Refinancing With A Va Loan
If you currently have a non-VA loan, such as a conventional mortgage, you can refinance to a VA loan if you qualify.
Just be aware that the only non-VA to VA refinance option is a VA cash-out refinance, even if you are not looking to tap into your equity and pull cash out of your home.
The process involved mimics a regular refinance in that the lender will review your credit, income, debt-to-income ratio, and other factors, Gelios points out.
A VA-certified appraiser will come out and appraise your home to ensure that it meets with VA guidelines and that the value checks out.
One caveat: As with a VA purchase loan, youll have to pay a VA funding fee, which may equate to 2% to 3% of the loan amount on a refinance.
If you already have a VA mortgage loan but want to lower your interest rate, you can also pursue a VA Interest Rate Reduction Refinance Loan .
With an IRRRL loan, all costs of the loan must be recouped within 36 months to remain eligible. There is very little documentation required for this loan, since the veteran already has been making the payments and the new loan, by definition, will have a lower than the current payment, Siegel says.
Va Loan Property Requirements
VA requires whatever home you purchase with a VA-backed loan to be a primary residence. This means you cant use the loan to buy a vacation home or an investment property. However, home doesnt just mean single-family homes. It can also mean condo units, multi-unit houses , and manufactured housing.
The home will need to undergo an appraisal and inspection by a VA-approved contractor before closing. Jones says VA appraisals tend to be strict and similar to FHA appraisals. These are intended to review the buildings safety and stability.
The Home Buying Process
Those eligible for VA mortgages will plan their home loan, apply to get pre-qualified for a home loan, go house hunting, find a house they want to buy , make an offer, and formally apply for the loan. The lender will review the application information, order an appraisal, and establish a closing date.
For VA mortgages, there are closing costs to be paid on that date, but not a conventional loan mortgage insurance premium or an FHA Up-Front Mortgage Insurance Premium.
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Private Mortgage Insurance Vs Mortgage Insurance Premium
Private mortgage insurance or PMI is required by conventional mortgage loans when the loan makes up more than 80% of the purchase price.
This is usually the case if the borrower makes a down-payment thats less than 20% of the purchase price. With a down-payment of 20% or above, PMI is not required, which is actually a significant advantage of conventional loans compared to FHA loans.
Mortgage insurance premiums or MIPs, on the other hand, are related to FHA-insured mortgages, which are designed to protect the lender and theyre not a type of private insurance.
Which brings us to a common concern of borrowers about FHA loans:
Secure A Certificate Of Eligibility
Youll need this to be eligible for your VA loan. Youll need to provide proof of your military service based on your status.
VA-approved lenders, like Rocket Mortgage, can help you get your VA certificate of eligibility quickly with proof of service.
Tell your lender you need your certificate of eligibility early in the process so they can help you get it.
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Va Mortgage Loan Options
Purchase loan:
If you are a conventional home buyer, you will most likely be looking to secure VA-backed purchase loans. This loan will help you buy, build, or improve a home with a competitive interest rate and the option to put no money down without restriction.
Interest Rate Reduction Refinance Loan :
If you already have a VA home loan and would like to reduce your monthly mortgage payment or interest, an Interest Rate Reduction Refinance Loan could be the right choice for you.
Cash-out refinance loan:
A VA-backed cash-out refinance loan can help you take cash out of your home equity. This loan will replace your current loan with a new VA loan under different terms. You can also use a VA cash-out refinance to refinance a non-VA loan into a VA-backed loan.
We would also like to mention that the VA offers a Native American Direct Loan . If you are veteran, and either you or your spouse is Native American, you may qualify for this loan. Because the VA directly backs this loan, you do not need to contact a private lender the U.S. Department of Veterans Affairs will serve as your lender.
Why Are Va Loans Bad
The lower VA loan rates are deceptive. Both will cost significantly more interest over the life of the loan than their 15-year counterparts. This may interest you : Who pays closing costs on a VA loan?. Moreover, you are more likely to receive a lower interest rate on a 15-year conventional fixed rate loan than on a 15-year VA loan.
Is a VA loan worse than a conventional one? VA loans tend to have lower interest rates than traditional mortgage loans, allow a higher debt-to-income ratio and a lower credit score, and do not require private mortgage insurance. He says lenders often offer veteran products other than VA loans that are better for the bank, not the borrower.
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How Much Is Mortgage Insurance On An Fha Loan
The cost of FHA loan mortgage insurance depends on your loan amount, your loan-to-value ratio , and your mortgage term. This means the cost of mortgage insurance will be different from one FHA homeowner to the next. Lets look at a sample homeowner to give you a sense of how much UFMIP and MIP might cost.
The upfront mortgage insurance premium is equal to 1.75% of the base loan amount. This means if you borrow $250,000 to finance a home with an FHA loan, your upfront premium would cost $4,375. This is a one-time fee you pay at closing or add to your loan amount.
The annual mortgage insurance premiums are affected by base loan amount, your loan-to-value ratio, and your mortgage term. Pretend again you are borrowing $250,000 to buy a home with an FHA loan. Then say you made a 10% down payment, so that your loan-to-value ratio is 90%. Finally, say you choose a mortgage with a 30 year term.
In this case, your annual FHA loan mortgage insurance would cost you 0.80% of your loan amount, which is $2,000 total in the first year of your mortgage. This is a cost that you will pay in installments each month as part of your monthly mortgage bill. In our example, your payments will be about $167 a month.
Your FHA mortgage insurance costs are recalculated each year based on your average outstanding loan balance. This means that as you pay down your mortgage principal, the cost of your monthly mortgage insurance premiums may go down too.
How Does A Va Home Loan Work
The VA does not issue VA loans, but they do determine who qualifies for one and which lenders issue them. There are several types of VA loans, and they pose less of a risk to lenders because theyre backed by a government agency.
VA mortgages are considered non-conforming loans because they dont meet the guidelines of conventional lenders Fannie Mae and Freddie Mac. However, this allows more flexibility for clients to qualify because of their easier credit score requirements. They offer many advantages over conventional loans, including lower interest rates, more lenient borrowing requirements and no down payment due at closing. VA loans also never have monthly mortgage insurance.
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Is Va Funding Fee The Same As Pmi
Thus, VA loans do not charge a monthly PMI. But VA loans charge most borrowers upfront to finance VA . Luckily for VA borrowers, the VA financing fee is financed in most cases outside of the loan. Note that it says that most borrowers are charged to the PMI of the VA loan.
Is PMI the same as funding fee?
If you were applying for a conventional loan, you would be paying for private mortgage insurance . If you were applying for an FHA loan, you would be paying for the Mortgage Insurance Contribution . If you were applying for a VA loan, you would pay for the mortgage financing fee.
Do you have PMI with VA loan?
With a VA loan, you can buy right away, not years of saving for a down payment. With a VA loan, you will also avoid high fees for mortgage insurance. According to PMI provider MGIC, private mortgage insurance at 5 percent lower costs $ 150 a month for a $ 250,000 home.
Va Home Loan Vs Conventional Home Loans
VA loans are some of the only loans remaining that offer no down payment. With conventional loans, the buyer is required to provide up to 20% down, which can often make it too difficult to purchase the right type of home for your family. Since with a VA home loan there’s no private mortgage insurance, this can save hundreds of dollars a month over conventional loans, depending on how much you borrow. Because the VA loan is backed by the government, the rates are often much better than a conventional loan, which will save you a considerable amount of money over the life of your home loan. Lastly, the VA home loan has a more lenient lending policy, allowing you to qualify for a VA loan when you might not meet all the requirements for a traditional loan.
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Avoiding Pmi On A Va Loan
July 13, 2018 By JMcHood
Veterans gain many benefits when they use their VA home loan benefit. Perhaps one of the largest and most overlooked benefits is the lack of PMI or Private Mortgage Insurance.
If you look at the big picture, you get 100% financing and you dont have to pay mortgage insurance. Thats a vast difference from a conventional loan that requires you to pay PMI if you borrow more than 80% of the homes value. FHA loans arent even as beneficial, as you have to pay mortgage insurance for the life of the loan.
Down Payment And Assets
VA loans are one of the few loan options that dont require a down payment. Your lender may have specific requirements for a no-down-payment VA loan.
For example, they may require that you have a higher credit score if youre putting down less than 10%. The requirement to purchase a home with a VA loan through Rocket Mortgage with no down payment is still a median of 580 for any loan that falls within conventional limits.
Its important to keep in mind that no down payment doesnt mean zero cost. In addition to VA loan closing costs, there are some other fees to be prepared for, even if youre putting 0% down. Heres a glance at just a few of them:
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** Pmi Could Be Canceled On A Conventional Mortgage If The Following Conditions Are Satisfied:
- You submit a written request for cancellation
- The borrower must be current on the loan. For the definition of being current, check the CFPB definition here
- You are current on the payments required by your loan
- If requested and at the borrowers expense, evidence satisfactory to the note holder that the value of the property has not declined below its original value , and that there are no subordinate liens on the property
Keep in mind that each mortgage company has differing procedures so this is not a guarantee but for the most part, these are correct. Also, on second homes or investment properties, the PMI may not automatically cancel like a primary residence.
What Is Bad About A Va Loan
Since you have to consider the cost of the VA financing fee, you may end up getting a loan that exceeds the market value of your home. Manufactured homes may require a minimum down payment and may not be eligible for the 30 year period. You cannot use a VA loan to rent a property.
Why do people not want VA loans?
Many sellers and their real estate agents dislike VA loans because they believe these mortgages make closure difficult or more expensive for the seller. They are less likely to close than other types of mortgage. It takes ages to come to a close.
What is the downside of a VA loan?
Disadvantages of a VA Loan Although you will not pay for your mortgage with a VA loan, you will pay a financing fee at closure . If you are taking out your first VA loan and you are not making a down payment, the financing fee is 2.3 percent of the amount you are borrowing.
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A Unique Program That Offers Big Benefits
The VA home loan program was created in the 1940s, near the end of World War II. It was part of the Servicemens Readjustment Act , signed into law by Franklin D. Roosevelt.
The VA loan program was designed to reward military members and veterans for their honorable service, and to help them overcome common obstacles to homeownership.
Specifically, this unique mortgage program allows qualifying military members and veterans to buy a home in California without making a down payment. Borrowers can finance up to 100% of the purchase price, eliminating the need for an out-of-pocket investment.
But thats not the only benefit. Home buyers who use a California VA loan can also avoid paying mortgage insurance. This can save borrowers hundreds of dollars per month, in many cases.
How To Get Rid Of Pmi On Conventional Loans
Long gone are the days of only putting down 20% on a conventional loan. Even though it is still an option, Fannie Mae and Freddie Mac provide great options with as low as 3% down purchase loans. In all of these loans discussed so far, conventional loans are the ones with the best chance for canceling PMI. August 2015, the Consumer Financial Protection Bureau clarified the rules for PMI to stop. There are two main ways to cancel PMI on a conventional loan.
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Do Fha Loans Require Pmi
My readers are often confused by the insurance types that different loans require and one type of insurance that often comes up is the PMI or private mortgage insurance, which is an insurance type that is required for conventional mortgage loans.
Borrowers often believe that one of the major advantages of Federal Housing Administration-insured mortgage loans is that they dont require private mortgage insurance.
While this is true, its important for all borrowers to be informed that FHA loans are not without their mortgage insurance requirements either.
In this article, I will clear up:
- The difference between PMIs and MIPs.
- Whether or not FHA loans require mortgage insurance.
- The mortgage insurance types borrowers must pay with an FHA loan.
- For how long are these FHA insurance premiums payable?
- How is the FHA mortgage insurance premium calculated?
Mortgage Insurance Is Not Required For Va Loans
As it states on the Department of Veterans Affairs website: the VA home loan program doesnt require down payments or monthly mortgage insurance.
They go on to explain that this added benefit can be a real money-saver for home buyers:
With a VA loan, you also avoid steep mortgage insurance fees. At 5 percent down, private mortgage insurance costs $150 per month on a $250,000 home, according to PMI provider MGIC.
As we know, most homes in California cost more than the $250,000 mentioned in the above quote. The statewide median home price was around $790,000 as of spring 2022.
So a home buyer in California who uses a VA loan could save a lot more than the $150 per month mentioned above. The total monthly savings could easily amount to $400 or $500 per month. When you add this to the no-down-payment option mentioned earlier, you can see how the benefits add up.
Weve covered some important points that bear repeating:
- VA loans in California do not require mortgage insurance.
- This benefit can potentially save borrowers hundreds of dollars per month.
- Many home buyers who use this program can finance up to 100%.
- VA loans have some of the most flexible criteria of any mortgage program.
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Vi Entitlement Loan Limits
The VA home loan limit refers to the maximum loan amount the VA will insure and not the limit how much you may borrow from your lender. These loan limits differ depending on whether youre eligible for your full or remaining entitlement. With full entitlement, there is no loan limit on the amount that the government will insure your loan.
Conventional loans that Fannie Mae and Freddie Mac back must not exceed $647,200 . In many parts of the country, this limit may be higher. For instance, Fannie and Freddie allow a loan amount up to $970,800 in certain state counties. Loans exceeding the limits of Fannie and Freddie are considered non-conforming and may qualify under a Jumbo mortgage, which is designed to finance homes above these limitations.
Variables
You may have a remaining entitlement, referred to as Partial Entitlement, in which case the VA home loan limit is based on the county loan limit. This limit is generally the same as the loan limit as on a one-unit conforming conventional loan limit.
Bottom Line
The rules regarding maximum loan amounts can be complex, but the key takeaway is that there may be limitations with each, VA vs conventional loan.
