We’re wishing a Happy Birthday to the U.S. Marine Corps today and sending our Heartfelt Thanks to all Veterans tomorrow, on Veteran’s Day. Questions come up from time to time about the VA Home Loan Program, and now is probably a perfect time to take a closer look.
The VA Home Loan Program is a low cost borrowing alternative designed for eligible Active Duty Military, Veterans, National Guard and Reservists. VA Home Loans are provided by private lenders (banks, mortgage companies, etc.). The U.S. Department of Veterans Affairs (VA) guarantees a portion of the mortgage loan, which allows these lenders to offer more favorable terms to help you buy, build, repair, retain or adapt a home for your own personal occupancy.
“I hear there is extra paperwork when you do a VA mortgage loan. Why would I bother with it?”
There are a few extra documents involved in processing a VA Home Loan, such as the DD214 and your Certificate of Eligibility, but the time spent filling out a few extra questions and hunting down an extra document or two may be well worth it.
A VA Home Loan allows you to buy a house with no down payment (up to a $424,100 value), with mortgage interest rates that are typically even better than the popularly attractive “conventional mortgage” rates. And while conventional mortgages require monthly mortgage insurance payments to be added when the down payment falls below 20%, this is not true of VA Home Loans.
“I’ve heard that there is a VA Funding Fee. What is that?”
The VA Funding Fee is your contribution. It is a percentage of the loan amount. That percentage depends on the type of loan, your military category, if you are a first time or subsequent loan user, and down payment (if you choose to make one). You can pay the funding fee at settlement or choose to finance it into your mortgage if you want to keep closing costs down.
“Does everyone have to pay the VA Funding Fee?”
There are exceptions for service-connected disability. If you receive VA compensation for a service-connected disability or would be entitled to receive compensation if you didn’t receive retirement or active duty pay, the VA Funding Fee is waived. This is true as well for a surviving spouse of a Veteran who died in service or from a service-connected disability.
“Can I get help covering closing costs?”
Family members and even the home seller are allowed to help with closing costs, which is not often the case with other mortgage programs. In essence, this is a program designed to make it affordable for our veterans and active duty military to own a home.
Many people think that the VA Home Loan Program is only for purchases, or that these VA mortgage loan benefits can only be used once. Not so.
Did You Know…
- VA Home Loan benefits can be used more than once
- Disabled veterans could be eligible for additional benefits
- Eligibility benefits can be used for purchase or refinance
- You can use your VA entitlement to finance more than one property
- Adjustable and Fixed Rate Mortgages are available
- Jumbo (high dollar amount) programs are available with minimum down payment
- The Borrower has the right to pre-pay without penalty
Eligibility requirements are based on length of service or service commitment, duty status and character of services, so you’ll want to speak with a loan officer to examine your options. The good news is that with this program many of those options are extremely helpful.
All of the steps you’ve taken so far to turn yourself into a more successful mortgage candidate should leave you in a good position to make your big decision for moving forward. You’ve done your Research, Asked Questions, Accepted Guidance from the professionals and considered Comfort when it comes to making your monthly payments. Now you’re ready to choose where to apply for your mortgage loan.
Step Five: Choose Wisely
As you’ve no doubt guessed by now, you have a lot of options. You can spin yourself in circles trying to ask everyone you know which mortgage company is best to work with, scouring online reviews and testing the temperature of public opinion. You could twist yourself into knots wondering if you have to call the loan officer your real estate agent mentioned in order for things to go smoothly, or if it’s better to go through a dedicated mortgage company instead of a local bank.
Though that mortgage person your friends suggested is “really nice,” that may not mean they have access to all of the options you’d need. That one questionable online review for that loan officer, who seemed to know their stuff when you talked to them, may not tell the whole story. Just because your real estate agent handed you a mortgage company’s phone number, that doesn’t increase your chances of getting the house or obligate you to go through that company for your mortgage. Your local bank and independent mortgage companies may have different loan products and timing for processing mortgage applications. You aren’t going to learn the answer to all of this. What you can focus on is identifying what you’re going to trust.
You may be a person who takes a look at a company’s technology offerings and decides to work with the company that has done the most to protect their clients’ personal information. Perhaps you’re a person who trusts the companies who spend the most on advertising and their name is the first to come to your mind. Maybe you’re a look in the eye and test the handshake kind of person. Online reviews might be the deciding factor. Any way you slice it, the question of trust boils down to your preference.
That said, you might want to factor these in when making your decision:
You may or may not be aware that sending personally identifying information (info a criminal could use to access your financial accounts or steal your identity) through email or social media messages isn’t considered safe. Make sure your mortgage company is already aware of this and offers secure methods for you to provide your sensitive information to them.
Good News Fast, Bad News Even Faster
You’re going to want to find out quickly when something has not gone according to plan. That gives you and your mortgage team time to look at your options and get things moving forward again. It’s important to work with someone who will communicate with you promptly throughout the process.
Everyone wants to hear that a mortgage company can process their mortgage and have approval in their hand inside a week. There are many steps in the mortgage approval process, some within the mortgage company and some with other parties, such as appraisers, insurance quotes and title research. It’s important that each of these steps is done correctly, and in the right order. If a mortgage company is claiming that they think they can have you approved in half the time that other companies are quoting, it’s a good idea to ask questions about how they’re able to make this happen. You may have a better experience working with someone who sets realistic expectations up front than struggle with missed deadlines and disappointment.
The decision is yours. You’ve done your research and have the tools you need. Now get out there and choose wisely.
Comfort is an important and underestimated consideration in the 5 steps to turning yourself into a more successful mortgage candidate. While Research is a somewhat obvious beginning, Asking Questions is the logical next step and Accepting Guidance is generally considered good to do, Eligibility often becomes the focus in the excitement of the home search and mortgage pre-qualification instead of how Comfortably you can meet the new payment expectations.
Step Four: Eligible vs. Comfortable
By now you’ve researched and have a reasonable idea of what kind of home you’re looking for. You’ve even done your homework on mortgage financing. You’ve been pre-qualified for up to a certain amount of money, and with that number, you realize you may be able to set your sights higher than you originally thought!
It’s okay to be pre-qualified for more than you’ll need. Pre-qualification is based on information you have provided, and the more accurate information you provide the more accurately your estimated qualification can be assessed. There are limitations, however, and no matter how much of your information is plugged into the equation, you may still have living expenses that don’t get factored in. Ultimately, you are going to be the expert on what you can afford and what you can’t.
Why would a mortgage company pre-qualify someone for more than they could afford? Well, the short answer is that they’re trying hard not to do that. Everybody involved is going to want you to be able to afford the home you’re financing. Rather than calculating everything up at the low end of your price range and then re-calculating every time you find a new property, it often makes the most sense to aim for the high end first, knowing that it’s easy to come down in price from there.
Comfort is Key
This leaves you to be honest with your mortgage lender, your real estate agent, and most importantly with yourself regarding your comfort level with the payment sizes you’re discussing. When looking at your price range, consider such things as how the utility payments may be different from what you’re used to, or if repairs are going to be needed. Leave yourself some room when planning out how your new budget will look. That house that’s just beautiful but just a little out of reach financially may be less fun to live in if you’re struggling to make ends meet.
Prioritize your comfort. You’ll thank yourself down the road. And the final step and topic for next week… Choose Wisely!
Looking at the 5 steps to turning yourself into a more successful mortgage candidate we started with research and asking questions to make sure you understand what to expect. Now, let’s talk about accepting the guidance we’ve been given.
Step Three: Accepting Guidance
You researched your questions, became an expert on your specific needs and asked for guidance on anything that remained unclear. You know what kind of mortgage you want. Time to pull the trigger. Jump in. Hit the big red button. Compare companies that offer the mortgage loan product you want and pick a winner. Done.
You absolutely can take that approach, and since you’ve done your research and understand your needs, you’re in better shape for the effort. In asking questions along the way you may have been given bits of guidance from a loan officer, though, and it’s worth taking a look at what they said.
Areas of Expertise
It’s a loan officer’s business to gather as much knowledge as possible on how mortgage products work, what little “quirks” or specific requirements there may be that could cause mischief, and whether there are state specific programs available to help depending on your needs. While you are the expert on your specific needs, a loan officer is going to bring expertise on mortgage loan products to the equation. It’s a good idea to keep an open mind while you’re researching. There may be a solution that didn’t come up in your research that is perfect for your situation.
Try not to get too caught up on one idea or plan. You may be focusing on one way of keeping your costs down while your loan officer is able to see that by shifting your focus to another area you could save much more. If they let you know, take a moment and listen.
Ultimately, the decision is yours. You’re going to be able to choose the path that you want. When you do, try to keep the guidance you’ve received in perspective. There may be an opportunity that didn’t come up in your searches, and who knows. It could be a money saver. And the next step and topic for next week… Eligibility vs. Comfortability!
In this series we’re examining 5 steps to turning yourself into a more successful mortgage candidate. We’ve talked about the value of research, not necessarily to become an expert on the mortgage industry, but to become an expert on your own needs and preferences. The home buying and mortgage loan financing processes can seem complex and it’s important to understand what questions to ask to get the help you need. Now it’s time to formulate those questions.
Step Two: Ask Questions
If you don’t ask, you don’t know.
Picture this. You fill out your mortgage application and submit the documentation the mortgage company needs. Things like recent pay stubs, bank statements, photo ID, tax returns, W-2s, etc. In other words, kind of personal stuff. You’re not sure exactly why they need all of that but you want the approval so you can buy your house. “Thank you, we received your documentation,” they say. You sit back and wonder if you’ll have your mortgage approval by lunchtime.
Your first disappointment is in learning that it takes longer than a couple of hours to get through the mortgage process. Next, you learn that your intent to use that box of cash you’ve been saving up for the last year as down payment money isn’t a popular plan to the mortgage company. They’re asking whether you have other ways to pay those costs. Ways that can be documented. These misunderstandings are easily avoidable if you do some research on what happens during the mortgage process and ask questions about anything that remains unclear.
The mortgage process can go smoothly and quickly, and technology is playing a great role these days in speeding up what has been a lengthy process historically, but there are still important steps involved after you submit your application. Some of the steps have to do with documenting the security of your current financial standing and looking at your history of repaying debts. Other steps are in place to check that you aren’t trying to commit any kind of fraud or financial crime with this mortgage transaction. That may sound funny to most of us, but the mortgage industry is a big target for that sort of thing and extra caution is required.
Your loan officer and his or her team understand all of these factors and it’s their role to put your application package together completely and compliantly. The more they understand about your situation and your needs, the better they’ll be able to do that job and make sure you’re applying for the mortgage product that best fits your needs. The more you understand about how things work and what to expect, the more comfortable you’ll feel in those periods of time when you don’t have an answer yet, or when your mortgage team reaches out to you to get one more set of documents “…and quickly please.”
Your mortgage experience doesn’t have to be fraught with anxiety or delays due to misunderstandings. Ask about anything that you’re left confused or unsure over. Make sure you understand the answers you’re given. If you’re uncomfortable with anything, let your mortgage team know. And the next step and topic for next week… Accept Guidance!