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.
Did you know that when a mortgage inquiry is logged on your credit report, your personal information is automatically added to lists that are being sold by Experian, Trans Union and Equifax to certain kinds of mortgage lenders?
There you are, beginning your mortgage loan pre-qualification, and the next thing you know you're flooded with phone calls and mail from other mortgage lenders trying to get your business. Maybe you want the phone calls and extra mail and they're saving you time and energy by coming to you.
If that doesn't sound nice, you'll be happy to know that there is a simple step you can take prior to having your credit pulled that will remove your name from those lists.
Before you request a trusted mortgage lender to pull your credit, dial 1-888-5-OPTOUT (1-888-567-8688) or go online to www.optoutprescreen.com to opt out (this is the service recommended by the Federal Trade Commission). You can opt out for a period of five years or permanently. You'll need to provide enough personal identification for this service to verify it is correctly removing your personal record from the marketing lists. While you're in there, you may additionally choose to be removed from the lists that are currently sold to credit card companies to generate pre-approved card solicitations.
Another reason why you may want to consider opting out is to reduce the number of companies that have your personal credit data, and reduce the amount of mail traveling around with your personal information on it, thereby reducing your risk of identity theft.
To read up on what the FTC has to say on this subject, visit https://www.consumer.ftc.gov/articles/0148-prescreened-credit-and-insurance-offers
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!