Are VA loans good for buying your first Home

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Presentation Description

The VA Home Loan has some unique characteristics. Because VA loans are guaranteed by the Department of Veterans Affairs, lenders are willing to make loans for up to 100% of the home’s price.

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Presentation Transcript

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A VA loan is good for buying your first home or your tenth home. The VA Home Loan has some unique characteristics. Because VA loans are guaranteed by the Department of Veterans Affairs lenders are willing to make loans for up to 100 of the home’s price. While this feature certainly makes a VA loan attractive for people buying their first home there are some other things to know about these unique loans. Are VA loans good for buying your first home

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100 financing 100 financing. Not needing cash for a down payment opens home ownership to many qualifying veterans but it’s important to know that the lack of a requirement for mortgage insurance saves a great deal of money. The closest conventional equivalent to a VA loan a 97 first mortgage will require monthly mortgage insurance of between .69 and 2.25 depending on the buyer’s credit score. Conventional loans allow credit scores as low as 620. The monthly mortgage insurance for a 300000 purchase with 9000 down 3 would cost between 167 and 546 depending on the borrower’s credit score. VA loans do not have that expense.

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Easier Qualifying Easier qualifying. VA has no requirement for a minimum credit score but individual lenders impose their own minimums. 580 is the lowest acceptable credit score one is likely to find in the market today. VA loans will also allow a higher debt to income ratio than conventional loans. this means that a buyer earning 4200 per month with no other debts could expect to qualify for a purchase of about 300000 with a 3 down payment. The same buyer could qualify for a home of as much as 400000 with no down payment and a VA loan.

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Lower rates Lower rates than for conventional. I know I mentioned this in the previous section but it’s worth having its own bullet. Since I am talking about lower rates now would be a good time to talk about the VA funding fee. This is money paid to the VA to help defray the cost of guaranteeing the loan. For the first use of the guarantee the funding fee is typically 2.15 for the first use then 3.3 for subsequent uses. The funding fee is a cost but it is financed into the loan so it does not come out of the buyer’s pocket. It is also important to know two other things about the funding fee: it is reduced to 1.5 if the buyer puts 5 down and the fee is waived permanently for any veteran with a service-connected disability. If a veteran is receiving any money at all from VA for disability compensation they are almost certainly exempt from the fee.

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Unique ability to refinance VA loans have a unique ability to refinance if rates drop. There is a special VA loan program called the Interest Rate Reduction Refinance Loan “IRRRL” which some loan officers insist on calling “Earl” which I personally find obnoxious…but that’s me. The VA “streamline” allows a veteran borrower to get a new loan at a lower rate without an appraisal with lower costs and with minimal documentation.

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VA loans can be used for larger purchases as well. The basic county maximum as of this writing is 453100. There are 220 counties however where the limits are higher because homes are more expensive. Here in the pricey San Francisco Bay Area the maximum loan amount is 679650.

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A veteran buyer can get a loan for more than the county maximum by paying 25 of the difference between the home’s value and the county maximum. If you are buying a 500000 home in a county where the limit is 453100 you’d pay 11725 as a down payment 25 of the difference between 500000 and 453100 and get a loan for 488275 still guaranteed by VA—and no mortgage insurance.

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In this Vietnam-era veteran’s opinion the VA home loan is the very best loan on the planet regardless of whether you have ever owned a home or not.

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