several advantages over the conventional loan. Some of the benefits of VA loans are as follows :
1. No down payments: Under this program there has to be no money down. The eligible buyers can finance 100 percent of a home’s price without making any down payment. Conventional loans have very high down payment requirements. They at least require 20 percent of the value of the house as down payment. Thus, a lot of people can not afford to take out these conventional loans. The advantage in case of VA loans is that they do not require any down payments.

2. Processed faster: If you are a potential buyer then you must submit your application and request for an appraisal of the property. This should be done before obtaining a VA loan. Some lenders, who have the VA approval for processing automatically, can finalize a loan. They do not need to wait for VA to review the application or the appraisal.

3. Protection of the lender: The VA guarantees that it will provide repayment of the loan in case the borrower can’t. Thus, the lender is safe from any loss in the event of the borrower not being able to pay. This attracts the lenders and so they help veteran buyers in getting better loans.

4. Lowers cost of the buyer: In case of the VA loan the funding fee is approximately between half and 3.3 percent. This may be included in the loan or is supposed to be paid out–of–pocket. The loan is designed in such a way that it is meant to reduce the cost for the buyer.

5. Flexible loan: These VA mortgage loans are not only for purchasing homes. They can also be used to build a new house or buy land. You may also take the loan out to make improvements to an already existing house. Thus, there is flexibility when it comes to VA loans.

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Posted in VA Interests, VA Loan, VA Purchase, VA Refinance, VA Streamline Refinance, underwriting, va interest rates | 1 Comment »

VA loans with Wells Fargo should be streamlined with Flagship Financial

Wednesday, September 1st, 2010

Something that most military home owners are not aware of is that brokers or mortgage companies that have access to wholesale rates sheets can get them a much lower rate than if they (Veteran) were to call Wells Fargo themselves.  This may not make a lot of sense on the surface but if you have ever shopped at Costco or Sam’s club then this example may help.

Wells Fargo VA Streamline Banner

Why can Costco sell you a bottle of shampoo cheaper than if you were to go directly to lets say Johnson and Johnson’s website and buy it directly from the supplier?  The answer is simple.  Costco has negotiated huge discounts due to the volume of shampoo they buy, due to the fact that they (costco) spend money marketing and selling the shampoo and now this is money that Johnson and Johnson will not have to pay to move their product.

VA mortgage loans are very similar.  Wells Fargo of course has its own loan officers, branches and offices and is certainly willing to do their own loans through what is referred to as a “retail channel.”  A retail location is like the Wells Fargo bank on the corner or in the shopping plaza.  If you were to call Wells Fargo directly as a consumer you will work with their retail division and get great service and decent rates.  However, if you call Flagship or any other broker that has access to Wells Fargo’s wholesale rates, you will get a much lower rate.

I am not a veteran and do not have a VA loan of course.  My entire mortgage profession has been spent working on VA loans and assisting military families with their home loans.  The other day Wells Fargo contacted me directly because I have a loan with them on a rental property of mine and they asked me if I wanted to refinance.  I will keep this story short, but the rep at Wells when I showed him what wholesale rates I could get on my own, simply told me he could not compete and I should do it myself.  Here is an excerpt from that email:

I understand……what you saying is that wholesale is at a price of 104.00 ( i assume they want to get paid) so they can give you 3 points….and we are at 101.00…..

My manager has been with Wells for 15 years and he says there is no way we can be 3 points away from wholesale, but you know what your doing and if you can get it I would jump on it too..

So for those of you with VA loans at Wells Fargo what does this mean to you?  I am not trying to suggest that Wells Fargo is ripping you off or that you should not refinance straight through the retail loan officer, but I do want to make you aware of your options and suggest seeing what Wells Fargo can do for you and then contacting Flagship Financial or another broker and see what they can do for you.

There has never been a better time than now to streamline your VA loan and take advantage of seriously low VA interest rates.  Flagship Financial is dedicated to assisting you with any VA home loan questions you may have.

Wells Fargo VA Streamline Banner

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