Lately, it seems more and more VA homeowners (people with VA home loans from the Dept of Veterans Affairs) are shopping around and getting lenders to compete for their loans. This is a very good sign on the surface and I am glad to see a more educated homeowner than in years past.
Unfortunately, however, there are lenders out there who know how to trick our Veterans into thinking they are getting the best deal, when in all reality, they are not! I am hopeful that this blog post will shed some light and make the consumer (our military homeowners or even buyers) more intelligent and ready to shop for the best VA Streamline Rate as possible.
You need to understand some key terms first:
Consumer paid vs Lender paid- Since April 2011, it is illegal for a loan originator to make money on a loan from charging the borrower an origination fee or charge and having compensation directly from the lender. A loan officer can charge you origination charges and have you pay him/her for doing the loan or the lender can pay the loan officer and he/she will charge you nothing
Origination fees– Any fee paid to the lender or the originator by the borrower. Normally the 1% origination fee charged by the loan officer and then any underwriting or processing fees.
Discount points– fees paid for by the homeowner to buy down to a lower than market interest rate. VA loans can allow for up to 2 discount points or 2% to be paid by the Veteran
3rd party fees-These fees are on every loan and have to be paid for by the borrower on all Lender Paid transactions. Do not be fooled, if you are told there are no 3rd party fees or do not see fees like, title insurance, title exam, escrow, notary, signing, tax, stamps etc then run for the hills; you are dealing with Mr. Shady!
Pre-paid and escrows/impounds– All VA loans will require an escrow account be set up and pre-funded at the time of closing. In addition to having an escrow account cost associated with your loan, you will also see pre-paid interest on your loan.
APR- Annual Percentage Rate. The annual rate that is charged for borrowing expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.
Good Faith Estimate– The form given to you where all origination fees, 3rd party fees, and prepaid interest and escrows are broken down for your viewing and research.
The best way to ensure you are getting the absolute best possible deal on your VA streamline loan is to compare the APR of all of your offers and also the ADJUSTED ORIGINATION CHARGE! The video above explains this a bit better, however just ask your loan officer to indicate very visibly on your forms or paperwork, what your adjusted origination charge is. The lower the adjusted origination charge, the cheaper the cost of that loan.