If you’ve started reading this blog because you’re a Veteran, congrats!
You now have access to one of the Best Mortgage programs available – period.
Your VA loan benefit is a very powerful tool, that can be used multiple times, for the rest of your life, every time you buy a home or want to refinance.
VA mortgages allow you to:
-Put ZERO down payment on your home
-Get a better interest rate than ANY civilian
-Use the VA guarantee so any lender feels secure in loaning you money
-Pass the VA loan benefit down to your spouse
-Get preferential appraisal treatment
-Get a mortgage regardless of what the mortgage market for civilians is doing – with the VA guarantee, lenders lend to you when they stop lending to civilians
-Get a mortgage with NO CREDIT SCORE requirements
This book was written to give you a good understanding of the VA mortgage process, and keep it simple!
So, we won’t be going over every detail or possible scenario, because your Mortgage Loan Officer (MLO) should be able answer any deal-specific questions you may have.
Let’s go over some acronyms and mortgage terms first, that will be used in this book:
MLO – this stands for Mortgage Loan Officer, the point person in charge of your file, from the time you make application, to the closing
COE – Certificate of Eligibility, this is your paper that states your VA eligibility, and your lender can easily get this in minutes, by logging into the VA portal. You can also request it from the VA, using the eBenefits portal. The final way is to mail in form 26-1880 directly to the VA. (I recommend you have the lender pull your COE, it takes minutes and we only need your DOB and Social Security number)
DTI – this is your Debt-to-Income ratio, expressed as a percentage. Simple example – you make $5000/month and your bills are $2500/month. Your DTI is 50%! The VA does not have a DTI – but the private lenders do. So, while 41% or 50% is a number thrown around by MLO’s, in reality, a VA loan can have a DTI of 75%, and still get approved. Make sure you apply for your VA mortgage and use a good MLO, don’t assume that you don’t qualify because your over 41% or 50 % or whatever – every lender is different, and some allow high DTI’s!
FICO - FICO stands for Fair Issac Corp., a California-based company that created the first-ever credit score. Most mortgage lenders and Brokers will see your FICO scores. But VA loans are not score-driven. This means that your VA lender has more options for you – lots of them – that civilian loans just can’t beat. (I’ve gotten FICO’s as low as 580 approved (you really have to work at having a 580, that’s a low score) But the VA guarantee makes the lenders feel warm and fuzzy, so you can still get your VA mortgage with almost ANY FICO score!)
Points – points are a term tossed around by MLO’s all the time. A “point” is simply 1% of your loan amount. Generally, I do not recommend you pay “points” to buy your rate down, as it takes years for the buydown to make sense.
For example, if you pay $3000, which is 1 “point” on a $300,000 loan, and it makes your payment $70 cheaper, it will take you approximately 42 months to break even.
After 42 months, you save $70 for the rest of your loan. So, make sure you are mindful of how long you intend to stay in the home – if you are PCS’ing in 3 years, then don’t pay points. If this is likely your “forever” home, then paying points makes sense. The solution? Ask your MLO for a quote with points and without points, and compare the two.
Funding Fee - The VA Funding Fee is charged by the Department of Veterans Affairs to help keep the VA loan program running for future generations of military homebuyers. This is the only closing cost on a VA purchase that can be financed on top of the loan. The fee varies based on a borrower's service history and down payment, but it's typically 2.30 percent for most first-time buyers. Borrowers who receive compensation for a service-connected disability are exempt from paying this fee, a 10% or greater disability rating gets your funding fee waived. And – you don’t need to request the waiver, your COE shows your disability rating, as well as how much you receive monthly for disability pay.
CD (Closing Disclosure) - This five-page form shows you the final details of your home purchase, including costs and fees. Buyers should receive the Closing Disclosure at least three business days before their loan closing. You can compare it to the Loan Estimate you received earlier in the mortgage process to see how costs and fees might have changed. Talk with your loan officer if you have any questions about your Closing Disclosure.
Loan Estimate - Within three business days of receiving a complete loan application, lenders are required to send you this three-page form that contains key initial information about your new loan, including the interest rate, your monthly mortgage payment, and costs and fees to close.
You can compare this to the Closing Disclosure you receive as they near their loan closing. Unlike the Closing Disclosure, the Loan Estimate features estimated costs.
That’s enough mortgage terms and acronyms for now.
Let’s take a look at the VA Mortgage and get started!