Veterans using a VA loan can buy a home in Orange County only two years after a short sale, foreclosure, or bankruptcy. Recently I helped a Veteran buy a home in Orange County for $620,000 with no down payment only two years after a short sale on their previous home, and two in a half years after a bankruptcy. There was no down payment. VA is truly the most flexible loan program available. In this blog post I’m going to break away from my typical style and explain exactly how this transaction happened, from start to finish. I am changing the name of my client, as well as any other information which would possibly give away who the buyer was in order to preserve their privacy. So the names have been changed but the pertinent details will be helpful to others in a similar situation.

Day 1.  August 27, 2103. John Smith (so obviously not the real name, but that’s way its going to be today) called me after finding my website on Google while doing research on the VA loan program. He had read that it was possible to buy a home with VA financing after only a two year wait period after a short sale. He had actually talked to a few different lenders (big box banks as well as an out of state VA lender) but was having a tough time getting someone on the phone who could answer questions in a meaningful way. I was able to answer his questions with confidence and after getting enough information on his income, debts, and payment comfort level, emailed custom loan scenarios. The custom loan scenarios gave John a complete breakdown of the purchase price, loan amount, payment (including property taxes and insurance), closing costs (yes, there are closing costs on a VA loan), prepaid expenses (what are those?), and estimated amount needed to close. I always prepare multiple scenarios. I want my clients to see that there is more than one way to get a deal done. By adjusting the interest rate on one of the scenarios I was able to show how he could buy a home with not only no down payment, but also no money out of pocket. In most situations, by increasing the interest rate, the buyer can receive enough “credit” from the lender to actually cover the closing costs and/or prepaid expenses. This is important to know when the real estate market is such that it is difficult to get a seller willing to pay closing costs for the buyer, and many buyers would rather keep their money in the bank.

The initial email not only includes the loan scenarios in PDF format, but also includes a link to a Custom Screen Capture Video. By clicking on the link John was able to watch a 5 minute video presentation of me explaining the loan scenarios, line by line. The video was very detailed, clear, and precise. John suddenly felt that yes, buying a home only two years after the short sale was actually p0ssible. And he now had a clear path to how to buy his next home. The email included a list of the items that I would need to begin the PreApproval process. The list includes the following:

1. Federal Tax (Personal and business) returns for the most recent two years, including all schedules.
2. W2’s and/or 1099’s for the previous two years
3. Paystubs for the most recent 30 day time period
4. Bank statements, all pages, for the most recent two months.
5. Copy of DD214 (that that we can request the Certificate of Eligibility online from VA)
6. Copy of bankruptcy discharge papers

Day 3– August  29, 2013. John was on it. He immediately began preparing the documentation that we needed for VA Loan PreApproval. I set up a secure method for him to upload his documentation to me, a proprietary system called SafeBox. It ended up taking him a few days to get everything uploaded to me, but he was thorough, which is much appreciated these days. I was able to prepare most the the loan application based on the documentation he sent. I then called him to fill in a few blanks on the loan application that I couldn’t figure out from the documentation.  (position or title at work, age of children, how long at current rental, etc). Within 24 hours of receiving his documentation I had a loan package ready to give to my loan processor, Carol Simpson. Carol has worked with me since 1996 and is extremely knowledgeable at the loan processing in’s and out’s of a VA loan.  I had already run credit (712 FICO – awesome) and gotten the “Automated Approval”.  Carol is a great second set of eyes to review the loan application and send out verification’s to John’s employer. In John’s case, because of the prior credit issues, we wanted to have a complete package submitted to a VA underwriter. I don’t always see a need for an underwritten preapproval, but in certain situations we will send the file in before the buyers have an accepted offer. An “Underwritten PreApproval” is good because the underwriter will review the combination of the income and credit and let us know if more information is needed. The last thing anyone wants is a deal to get declined when its “in escrow”.

Day 7 –  September 2 and Carol already had enough documentation and verification’s to submit the file to underwriting.  We had underwritten PreApproval only 2 days later, on September 4.  John was now officially ready to begin the home search. I referred him to a real estate agent who was familiar with Veterans and knew how to get offers accepted for VA buyers. I have often heard from Veterans that the real estate agents they talk to think there is a disadvantage to VA financing, which is not true. But this is why it’s important to not only work with a lender who is very familiar with VA financing, but also a real estate agent that understands all of the advantages of VA financing.

Day 27 – After making offers on several different homes, an offer is finally accepted. This is typical in the current Orange County real estate market. Home inventory has been low and while there are plenty of buyers trying to buy. This has resulted in many “multiple offer” situations where sometimes more than 5 buyers are competing for the same house.  John was able to find a home and get an offer accepted only three weeks after getting his underwritten PreApproval. Having a fully underwritten PreApproval was what helped get his offer accepted. The listing agent actually called me before accepting the offer and I was able to let them know that this was not just a loan officer “prequal”, but was a fully underwritten PreApproval. That made John’s offer very solid. Escrow was opened, with a closing date set for 30 days later on October 22, 2013.

On the first day of escrow we prepared and sent out the loan disclosures, ordered the appraisal, and reviewed the file for any updated documentation needed. Even for PreApproved loan there is always a necessity to update the documentation. More recent paystubs and bank statements were needed. Within a week we had updated documentation, along with the preliminary title report and escrow instructions. The appraisal took a few more days, during which time John had a Home Inspection done.  Also, the termite inspection report was completed. Within two weeks the appraisal was in and all “Prior to Loan Document” conditions were cleared. There were a few repairs required based on the termite report, but those would just be “prior to funding” conditions.

Day 47 – Day 20 of escrow – Loan documents were prepared and emailed to the escrow company. John and his wife went to the escrow company after work and signed all the loan documents and other paperwork with a notary. Not joking here, they probably read and/or signed 150 pages of forms. After signing the escrow company then delivered (by Fedex) the loan documents to our closing department. We would be ready to close within 24 hours of receiving the signed loan documents. Ahead of schedule, we actually end up waiting for the close date before funding.

Day 57 – but only Day 30 of escrow – October 22, 2013 and John’s VA loan funds and the Deed of Trust records on the same day. The keys to the home are handed over and it’s time for the moving van to unload.

VA Loan PreApproval is Very Important

Without an underwritten VA loan PreApproval, the loan process would have been much different. John would have had a very difficult time getting an offer accepted. And he would have been on pins and needles during escrow, praying he gets loan approval. It also makes it tough to close a loan in 30 days if the buyers is starting the loan process from scratch on the first day of escrow. Which is why PreApproval should always be the first step in the home buying 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

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.

How 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

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