Refinance FHA Loan into VA Home Loan

December 5, 2013 by

Many times Veterans will use an FHA loan to buy a home when the better option would have been a VA home loan. This happens in Orange County quite often. The reason tends to be because there a lot of lenders in Orange County who don’t understand the VA home loan program and think it is a difficult program close. And of course, that is not true.  This is also why a Veteran looking to use VA financing in Orange County should track down an experienced VA lender in Orange County. Getting back to the point of this article, what happens when a VA eligible home buyer uses FHA financing to buy a home? Well, probably the first option to consider is to refinance FHA loan into VA home loan.

Advantages of a VA Home Loan over an FHA Home Loan

  • VA will allow financing up to 100% of the property value. So while the 3.5% down payment is already a part of the equity in the home, refinancing into a VA loan almost immediately shouldn’t be an issue, at least not based on property value.
  • VA does not have monthly mortgage insurance like FHA does. The current monthly mortgage insurance factor used by FHA is 1.35% of the loan amount divided by 12. In Orange County, where a $500,000 loan is fairly common, the monthly mortgage insurance would be approximately $562. ($500,000 * .0135 / 12 = $562). That is over $6,500 per year. A VA loan will not have this monthly payment. Also, for FHA loan closed after June 3, 2013, the monthly mortgage insurance NEVER goes away. Ouch.
  • VA is actually easier to qualify for than FHA when it comes to debt to income ratios (lower payment with no mortgage insurance helps) and credit. For those who have had a previous foreclosure or short sale, VA only requires a 2 year wait period where as FHA requires three years.
  • Once in a VA loan, the Veteran will be able to take advantage of the Interest Rate Reduction Refinance Loan, or IRRRL, which is also known as a VA Streamline Refinance. There is no appraisal and no income documentation.

refinance an fha loan into va home loanThe Process of Refinancing From FHA to a VA Home Loan

Refinancing from an FHA loan to a VA home loan is a “full documentation” loan. The lender will require a review of two years tax returns and W2’s, paystubs for the most recent one month, a credit report, and full appraisal. It is also important to note that a clear termite inspection report will be needed prior to closing. Also, similar to the FHA Upfront Mortgage Insurance Premium, which is financed into the FHA loan, VA has a Funding Fee which is financed into the loan. For Veteran who have never used their VA before the VA Funding Fee will be between 2.15% and 2.4%, depending on the Veterans eligibility. However, Veterans who received some sort of disability pay from the Veterans Administration will most likely get their Funding Fee waived. The lender will be able to submit the VA Form 26-1880, Request for Certificate of Eligibility, which will spell out whether or not there will be a Funding Fee.

Before filling out a loan application and paying for the appraisal, the Orange County Veteran should consult with an Orange County VA loan officer who can prepare a custom Side by Side Analysis showing the potential benefits and/or costs of the refinance.  Because of the high FHA mortgage insurance, a refinance will quite often make sense for the Veteran. But a refinance doesn’t make sense every time. The borrower should check what the break even time period for the refinance is, and take into account how long they plan to remain in the home. A thorough analysis prepared by a trusted lender should give the Veteran the numbers they need to make an educated decision.

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

Filed Under: VA Refinance Loans

Restoring Entitlement

December 3, 2013 by

It is possible for Orange County Veterans to use their VA benefit for a home loan more than once. And there are a couple of ways to do it. What many Veterans don’t realize is that the VA home loan is not strictly for first time home buyers. In high cost counties like Orange county and Los Angeles county where the 100% financing limits in 2013 are $668,750, it is common for move up buyers to use their VA eligibility to purchase their dream home. But what happens when a Veteran has already used their Entitlement on a home? Learn how Restoring Entitlement works.

restoring entitloementHow Restoring Entitlement works

Restoring Entitlement is fairly easy, as long as certain conditions have been met. A VA Entitlement is the basic amount that VA will insure or guarantee for a loan. VA has an interesting formula that is based on a standard Entitlement of $36,000. But the easiest way to think about it is like this – VA will guarantee 25% of the home loan up to a limit that is set by VA each year. In 2013 most of the country has a 100% financing limit of $417,000. So VA will insure 25% of $417,000, or $104,250. This guarantee makes is possible for a lender to take the risk on the remaining $312,750, which means the Veteran is able to buy a $417,000 with $0 down payment. In Orange county, where the limit is $668,750, VA will guarantee $167,187 of the loan. But what happens if the Veteran bought a home with a VA loan 2 years ago? Or even 30 year ago? Well, it depends on what happened with that property and the loan. Below are a few possible outcomes.

  • If the home was sold and the loan was paid off through the close, then the Veteran can apply to restore their Entitlement. A VA home loan officer can help with this process. A VA Form 26-1880 will need to be completed and submitted to VA, along with the signed and certified Final Closing Statement for the sale of the home. VA will then verify the information, and if it all pans out, then restoring Entitlement to 100% is possible.
  • If the home was sold but the seller assumed the VA loan, and the balance is still outstanding, then restoring entitlement will be more difficult (at least to 100%). However, this is not the end of the world. In many cases there is still a partial Entitlement available. If that’s the case, then it may still be possible to buy a new home with either $0 down payment, or possibly with a smaller down payment. At least smaller than what a Conventional loan program would allow. To find out for sure, have a lender help with retrieving the Certificate of Eligibility which will have the details on remaining Entitlement.
  • If the Veteran still owns the home but paid off the loan, then they can apply for a One Time restoration of Entitlement. By using the same VA Form 26-1880, along with proof of the disposition of the loan, the Veterans Entitlement can be restored back to 100%.

Work on Restoring Entitlement Before Making an Offer

It is important to retrieve your Certificate of Eligibility (COE) before making an offer on a home. A direct VA lender can help not only with quickly getting the COE or restoring entitlement, but can also do the VA home loan Pre-Approval, a critical step in the home buying process. Veteran’s looking to buy a home in Orange County should find an Orange County VA Loan specialist who can not only handle retrieving the COE and doing the Pre-Approval, but also prepare custom VA loan scenarios with details on the purchase price, loan amount, payment, and closing costs involved in the loan process. Also, the VA loan officer would be easy to contact when questions arise and should be able to educate the VA buyer on the process.

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

Filed Under: VA Purchase Loans

How to Refinance from a Cal-Vet Loan to a VA Home Loan

November 25, 2013 by

It is possible to refinance a Cal-Vet home loan. You just have to do it into a new VA home loan. One of the downsides of the CalVet home loan program is that you cannot refinance when interest rates drop. While the VA home loan program offers one of the best refinancing options around, the Interest Rate Reduction Refinance Loan, or IRRRL, CalVet is available only for purchases.

Why CalVet will not Allow a Refinance

When a home is purchased using a CalVet loan, it is actually closed using a Contract of Sale. This is different than a standard loan closing. With a Contract of Sale, it is actually CalVet who purchases the property you select and then takes legal title to the property at the close of escrow. CalVet then turns around and sells the property to the Veteran using the Contract of Sale. CalVet can’t refinance the current loan according to both federal and state laws. Also, because the interest rate is tied directly to the tax-exempt bond used as the funding source of the home, the borrower is locked into the interest rate, even if rates drop.

Refinance into a VA Home Loan

The solution is to refinance into a VA home loan.  This can either be a VA IRRRL or a “cashout” VA refinance. A VA IRRRL does not require an appraisal and there is no income documentation needed. If a CalVet borrower wants to access their equity, whether it be for debt consolidation, home improvement, or some other purpose, then a VA cashout refinance is the way to go.  An appraisal is required and the loan cannot be more than 90% of the property value. This would be a full income documentation loan and can carry a big VA Funding Fee for those Veterans who do not have a service-connected disability rating.

Reasons Why a CalVet Borrower Would Want to Refinance

  • To pull cash out for home improvement or debt consolidation. Property values are on the rise, which means many CalVet borrowers now have equity in their homes. They can refinance into a VA loan to pull cash out for home improvements or debt consolidation. VA allows for cashout refinancing up to 90% of the appraised value.
  • Lower their interest rate and payment. Many CalVet borrower’s interest rates are still above 4%. VA home loan interest rates adjust based on the current market and are now low enough that it makes sense to review your options for lowering your interest rate and payment.

First Step in Determining if a CalVet Refinance is Right for You

The first step in determining whether a refinance from a CalVet loan into a VA home loan makes sense is to contact a California VA home loan specialist.  The VA home loan officer should be able to prepare custom loan scenarios with details on the new loan amount, payment, and closing costs involved in a refinance. Many times there can be a lender credit that will offset some or all of the closing costs. It is important that the Veteran understand the loan process before starting the refinance. A clear termite report will be required for cashout refinancing (not the VA IRRRL). Also, a VA Funding Fee is required, except for those Veterans who have the disability waiver (10%).  The loan officer will be able to review all options and educate the Veteran on the pro’s and con’s of a refinance.

Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at Fairway Independent Mortgage Corporation. Direct line is 949-829-1846. www.OrangeCountyVALoans.com

Filed Under: VA Cash out Refinance, VA Refinance Loans

Approval for VA Home Loan after Foreclosure or Short Sale

November 17, 2013 by

It is possible to get approved for a VA home loan only two years after a foreclosure and immediately after a  short sale. VA home loan guidelines are more lenient in this respect than just about any other type of financing. For a Conventional Fannie Mae to Freddie Mac loan the borrower would need to wait between 4 and 7 years after a foreclosure. Most Jumbo programs require 7 years. FHA will allow just 3 years. But VA only requires two years.

Re-Established Credit is Needed

Hopefully, the Veteran has re-established their credit since the foreclosure. It is important to make sure the foreclosure is reporting correctly on the credit report. There should be a $0 balance showing for the foreclosed mortgage account. Sometimes, if the borrower has never reviewed their credit report they end up being surprised to find that the foreclosing lender is still reporting a balance. As the 24 months near, a Veteran who is planning to purchase a home should make sure to review their credit report.

It is also important that no other credit derogatories appear on the credit report after the foreclosure. A VA underwriter does not want to see late payments or collection accounts occurring after a foreclosure.

Minimum FICO Score for VA Home Loan

A prior foreclosure will tend to have a negative impact on a borrower FICO score. However, with re-established credit and no late payments since the foreclosure, it is not unusual to see the FICO score increase to over 700. Most VA home loan lenders will need a 640 or 620 minimum FICO score, which shouldn’t be hard to achieve. Also

Some lenders will have “overlay” requirements. An overlay occurs when a lender enforces guidelines that are more restrictive than the standard VA requirements. Most lenders will follow the two-year requirement after foreclosure, but there are some that will want more time. Especially if the loan amount is greater than $453,100 (2018 Conforming Loan Limit), as is common in high-cost counties like Orange County or Los Angeles County. So if a lender tells you that they require more than two years, don’t get discouraged. Keep checking around. You will find there are lenders who do follow the two-year foreclosure guideline, even when the loan amount is greater than $453,100. This is important to know since the VA home loan zero down loan limit in Orange County is $679,650 (2018 limit).

VA Home Loan Pre-Approval will Help Clear Up Credit Issues

Pre-Approval for a VA home loan is an important first step in the home buying process. But it is even more important for someone with a previous credit issue like a foreclosure. As part of the Pre-Approval, the VA approved lender will run your credit and check the credit report for any errors. The loan officer will also run your loan through an AUS (Automated Underwriting System). If you get an Approval from the AUS, you are ready to start making offers on homes. If you don’t get the initial AUS approval, then the loan officer will at least be able to give you a roadmap to getting approved.

Authored by Tim Storm, an Orange County, CA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at Fairway Independent Mortgage Corporation NMLS #2289. My direct line is 714-478-3049. I will prepare custom VA loan scenarios that will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.

 

Filed Under: VA Purchase Loans Tagged With: , ,

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

November 11, 2013 by

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

Filed Under: VA Purchase Loans
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