Why the VA Home Loan Program is so Good for Orange County

The VA home loan program is very good for Orange County Veterans. For those who have served our country, the VA home loan offers a way to buy a home with no down payment. But what makes the loan even better, at least in Orange County, is the high loan limits. While most of the country max’s out at $417,000 for a ZERO DOWN VA loan, Orange County (and Los Angeles county) allow 100% financing up to $668,750 (in 2013). The 100% limit does change each year. At the time of this writing there is less than two months remaining in 2013. We expect to hear an announcement for the 2014 loan limits very soon. Either way, the loan limits in Orange County have been in the $620,000 to $737,000 range for the past 3 or four years.  *2014 limit increased to $687,500

When other types of loan programs have tightened their underwriting guidelines, VA has actually remained flexible. And with good reason. Default rates for the VA home loan are lower than any other type of Conventional financing. Veterans have proven that they do not walk away from their financial obligations, which has help allow the program to flourish.

Other Benefits of the VA Home Loan

No Mortgage Insurance – Any other type of home loan program that allows for less than 20% down payment requires some type of mortgage insurance. Whether it is bought out up front using Single Premium Private Mortgage Insurance (PMI), or built into the the interest rate, or just paid monthly (more typical), there is going to be a payment of mortgage insurance. The FHA home loan, which requires only 3.5% down payment, has an Up Front Mortgage Insurance Premium as well as a Monthly Mortgage Insurance.  VA does not have a monthly mortgage insurance, which depending on the loan amount will save a Veteran $100’s of dollars each month. VA does have a “Funding Fee”, which is financed into the loan.

High Debt to Income Ratios – Most Conventional loan programs allow maximum debt to income ratios of 45%. And that will be dropping to 43% in 2014. VA, which has a guidelines ratio of 41%, do not set a maximum debt to income ratio. VA is more concerned with a borrowers “residual income”, which is money left over have income taxes, housing expenses, maintenance on the home, and other monthly payments like car loan and credit cards. This actually leads to extreme flexibility when it comes to closing VA loans with high debt to income ratios. VA loans have been approved with ratios over 60%. It just depends on the borrower, the purchase price, and loan amount.

Flexibility with Credit -The minimum FICO score allowed will vary from lender to lender and can also be dependent on the loan amount. Most lenders will allow FICO scores as low as 620 when the loan amount if no greater than $417,000. (Some may require 640). For high balance loan over $417,000, also known as Jumbo VA home loans, lenders may want a minimum FICO score of 640 to 660.

PreApproval is Important

Once a Veteran is ready to begin the process of buying a home, the first step is to call a local VA home loan specialist. A quick phone call is usually all that is needed to have the loan officer generate custom loan scenarios based on the Veterans qualifications. But to really find out what loan amount they can get approved for, the Veteran should then get PreApproved for a VA home loan. This is where the Veteran provides a completed loan application, two years tax returns and W2’s, paystubs for the most recent 30 days, and bank statements for the most recent two months. The lender will run credit and get an Automated Loan Approval. Some lenders will charge a fee for the processing of a PreApproval, but some will do it for free. Either way, it is important to find a VA lender who you trust.

Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at the Emery Financial. Direct line at 949-640-3102. www.OrangeCountyVALoans.com