This blog post will be short and sweet because I want the video above to do the talking. That said it is very important that any veteran home owner eligible for a VA streamline loan or even a VA cashout loan be aware that 4.5% VA rates have returned once again to the market! Most of the approved loan officers here at LowVARates would have never guessed that we would have seen this low 30 yr fixed rate return, but we are all certainly happy that it has. The FED will stop buying mortgage backed securities is just about a month, so we do not expect interest rates to stay this low much longer. If you have been waiting to refinance, YOU BETTER DO IT NOW.
My name is Ryan Johnson and I will be the VA loan specialist going over this program with you. Now I am a licensed mortgage professional in 37 different states across the country. I have been with Flagship Financial for 4 years and in the time frame I have helped hundreds of families buy homes and refinance their homes and take advantage of these lower interest rates like you are looking to learn about now.
The purpose of this quick overview call is to give you a general idea of what the VA streamline refinance program is, what the different interest rates, programs, terms, that you can take advantage of and a basic understand of what it takes to get started. This overview call is not meant to replace a one on one conversation. In fact, immediately following this overview you will be transferred back to my staff so we can have a one on one conversation to go over your specific numbers on your loan. But at least this will give you a good overview of what this program is about and what it can do for you so that when we do have that one on one conversation you already have an idea of what you can take advantage of and be better informed.
We’ll start off with what this VA Interest Rate Reduction Program is. Back in 1980 the VA came up with this program as a way to put you into a better, lower interest rate loan than you bought your house on. They do that by letting you pay off that higher rate loan and replacing it with a new lower rate loan. Thereby saving you money in interest.
Now there is nothing really special about that process, civilians have been doing that sort of thing since mortgages have been around-they just call it a refinance. But what makes this program special is how you qualify for it. See if you were a civilian and you tried to refinance your house you have to go through that same long, drawn out expensive, frustrating process that you originally went through when you bought your house originally. I’m sure you remember that process vividly because in most cases it tends to one of the least enjoyable experience when it comes to buying something. Well believe it or not everyone has to go through that over again just to lower their rate if that is something they want to do. Everyone has to except you. One of your very special veteran benefit entitlements is this program, the VA Streamline refi where your able to reduce your interest rate with no full appraisal, no full credit report, no income asset or employment verification and no inspection. Quite simply you sign the VA’s application, supply some of your existing mortgage documents and you get a new lower interest rate. That new lower rate will help you to pay off your hosue faster or lower your monthly payments or both. You also get to miss a couple mortgage payments when you take advantage of this program. You are also able to get a cash refund from your existing lender that you are entitled to. So we will go over all of those benefits in a minute.
Now the VA offers four basic options when it comes to buying or refinancing a home. And so each of these options has a different goal in mind and also I’ll go over the details of those and what we are going to do is compare each of these options to an example veteran. We’ll just say for our example veteran who has a 6% interest rate on his loan of $200,000. And we’ll see what would happen if that veteran was to go with each of these different options. Just to kinda give you an idea of what each option can save you. And I’m gonna go over the interest rates of each option for you as well. Now of course your numbers are going to be different when we go over those but at least gives you a general idea of what each of these programs are about.
So we’ll go ahead and look at option 1.
Option 1 is by far the most popular program on this va streamline refinance. The reason why is the number one most popular goal I hear with the veterans that call in, and we get hundreds of calls a day is I want to lower my monthly payment as much as possible. Well option achieves that better than any other option. That is the reason it is the most popular. You can get an interest rate as low as 3.75% on a 30 year loan with option 1. Well if our example veteran was to go with this program it would drop their rate from 6% down to 3.75% That is a 4500 drop in annual interest or 375 dollars per month. That is what makes that program so appealing . Now option 1 is called the VA 3 Year Hybrid Program and here is how it works. The 3.75% would be fixed in and guaranteed for three years. At the end of that time the VA then allows the rate to change but only by a small amount. The VA only allows the rate to go up or down a maximum of 1 percent in any given year thereafter. Now this is not one of those fully adjustable mortgage programs you have heard about in the news the last couple of years that have caused our country so much trouble. The VA would never stick you into a loan like that for one big reason. Your loan is guaranteed by the department of veteran affairs. Now when you bought your house they may have never explained to you what that guarantee is so I will do so now just in case you weren’t aware. What that guarantee means is that the VA guarantees that you will always be able to make your payments, you’ll be able to make them on time and if you should ever have any difficulty making your payments the VA will step in and actually help you or even pay your mortgage payments for you until you get back on your feet and even if that measure should fail and the lender is forced to foreclose on your house the VA is the one that is responsible for paying off the mortgage loan. Now the reason that is important to know is that is the only reason the lender was willing to give you this house with no down payment because that very attractive guarantee. And the VA only puts that guarantee on safe, stable ,reliable, loans that have a proven track record of the veterans being able to pay their payments on time throughout the entire term of the loan. And that is no exception for option 1. You can have confidence knowing the VA is putting you into a safe stable reliable loan because they certainly don’t want to pay off your mortgage loan and they definintely don’t for the tens of thousands of veterans that take advantage of this program every single month. Now the reason they came up with this option 1 is because they are taking advantage of a confirmed US statistic. And that is we as American home owners only keep our mortgages an average of three to five years and then we get rid of them. WE refinance to take advantage of lower interest rates and better loan programs like you are looking to do now. We refinance to take cash out of our properties and pay off debt of do home improvements or we sell our homes do to job changes, job transfers, family changes or we just want to live in a different area. There are many different reasons why we sell or refinance our homes so statistically whether you plan on it or not you are very likely to do one of the items I mentioned in the next 3 to 5 years. Well the VA looked at that and said, Well why in the world are most of our veterans taking these 30 year fixed mortgages and paying on a higher ratethan they have to. Let’s put a loan program together that is just as safe as a fixed rate loan because it is fixed for that important 3-5 years and we can offer it at a significantly reduced interest rate and here you have the birth of this 3 Year VA Hybrid Program at 3.75% interest rate.
Now lets say you get option 1 and you have enjoyed the last three years of 3.75% You’ve saved a bunch of money and year four rolls around and you haven’t made any changes and you are going to be in the loan. No problem. At that point the VA has stated the rate can change. It can go down it can stay the same it may go up .1% but the max it can go up is 1% to a maximum of 4.75%. Well that probably a whole lot lower than what you have right now and if you don’t want the rate to change at all at the end of those three years you can take advantage of this same easy streamline refinance program and lock in at another low three year s or maybe just go into a full fixed rate at that time if you’d like. The VA wanted to have a way for you to lock into a different loan program any time during the three years or after should you choose to do so. So that is option 1 the most popular program of all because it does lower your payment the most.
Option 2 is very similar. It is also a hybrid program, the Vas 5 Year Hybrid program. And youre able to get an interest rate as low as 4.5% on that program. So if our example veteran is at 6% went with option 2 they would save themselves $3000 per year in interest or just about 250 per month on option 2.
Option 3 is the VA 15 year fixed loan. This option will help you pay off your house faster compared to your 30 year term loan. What this option is going to do for you if our example veteran went with this loan it would drop their rate from 6% to 4.5% on a 15 year fixed loan that would save them just under $200,000 in payments and interest on top of the nice bonus of paying off their house in half of the time so this is the program that will save you the most over the term of the loan. Now that does come with a bit of a cost. That cost is in most cases you will experience a higher loan payment than your current payment. But it doesn’t have to be that much more. The typical increase is anywhere from 10-30% of your traditional 30 year payment. So for example if you are paying one thousand per month for your mortgage you would see your payment rise to 1100 to 1300 per month and you would be able to pay your house off in half of the time with this option 3. So if you can afford that payment look no further because this is the best option for you because it will save you more than any of the other options.
And that leads us to the fourth and final option which is just your standard, plain Jane 30 year fixed loan. Just like you’ve probably got right now. You are able to get an interest rate based on today’s rates as low as 4.75% on that particular loan program. So if our example veteran went with option 4 it would drop their rate from 6% to 4.75% which is a 2500 annual savings or just about 208 dollars per month they would save in payments and interest in option 4.
Now those are the four different options with their interest rates and example of the savings they can offer you. On top of that, regardless of which option you choose you will get the following additional benefits
Number one the va allows you to miss your next two months of mortgage payments and that could mean two, three, four thousand dollars in your pocket by missing those next two mortgage payments. The second benefit the va offers you is about two weeks after this transaction closes you are going to get a check in the mail for whatever is in your current escrow account and you get to keep that money and do whatever you want with it. The reason you are getting that check is because part of setting up this new laon for you is the va requires us to fund and establish you a new escrow account to ensure that your taxes and insurance are covered when come due but you already have an escrow account with your current lender so by law when we pay them off they are required to refund this money to you and you can keep that money and do whatever you want with it because like I said your taxes and insurance will be taken care of in your new loan. And so if you add the escrow refund to the two skipped payments you could walk away from this transaction with 2-3-4 5 ive seen as much as 9000 dollars in a veterans pocket in addition to saving 500 dollars a month every month on his monthly payment. So you can get some important financial benefits from this program and that is why the va makes it so easy to qualify for and tries to motivate you to take advantage of these programs.
So at this point I usually get a lot of questions, Ryan what’s that catch, is the program legitmate, it sounds to good to be true. I can assure you this program is legitimate in fact once this overview call is done and we have our one on one conversation I will even give you the vas website so you can look this program up yourself on the vas website and you will notice that web site will be very similar to what you have learned today on this overview call. There is no catch. The VA is trying to help you by giving you a lower interest rate but you do need to be aware of some changes when you do a va streamline refinance. Theres nothing really major it is still a va loan, you still retain all of the same va loan benefits, your taxes and insurance are still included in your monthly payment. Literally everything is identical to your existing mortgage except for these four changes
Number one, you will be paying your payment to a new VA lender because your old va lender is paid off. Number two, you will have a lower interest rate. Number three you will have a lower payment as long as you choose 1 2 or 4. Now regardsless of which you choose another bonus of your new lower payment is the fact that more of your mortgage payment is going to be applied to the principle balance every month. For example when you pay your mortgage payment right now lets say 200 per month goes toward your principle balance every month. Well after this transaction is done more like 250 to 300 per month is going to be paid down on your principle every month so you will actually see your mortgage balance drop more rapidly with this program. Just another benefit there. The fourth and final change you will experience is that you may be financing a little bit of a higher loan balance than you existing loan balance.
There are three reasons your loan balance can change. Number one the two months missed mortgage payment. That is an optional benefit the va offers you . If you take that money to use for your own purposes its not free money, its deferred interest that will be added to the loan. The second reason your loan amount can go up it the escrow refund check. Remember you get to keep that money and do whatever you want with it but its not free money either because we have to establish you a new escrow account to ensure your taxes and insurance are covered and that is just added to the loan as well. And so at this point I get a lot of questions like, Ryan I am adding 2 3 4 5 dollars whatever it ends up adding up to in your case to your loan that you don’t have to. Are you sure that’s a good idea. Well believe it or not the answer to the that question is yes, in most cases it is a very good idea and here is why. You are going to be financing this new loan at such a low interest rate, as low as 3.75%, you would be better off taking that money from the two missed payments and the escrow refund and putting it to good use and paying off high interest rate credit card bill, a car loan, a personal loan something that is financed at a much higher interest rate than 3.75% and now you can save even more money per month on payments and interest on top of the savings from the mortgage. And once again those are only suggestions and these cash benefits are optional and you don’t have to add to your loan but they are there if you like. And a third and final reason your loan can go up is because of closing costs. Whenever you purchase or refinance real estate, regardless of the loan or lender you choose there are closing costs involved.
However there are four very nice things about closing costs when it comes to the VA Streamline refinance. Number one you do not need to pay a single penny of these costs out of pocket. These costs are slimply rolled up into the mortgage and are included in the monthly payment an savings we have already gone over. The second nice thing about these costs is that in most cases, now I am not an accountant so I cant speak for you directly, but in most cases these costs are 100% tax deductible. Meaning you will be able to write these off when you file your taxes. You should expect to get a bigger return from the IRS. So, once again consult your tax professional on that.
The third nice thing about these costs is believe it or not these costs are optional. You don’t need to add any costs to your loan if you don’t want to and here is how that works. Let’s say you take option 1 and you qualify for a 3.75%. Becasure you may be concerned about adding costs to your loan because you may be moving in 6 months you can choose to close your loan at like a 4% or a 4.25% probably much lower that what you pay now but when you take a little bit of a higher rate the va allows you to reduce or even waive the closing costs involved so nothing gets added to your loan. And so we can go over that in detail if those costs are a concern of yours after this overview call. And the fourth and final thing that is nice about those costs is the fact that the va is looking out for you. The va built this program to put you into a better loan than you are in now and that includes ensuring that you are saving more in interest than this transaction is costing you. And so they have a very simple test they run that you must save more in interest than the transaction costs you or they won’t let you do it. Its their way of protecting you to ensure you are putting yourself into a better financial situation than if you stuck to your existing loan so we will go ahead and run that test after this overview call to ensure you are making a good decision by going into this program or whether you should just stick to your existing loan.
Now as far as what closing costs can look like, they should be very similar to what wa involved when you bought the house. You probably don’t quite remember what those were, most people don’t but on a national average they tend to be between 2-3 percent of the outstanding loan balance. Now of course you can reduce or waive those costs by going with a little bit of a higher rate but that typically what they tend to be.
Ok so you have just heard the details of what this program involves and what these changes involve. Now let’s say one of these options is peaking your interest and you like the idea of missing some payments and lowering your monthly payment, what happens next?
This blog post consists of 3 videos and I strongly suggest watching all three in order and in their entirety. If you have ever wondered why to use a VA streamline refinance or if you have been told you cannot save any money because your VA interest rate is already too low, then you need to watch these videos.
I hope you enjoy them.
Video Segment #1
Video Segment #2
Video Segment #3
If you know what option of the VA streamline loan programs you are most interested in I suggest contacting one of our approved VA loan officers right away.
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.
My father has always told me that I need to keep it simple. I tend to ramble when writing, so I’m going to take the high road and make this short and sweet for everybody reading.
If you haven’t refinanced yet, and the proposed loans will positively save you money within the first five years… Just do it.
If you’re “thinking” about it but haven’t even figured out whether it’s worth your while? Just do it. Either it is, or it isn’t.
Truth be told, I’m keeping this message simple because I don’t have the time to go on and on like I’ve done in prior posts, about the countless reasons why you should refinance. I’ve been putting in 60 hour weeks just trying to ensure that my borrowers get their loan closed in November. Everyone I speak with already knows about the two deferred payments; everyone knows about escrow refunds, energy-efficient mortgages, and no-out of pocket costs. The VA Streamline is about as simple as it gets when it comes to home loans.
Simple requirements = tons of qualified applicants, right? These days, e-mailing applications and exchanging information via fax has made it easy for me to get these loans into underwriting in as little as 2-3 days in some cases.
However, for as simple as the VA loan is, and as great as these rates are, by sharp contrast these lenders are equally, if not more difficult than ever.
They sure were an easy-going group until recently. They were like that rich, drunk friend who acted recklessly, but seem to have cleaned up their act to some extent. But even after taking all that bailout money, that hasn’t kept them from being the profit hungry machines they are.
Profit-hungry lenders, unfortunately, are exactly who we have to deal with when we’re looking to deliver the best rates. Hence, selectivity has entered the equation. The more selective a lender is in choosing borrowers, the more profitable his loan portfolio will be. It’s nothing short of price discrimination, much like health insurance companies. Minimum credit scores, valuation requirements (appraisals), tiered credit pricing, and exclusions for investment properties, manufactured properties, etc. have all become the standard qualifying procedures for many lenders. The domino effect only worsens the our odds of qualifying you with time.
Luckily, with the spectrum of lenders we work with, we can still find a home for just about anybody’s loan. But it’s getting tougher and tougher every day.
It seems that just about every month, I have interested borrowers who find out that the lender we were hoping to use has just disqualified them based upon new criteria.
And every month, I am able to qualify fewer of my valued clients, with fewer of these competitive lenders. The VA Streamline loan used to be an easy solution. It’s becoming a meritocracy.
So much of my time it seems, is spent trying to communicate the urgency to my borrowers that there is no time like the present to get this refinance done.
In fact, right now I’ve got some borrowers whose loans need to close ASAP. If they close even one week behind schedule, they will be disqualified under this lender’s new standards.
So like I said… I’m short on time, I’m keeping the message simple. Don’t wait. Your opportunity will not last forever. It doesn’t cost a thing to process your application and lock in a rate.
You’ve got nothing to lose. 30 minutes of your time is a small price to pay for all that the VA Streamline loan brings.
See, I’ve already spent too much time telling you this.
In a previous blog post, I discussed the benefits offered by the VA Hybrid Loan programs. By now, more veterans than ever before are finding that the VA Hybrid Loans are not only more secure than they had previously assumed, but offer a more efficient vehicle to achieve their financial goals. This post will expound one of the most beneficial and widely cited benefits of the VA Hybrid loan – debt management and reduction.
There are three guiding principles associated with debt management:
· Evaluating and organizing debts by interest rates, terms and payments.
· Prudent Building and redirecting cash flow to pay of debts.
Lets begin by recapping the feature benefits of the VA Hybrid loan program.
· ARM’s have a smaller fixed rate term (ex. 3-5yrs) but enjoy lower rates during that time in comparison to a fixed rate loan option. On average, rates on Hybrid VA loans are greater than 1% lower when compared to VA fixed rate loans.
· Hybrid ARM loans feature favorable terms unique among adjustable rate mortgages that include 1% yearly and 5% lifetime rate caps. Unlike most ARM loans which adjust monthly after the initial fixed rate period has elapsed, Hybrid ARM loans adjust once per YEAR and are tied to a financial index (1yr Monthly CMT) that averages rate changes over a 12 month period so as not to subject the borrower to wild payment swings.
Depending on specific debt picture, these favorable terms help VA Hybrid ARMS free up more money faster than traditional ARMs. Why? While its true VA Fixed Mortgage Rates don’t change, neither does the payment. In a debt reduction analysis, payments that do not adjust downward as one pays down the balance are generally of a lower payoff priority than ones that do. For example, credit card interest is usually much higher than that of a mortgage, to say nothing of the fact that mortgage interest is more easily tax deductible than credit card interest. But even in cases where the borrower is enjoying a low introductory rate on a credit card, one that may even be lower than the mortgage, the more money the borrower commits to the credit card, the smaller the payment obligation will be the following month. The smaller the payment obligation the more quickly the additional savings can be applied to remaining debts. In this way we can see that saving money in the short term often trumps long term loan benefits and provides an easier path to a debt free life.
Many VA homeowners who have followed these principles find themselves free of non-mortgage debt but later faced with an entirely distinct (albeit less serious) condition. Where is the best place to park the monthly savings now that other debts are clear? This problem is especially profound when dealing with active duty military personnel or reservists who are transferred or move to a new station. For those veterans unsure about how long they will live in a home, the hybrid arm allows the flexibility to build cash reserves. Until they move, they are free to put the payment savings into interest bearing accounts which maximize the dollars saved by the loan. Best of all if they ever “need” the money they can access it from their account at any time, without having to sell the home or to do a cash out refinance – both instances where the veteran borrower would have to incur a closing cost or transactional fee in order to access money that could have stayed in their possession. The traditional alternative has always been putting additional savings toward the principle balance, which, while psychologically comforting does not offset the risks of devaluation or the security of being able to retain more money each month. Imagine if after 10 years you had paid your $200,000 mortgage down to a balance $100,000. If the value had not changed in that time, you could say that you have $100,000 in EQUITY. But in all that time the payment would still be the same dollar amount as it was when the loan was originally closed. But there are other disadvantages. Consider if the value of the home dropped from $200,000 to $90,000. You would be unable to access all the money you sacrificed to bring down your balance. You may have had the intention to build your equity in this way to make sure you had more money when you eventually sold the home. In this example, it would be gone, since equity isn’t real money to begin with. I’ve worked with many veterans who have championed this strategy, particularly in a real estate market as nebulous as this one. Some were able stave of an unexpected period of unemployment, others were able to sell their homes and come to the table with a portion of their saved reserves to complete the transaction and avoid a credit-damaging short sale.
Whatever the case may be, there are an abundance of options afforded to the savvy veteran homeowner by the VA Hybrid Loan program. This program is less about simply having a lower rate, its about having a greater degree of flexibility with your own money. Do the math. Banks are crafty enough to know that over the course of a 30 year loan you will have paid back the principle balance borrowed twice in interest. They structure loans so that you pay the maximum interest in the early years. They do this because they know that most people sell their homes or refinance the mortgages well before 30 years. It’s not my intent to cast a dark cloud over lenders. I’m not a rich man. Most people aren’t. The opportunity to finance a house is a good thing. Most of us are willing to accept a certain amount of economic disproportion in order to live in a house with our families. All any of us can do in response is too look past the myth that 30yr fixed mortgages are the only vehicle toward financial promise. We may find that the Hybrid isn’t for us, but at least we will know if we are making the most of the options at our disposal. I can promise you all that the banks most certainly will.
I’d like to preface this post with a disclaimer. I am not Milton Friedman. I do not hold advanced degrees in any academic discipline that might lend my suggestions here intellectual credibility. To say that my writings lack the philosophical rigor and insight into the nuances of governance demonstrated by those of Thomas Jefferson would be a gross understatement.
I am just a guy who has worked for years with Veterans helping them to finance VA home loan purchases, refinances and debt consolidations. I’ve assisted high-ranking VA homeowners working at The Pentagon as well as members of the Navy JAG core. I’ve worked with 20 year old veterans returning from the Middle East – some of them deeply scarred and rendered disabled by the horrors of war- yet proud, and in possession of a nobility and stoicism that I will never fully grasp.
I’ve watched the VA lending environment expand and contract, watched VA guidelines tighten and loosen, watched veterans experience the singular joy of first-time home ownership and bore witness to the sobering reality of veterans facing foreclosure. Mine is an opinion forged in practical experience on the front lines of the VA loan guarantee program; working with veterans, hearing their frustrations, and (at times) lacking sufficient means to address them. What follows are three components of a Veteran Homeowners Mission Statement– philosophical rules to guide industry policy and practices that I believe will ultimately benefit all veteran homeowners. I invite all veterans, of both the military and mortgage industry alike, to sound off on what I write here so that we might evolve our collective understanding of the issues and form more practical and efficient solutions to address them.
#1 Less Is More
Throughout the loan process, veteran homeowners are flooded with loan disclosures. These disclosures were all created with a noble goal in mind- to ensure homeowners emerge from the home loan process better informed of their rights and made more aware of the details of the transaction. But with respect to the average homeowner there is an argument to be made that the collected loan disclosure documents often result in the opposite effect. Over time these disclosures have been amended and supplemented by others, at the Federal and State levels. Whether they will admit it or not, there are many borrowers who find themselves confused and intimidated by the number of documents which require their signature, to say nothing of the verbiage within them. I firmly believe that regardless of the imperfections of the process, it is the responsibility of the loan originator to not only properly disclose to homeowners, but to ensure that homeowners understand the documents they are presented with. An originators job is to guide borrowers through the loan process, represent their interests, and to ultimately provide them with sufficient knowledge by which to make a decision. But I believe there is a better way to deliver this knowledge. For example, any person who has ever entered a polling booth on election day knows that when they open the election guide they will find a list of the measures and candidates on the ballot accompanied by common sense breakdowns of each. Measures are summarized and supplemented by endorsements or criticisms offered by relevant parties on either side of the issue. Candidates up for election are described by their experience and political positions and are similarly endorsed or criticized by editorial commentary. Furthermore, there are links and references listed so that voters can learn more about the issues beyond the content contained in the booklets. This method allows voters to make reasoned judgments by translating their options and framing the impact of their choices. I would like to see the closing disclosure package for home loans treated in a similar fashion. By consolidating the number of disclosures and translating the relevant information into common language, homeowners will be able to better grasp the knowledge. I imagine a 1-3 document where rights associated with each disclosure are summarized in bullet points and organized by the relevant subject. They might include: Veteran Disclosures, State Federal Rights for all Homeowners, Transaction Specific Disclosures, etc. This document would require a signature by the homeowner acknowledging receipt of an accompanying pamphlet which would contain the full text of all the disclosures, greater analysis with examples, a glossary of related terms, and a procedural breakdown of the loan process.
#2 Give It To Them Straight
Numbers can be misleading. The Truth in Lending Disclosure mandated under the Truth in Lending Disclosure Act provides borrowers with amortization schedules, details the amount of interest that will be paid out over the life of the loan, loan specific terms and restrictions, and of course the APR, or Annual Percentage Rate. The APR calculation is provided to help borrowers determine how loan financing costs factor into their “effective” rate. The APR does not factor in title charges, appraisal costs, tax/insurance reserves or other “third party” charges, which could be underestimated to make a particular loan seem more attractive than another. But the issue with the APR,(especially on refinance transactions) is that it only functions as a means by which the borrower can compare offers between loan companies. The APR does not effectively help the borrower decide if they should refinance in the first place. An additional and more meaningful metric would be a “breakeven” analysis. The calculation would include the total settlement charges, adjusted for escrow refunds and interest added to their loan payoff, divided by the Principle & Interest savings on the loan. This number would then be adjusted to reflect the number of months it would take to both cover the cost of the closing charges and any principle reduction the borrower would have seen without refinancing over that time. The “breakeven” or “recoup” number would better frame the short AND long term benefit of the loan. Borrowers could measure this number against the number of months they intend to keep the mortgage. Too often borrowers will chase rates blindly, simply because they are lower than what they have, despite the fact that the recoup time eats into the advantage of the loan.
#3 Get Behind The Numbers
While a borrowers recoup time might at first appear disadvantageous, a borrower might choose to refinance in an attempt to redirecting mortgage payment savings to pay off higher interest rate debts. I believe that most borrowers intentions with regard to mortgage transactions are implied but not clarified. A “cash out” transaction, or “debt consolidation loan” might appear specific enough on paper, but requiring the borrower to clarify their intentions with worksheet/questionnaire helps the underwriter get a better sense of the net benefit of the loan and the credit worthiness of a borrower. The questionnaire/worksheet would clarify why the borrower decided on a particular rate/fee/loan program combination over alternatives, how long they intend to stay in the property and how the borrower plans to handle the resulting loan savings. This information may strike some as irrelevant and invasive. But this idea helps an underwriter keep both the borrower and the loan officer accountable. By completing the questionnaire/worksheet the borrower is framing the reason why they are applying for credit. It is widely accepted that recording ones goals or intentions often results in a higher probability that they will see them through. This helps involve the borrower into the loan process, and establishes a kind of ethical accountability that goes deeper than simply signing ones name. It gives both the borrower and the underwriter a chance to evaluate how well the loan originator guided the borrower to an appropriate loan. Lenders would enjoy the disclosure simply because it would be a specific declaration of intention and purpose by the borrower, one that could later be referenced should an allegation arise that the borrowers were misled.
This is all I have come with for now. I hope you see the value in these philosophical guideposts. If you as a reader finds these ideas lacking or ill conceived, I want to hear your feedback. My goal is to evolve these ideas with your help. What else have you found frustrating/helpful in your experiences as an originator, underwriter, or veteran homeowner?
Is it even possible to refinance a VA loan with a second mortgage attached to the property? Well to understand if this is possible I need to discuss what is involved when there are multiple mortgages on one property. A second mortgage is given to a Veteran home owner when they have equity in their home and they want to borrower against it, so they go to a lending institution and take out another loan against the home. Now there are 2 mortgages listed on title. This can be problematic when trying to do a streamline refinance. Mortgages are recorded on title based on dates. When a Veteran uses his/her VA loan to buy a home then there is a Mortgage recorded on title as a first mortgage (recorded first). Then they take out another mortgage on the same home (recorded second). This is pretty simply to understand.
When VA mortgage rates drop and a Veteran wants to do a streamline (non credit qualifying loan) refinance and they have a second the mortgage company must now complete a subordination request. This is simply preparing documents or a loan package for the second mortgage company outlining the details of the streamline refinance transaction. You see since the second mortgage company has an interest in the property (they loaned money on it) they must agree to stay in second lien position, or subordinate to the new first mortgage. Most of the time a second mortgage company will agree to do this, but there are instances when they will not. There are 2 main reason for this – 1. The borrower is late on the payments with the second mortgage company. 2. The cost or investment to refinance the first is too high and might affect the loan to value based on the original appraisal. If the second mortgage company refuses to subordinate then the refinance of the first will not take place.
As a Loan Officer this can be very frustrating at times because I can see much value when doing these streamline loans for Veterans. There isn’t much recourse we can take when a second mortgage company denies a subordination. I would say about 75% of the time we can obtain an agreement from the second mortgage company. My suggestion to all Veterans who have second mortgages is to attempt to refinance because the odds are in your favor that your second mortgage company will agree to remain in their current lien position and this works for California VA Loan, Florida VA Loan, and really all VA Loan types.
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.
Answer: We offer the lowest rates possible and we put a money guaranty on it. If you find a better rate out there and close on it and can show proof we will pay out $250. Depending on how much you want to invest cost wise into your mortgage determines how low of an interest rate you will get with the current market.
2. What are the Closing Costs rolling into loan?
Answer: On a VA streamline refinance all the closing costs are financed into the mortgage so you do not have to pay anything out of pocket at closing. Closing costs consist of an Origination which is what the broker charges for their services, Discount which is what the lender is charging you to buy down to the lowest rate possible and is tax deductable. Max discount on a VA loan is 2%. Other fees include Title, and escrows that need to be gathered to insure that you do not have an escrow shortage on your new refinanced mortgage. You will receive a refund of your current escrow balance after funding.
3. Is it beneficial to do the refinance?
Answer: Yes, as long as you are saving enough money either in the long run or monthly. If you shorten your term (going from a 30yr to a 15yr term) your payment will go up in most cases but the long term savings are substantially higher. Each lender has a net tangible benefit that it has to pass in order for approval and also if not a benefit to the veteran they will not allow the refinance.
4. How long is the process of refinance from start to finish?
Answer: On average the process takes around 3-4 weeks to process, underwrite, close and fund. In some cases it may take longer if the veteran has judgments or other liens on the property.
5. When will I receive my refund of escrow balance?
Answer: After the refinance has closed and funded the previous bank or lender has a maximum of 30 days to send the escrow balance refund to the veteran after the loan has been paid off. The veteran should take the initiative and call their previous bank or lender and ask when exactly they should receive the escrow refund.
