Tim Storm | Orange County, California VA Loans - Tim Storm

Why VA Loan Refinancing in Orange County is Popular

January 7, 2015 by Tim Storm

As we begin 2015 a wave of VA refinance activity in Orange County, CA that started in the last quarter of 2014 is continuing. There are several different types of VA refinances and different reason for each type of refinance.

Different Types of VA Refinance Loans

VA IRRRL – also known as the VA Interest Rate Reduction Refinance Loan, or VA Streamline Refinance. This program is strictly for someone who already has a VA loan and is looking to lower their interest rate and payment. The VA loan program has been widely utilized in Orange County over the past few years as a great way to buy a home with no down payment. With a drop in interest rates many VA borrowers are finding that the VA IRRRL program is an easy way to lower their payment. Most lenders do not require an appraisal for this program. There is no income documentation, no termite inspection. It is a very “streamlined” program where most lenders can even use a lender credit to cover all closing costs and prepaid expenses. It doesn’t take much of a drop in interest rates for this program to be utilized.
VA Cash out Refinance – when a current VA borrower wishes to pull some equity out of their home then the IRRRL program is not an option. The loan is then a “cash out refinance”. A full appraisal is needed, along with a clear termite report. This is a fully qualifying loan. But for those who are planning to use the cash to consolidate other debts or improve their home a VA cash out refinance is a great option. VA allows the borrower to pull cash out up to 100% of the appraised value. VA is the only type of loan program that allows for 100% cash out financing, making this a very popular loan option.
Non VA to VA Refinance – You don’t have to have a VA loan to refinance into a VA loan. (you do for the IRRRL program, but not for a non-IRRRL). For someone with a Conventional or FHA loan who wants to either refinance to lower their rate and payment, or refinance to pull cash out for home improvements and debt consolidation, the VA program can be an excellent option. Conventional financing can get expensive when the loan to value is higher than 80%. For an Orange County homeowner with less than 20% equity who wants to avoid paying mortgage insurance, the VA program offers a great solution. VA does not have monthly mortgage insurance and tends to have very aggressive 30 year fixed interest rates. And of course, it is the only way to actually pull cash out up to 100% of the properties value. Plus, once in the VA loan you will be eligible for a VA IRRRL if rates go lower, which is the easiest way to lower your interest rate (for those who are eligible.)

Important Things to Know When Refinancing into a VA Loan

There are some things that are different about the VA program compared to other types of financing. For one, the borrower needs to be an eligible Veteran. The lender can help retrieve the Certificate of Eligibility from VA. Also, below are things to know about the VA program.

The VA loan limit in Orange County for 100% financing is $625,500 (2015 loan limit). This means it is possible to refinance a VA loan up to $625,500 at 100% loan to value. For those who already have a VA loan, they can take advantage of the VA IRRRL program even if their current VA loan is above that limit. The VA loan limit does vary from county to county, so its important to talk with an experienced VA loan specialist who can make sure you are calculating your loan amount correctly.
The VA Jumbo loan is a great option for loan amounts above the 100% loan limit of $625,500. Some lenders will fund VA loans as high as $1,500,000. Some equity is required when going above the 100% loan limit, but not much, especially when compared to other types of financing.
A clear termite report is required for non-IRRRL VA refinances. Section 1 items on the report will need to be signed off, and quite often Section 2 items will also need to be cleared.
The VA Funding Fee for IRRRL’s is .5% of the loan amount (unless the Veteran has a disability waiver). The VA Funding Fee for non-IRRRL refinances will range from 2.15% to 3.3%, depending on whether the VA borrower has used their VA eligibility for a VA loan previously. The Certificate of Eligibility from VA will determine what the Funding Fee percentage will be. In some cases the lender may be able to offer an option where a lender credit can offset the VA Funding Fee.
It can take less than 30 days to close a VA refinance, provided the VA borrower quickly forwards the requested loan documentation to the lender.

The first step in determining whether it makes sense to refinance into a VA loan or take advantage of the VA IRRRL program is to talk with a local Orange County VA loan specialist. The VA loan officer should be able to provide several custom VA loan scenarios, along with a Video explanation of the loan options. Working with a lender who makes sure you are making an educated decision based on your long and short term financial goals is extremely important, since your home will be one of the biggest financial purchases you will make.

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. I prepare custom VA loan scenarios which 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 Cash out Refinance, VA IRRRL - Streamline Refinance, VA Refinance Loans

Orange County Home Sellers Who Don’t Accept Offers from VA Buyers are Losing Money

January 6, 2015 by Tim Storm

Home sellers in Orange County who don’t accept offers from VA buyers may be losing money. Not taking all offers seriously is a bad strategy in any situation, but avoiding offers from a Veteran using VA financing is just bad all the way around. There are several reasons why there is a perception that VA buyers may not make it to the closing table, but there are plenty of reasons why VA buyers actually do close, and most likely at a higher close rate than other types of loans.

Myths about the VA Loan Program

There are several myths about the VA loan program which seem to get in the way of common sense thinking. Below are a few of those myth’s.

Myth 1 – The seller is required to pay closing costs for the VA buyer. This is not true. While there are certain closing costs that are known as “non-allowables”, the VA buyer is allowed in many cases to pay those costs. In the old days, which for this article we’ll say is back in the 90’s, it was common for the seller to pay closing costs for the VA buyer. At the very least they would pay the “non-allowable costs”. The Non-Allowables include the lender admin fees (underwriting, processing, etc), escrow closing, notary, and a few other smaller fees. However, if Veteran is allowed to pay up to 1% of the loan amount in “non-allowables” if there is not a 1% Loan Origination Fee. In most cases lenders do not charge a loan origination fee on VA loans. Many lenders don’t even charge a lender fee. This means there is only the escrow closing fee, which in most cases is less than 1% of the loan amount. Even better, many lenders offer VA loan options where there is a lender credit going back to the VA buyer that will cover all closing costs and prepaid expenses. Other than typical termite clearance fees, which are common on any real estate transaction, a seller shouldn’t have to pay any closing costs for the VA buyer unless they want to.
Myth 2 – The VA appraisal process is stringent and the valuation is conservative. This also is not true. While the VA appraisal process is a little different than for Conventional financing, the valuation process is no different than any other type of appraisal. As a matter of fact, most VA appraisers are also Conventional loan and FHA appraisers. They will be looking at the same sales comparables and making the same adjustments no matter what type of appraisal they are doing. A VA appraiser will be looking for safety issues with the property (FHA does this as well). So if there are holes in the floor, loose wires hanging from sockets, broken windows, or peeling lead based paint, then the VA appraiser may call that out and require repairs. However, most buyers using any type of financing will have a Home Inspection Report completed, which would be calling out the same repairs. This should not be a concern.
Myth 3 – The VA buyer has no “skin in the game”, making their offer weak. This couldn’t be further from the truth. An interesting fact about the VA loan program is that it has the lowest default rate of any type of loan program, even though there is no down payment required in most cases. Veterans have character and have proven that they will stay within their budget and meet their obligations.In most cases, the VA buyer should have been Prequalified or PreApproved before making the offer on the home. The seller is going to get paid whether the Veteran buys the home with all cash or uses 100% financing. (I recently had a Veteran in Orange County make an offer on a home in the $600,000 price range. It would have been a 30 day escrow. The seller ignored the offer and accepted an offer with Conventional financing that was $10,000 under the VA buyers offer. Thus, this article.)

There was recently a great article in the LA Times titled “Sellers who ignore VA buyers are missing out” which makes several strong points about why sellers should take an offer from a VA buyer seriously.

The Truth About VA Loans in Orange County, CA

The truth is that the VA loan program in Orange County is very strong. The 2015 VA loan limit for Orange County is $625,500. This means an Orange County Veteran can purchase a home with no down payment up to that amount. But it is also possible to get a Jumbo VA Loan, which is what happens when a Veteran purchases a home with VA financing that is higher than the VA loan limit for 100% financing. Many local Orange County, CA VA lenders will lend as high as $1,500,000 on a VA loan. There is a down payment required, but not much. The down payment is equal to 25% of the difference between the $625,500 loan limit and the purchase price. For example, if a Veteran is buying a home for $825,500 (and even $200,000 above the limit) then the down payment would be $50,000 and the VA loan would be $775,500. That works out to only 6% down payment for the Veteran on an $825,500 price. Along with the other benefits to the Veteran of having no monthly mortgage insurance, competitive 30 year fixed rates, flexible qualifying when it comes to credit and debt to income ratios,this makes the VA loan program an excellent option for both the VA buyer and the seller.

The first step for the VA Buyer is to talk to an Orange County VA loan specialist who can prepare custom loan scenarios based on the Veterans long and short term financial goals. A VA specialist should be able to educate the buyer on how the numbers work and how it will fit in to their budget. By the time a VA Buyer is ready to make an offer on a home they should already know all they need to know about the financing.

Filed Under: VA Mortgage, VA Purchase Loans Tagged With: orange county va loan, va buyers, va sellers

2015 VA Loan Limits for Orange County, CA to be $625,500

January 2, 2015 by Tim Storm

The VA loan limit in Orange County, CA for 2015 will be $625,500. This is actually a decrease from the 2014 limit of $687,500, but is still a higher loan limit than most parts of the country. It is important to understand that this “loan limit” is for 100% financing. This means it is possible to purchase a home in Orange County, condo or Single Family Detached, for up to $625,500 with No Down Payment. It is also important to understand that with a small down payment it is possible to get a VA loan that is higher than $625,500. VA loans of over $1,000,000 are not unusual in Orange County, which is known for having high cost housing.

How are VA Loan Limits Determined?

Each year the Veterans Administration announces the new limits for 100% financing. The limit can vary from county to county. For example, in most counties the 100% loan limit is $417,000. In Riverside and San Bernardino counties the limit is $417,000. For the last few years the 100% loan limit was increased in order to help “spur economic” activity. Now, in 2015 the loan limits are tied to the Conforming loan limits set by the Federal Housing Finance Agency which oversees Fannie Mae and Freddie Mac. Since the Conforming loan limit is $625,500 for Orange County, the VA loan limit now matches up with the Conforming amount. FHA does as well.

What About Jumbo VA Loans?

It is still possible to get a loan amount higher than $625,500. This is commonly known as a VA Jumbo Loan. A down payment is required, but when compared to other types of financing VA still comes out far ahead in most cases. The down payment is equal to 25% of the difference between the 100% loan limit and the purchase price. For example, if a Veteran purchases a home in Orange County for $725,500, which would be an even $100,000 over the 100% financing limit, then the down payment required would be $25,000. ($725,500 – $625,500 = $100,000. 25% * $100,000 = $25,000 down payment) This would mean the base VA loan amount (not including the VA Funding Fee if required) would be $700,500. In this scenario the Veteran was able to purchase an Orange County home with only 3.44% down payment. There is no other type of mortgage product that comes close to allowing that small of a down payment on a $725,500 purchase price. Even at a $1,000,0000 purchase price the down payment would be a little less than 10%. And the best part is VA offers very competitive 30 year fixed interest rates with no monthly mortgage insurance, which would be required on other types of financing when there will be less than a 20% down payment.

VA is Great for Purchasing OR Refinancing a Home

The VA program is great, whether you are looking to purchase a home or refinance into a VA loan. The first step in any home financing process is to talk to a local Loan Officer, and for VA financing, preferably an Orange County loan officer who specializes in VA financing. The loan officer should be able to prepare Custom Loan Scenarios that will give you the details you need to make a sound decision based on your long and short term financial goals. And of course, if you are planning to purchase a home, then VA Loan PreApproval is the first step.

Filed Under: VA Mortgage

Orange County, CA : Real Estate “Heading in the Right Direction”

September 25, 2014 by Tim Storm

After several years of most Americans having a low opinion of the Real Estate sector, it appears things are finally changing. Real Estate in Orange County, California has definitely made a nice comeback in the last couple of years as interest rates have remained low. Orange County real estate has benefited from the high loan amounts allowed by government loan programs, especially the VA loan. In 2014 a Veteran can purchase a home (in Orange County or Los Angeles county) for $687,500 with no down payment. And for a lesser down payment that required on other types of financing a VA loan can be as high as $1,500,000. As more military Veterans who realize how good the VA program is, and that they’re are probably eligible for it, the program has become very popular.

In a recent Gallup poll, Americans were asked to rate 24 different business sectors and industries on a five-point scale ranging from “very positive” to “very negative.” The poll was first conducted in 2001, and has been used as an indicator of “Americans’ overall attitudes toward each industry”.

For the first time since 2006, Americans had an overall positive view of real estate, giving the industry a 12% positive ranking.

Americans’ view of the real estate industry worsened from 2003 to the -40% plummet of 2008. Gallup offers some insight into the reason for decline:

Prices Dropped

“In late 2006, real estate prices in the U.S. began falling rapidly, and continued to drop. Many homeowners saw their home values plummet, likely contributing to real estate’s image taking a hard hit.”

Housing Bubble

“The large drops in the positive images of banking and real estate in 2008 and 2009 reflect both industries’ close ties to the recession, which was precipitated in large part because of the mortgage-related housing bubble.”

Bottom Line

“Although the image of real estate remains below the average of 24 industries Gallup has tracked, the sharp recovery from previous extreme low points suggests it is heading in the right direction.”

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

What is the Debt to Income Ratio for the VA home Loan?

June 16, 2014 by Tim Storm

The debt to income ratio is a very important calculation when it comes to qualifying for an Orange County VA home loan. Sometimes just referred to as the “Debt Ratios”, or DTIR (debt to income ratio), it calculates the Veterans ratio of monthly payments to their gross monthly income. Knowing how this ratio is calculated is important in determining a price range for a home, even though VA does not actually have a “maximum” debt to income ratio.

Components of the Debt to Income Ratio

The first figures used in determining the DTIR are the monthly debts for the Veteran. The debts include the following.

Car payments – If there are more than 10 payment remaining
Minimum credit card payments
Installment loan payments (more than 10 payments remaining)
Student loan payments. If these are deferred for more than one year from the close of escrow then the payment can be excluded from the calculation.
Deductions / allotments on the pay stubs or LES may also be included in the debt ratios depending on what they are for. (401K payments are not included in the DTIR on VA loans)
Rental negative if a rental property is owned and the collected rent will not cover the full mortgage payment, including property taxes, insurance and home owners association dues.
Co- signed debts. In some cases these can be removed from the ratio if it can be proven that the primary debtor has been making 100% of the payment for the past 12 months.
Child care expense – this is specific to VA loans only. If Child Care expenses are being written off on the tax returns then they will need to be included the the DTIR, unless it can be proven that the child car expense no longer exists.
Alimony or child support payments
Debts from a non-purchasing spouse. This is important and is specific to Community Property states like California. Even if a spouse will not be on the loan, if they have debt payments that do not appear on the primary Veteran borrowers credit report, then those debts must be included in the DTIR.

And of course, the proposed mortgage payment, which includes the principal, interest, property taxes, insurance, and home owners association dues (if applicable).

The Income Portion of the DTIR

You would think income would be a fairly straight forward calculation. But not always. For a Veteran who is a “W2” employee and has taxes taken from their paycheck, it is an easy calculation. The VA lender will use the gross income before taxes. For those who earn commission, the commission portion of the income will be averaged for the previous two years. And for those who are self employed, income is also averaged over a two year time period. The income should be “on going”. Active duty military will also have BAS and BAH income, which can be “grossed up” by multiplying the non-taxed income by 1.25. For example, BAH and BAS of $1,800 x 1.25 = $2,250, which would be the income used for calculating the DTIR.

How High Can the DTIR Be?

The guideline for the DTIR on a VA loan is 41%, meaning that 41% of the Veterans gross income can go towards all debt payments. But that is just the guideline. In most cases the lender will use an Automated Underwriting System (AUS) like Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Prospector. With an AUS approval, there is no limit to the debt to income ratios. Approval with a DTIR above 60% are possible. However, for VA loans a more important calculation is for Residual Income, which a whole different qualifying calculation that looks at income remaining after all payments are made, including income taxes.

Example of a DTIR Calculation

Let’s assume that our Veteran, Owen Cowan, or “OC” for short, has gross monthly income of $8,000 per month. 41% of $8,000 is $3,280. OC also has a car payment of $300 per month, but no other debt. Knowing that as a “guideline” OC can have $3,280 in total debt payments, and knowing that he has a $300 car payment, we are able to conclude that the total mortgage payment, including taxes and insurance, can be $2,980. Assuming a purchase price of $470,000 with $0 down at an interest rate of 4.25% results in a principal and interest payment of $2,362. (Including the VA Funding Fee for a first time VA loan user, the total loan amount would be $480,105). Property taxes are typically estimated by multiplying the purchase price by 1.25% and dividing by 12. In this case, that comes to $498 per month. The home owners insurance estimate is quite often estimated by multiplying .3% times the loan amount and dividing by 12, which in this case comes to $118 per month. That comes to a total PITI (Principal, interest, taxes, and insurance) of $2,969. $2,969 plus the $300 car payment divided by $8,000 gross income comes to a DTIR of 41%.

For a Veteran who is trying to figure out what they qualify for this calculation is very important. But it is also important to figure out your own budget. For some, pushing the ratios to 50% (payment over $3,600) may be easily possible, which would put the price closer to $580,000. For an Orange County Veteran wanting to keep their payment no higher than $2,500, a price closer to $400,000 would be needed.

The Most Accurate Way to Determine the Debt to Income Ratio

The most accurate way to determine your Debt to Income Ratio is to contact an Orange County VA loan specialist. A good VA loan officer will be able to provide custom VA loan scenarios with a complete breakdown of the purchase price, loan amount, payment, and amount of money needed to close using VA financing. And the scenarios should include a thorough explanation of the numbers on the scenarios. Many times a video presentation can be prepared that can be referred back to and shared if needed. The video presentation is especially helpful for those who don’t have time for a face to face meeting.

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 Tagged With: debt to income ratio, dtir