Can You Borrow More Than Your House Is Worth With A Va Loan
Heres a scenario. Lets say you want to buy a $250,000 home. You qualify for a VA loan and know that it will be a $0-down mortgage. The problem is, you want to replace all of the kitchen appliances, and that carpet in the master bedroom has to go.
Then you determine that the total additional amount youll need to accomplish all these upgrades is around $6,000.
There is also the matter of the funding fee. This is a one-time payment that is paid to help keep the cost of funding VA loans down for taxpayers. In 2020, its anywhere between 2.3 3.6% of the total loan amount.
You also realize that you dont have that in savings and wonder, can I roll all of this into the total loan amount?
> > Have more questions about the VA home loan? For a no-obligation, free consultation regarding your VA Loan eligibility, please go here.
Who Is Eligible For An Irrrl
You have to meet the following qualifications for an IRRRL:
- You have a VA-backed mortgage. The IRRRL program is only for people served by the VA, and that includes veterans, service members, surviving spouses, the National Guard, Reserves, and anyone whod qualify for a Certificate of Eligibility .
- Youll use the IRRRL to refinance the VA-backed mortgage, and not any other home loan.
- You can offer proof that you currently live or have previously lived in the home with the VA-backed mortgage. If the property has only ever been for investment purposes, then you wont qualify for an IRRRL.
Va Loan Debt Consolidation Loan
Most of the Military veterans are struggling with debt obligations in our country. They are facing dire financial circumstances while paying off their debts. However, it is good news for the veterans that they can consider a va debt consolidation loan backed by the Veterans Administration to become debt free. There are many benefits to get a Military Debt Consolidation, But before getting the loan, you should understand if this type of loan is right for you.
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You May Have Less Equity In Your Home
This one is somewhat ironic, because being able to buy a home with little or no money down is one of the biggest advantages of a VA loan. But buying a home with no downpayment can also be a disadvantage.
100% financing means a zero down payment. Thats a sweet deal at the time of purchase.
After all, you wont need to come up with any money out-of-pocket to make the buy. And if the seller or the lender will pay the closing costs and escrows, you can buy a home with no cash outlay whatsoever. So far so good.
But once you move into the home, youll own a property thats 100% financed. In fact, when the VA funding fee is added to the loan amount, youll actually be in a negative equity position from the very beginning.
If the property youre purchasing is in a rising market, thats little more than a temporary problem. As the value of your home increases, and you begin paying down your mortgage balance, youll gradually build equity.
But if the market is either flat or declining, it can become a major problem.
For example, if you need to sell the home and you have no equity, you may be forced to write a check at the closing table to cover any closing costs associated with the sale. If the value of the home falls significantly, the check will have to be even bigger.
In a real way, VA loans hold the possibility of needing to make a down payment equivalent on the sale. Thats not a common outcome, but it is a potential disadvantage to be aware of.
When Is A Va Streamline Refinance Not Worth It
A VA Streamline Refinance is often not worth it if:
- The breakeven point on your refinance is more than three years
- You plan on selling your home within the next three to four years
- Or if you think youll be transferred within 36 months and wont keep the home
Or, if your existing VA loan is getting close to being paid off, such as if you have 10 or fewer years left, its probably not worth touching it and restarting the clock, advises , CEO/founder of the Aragon Lending Team.
Also keep in mind that if you plan to roll the closing costs and funding fee into your new loan, your future monthly payments may not be as low as you had hoped. And youll pay more interest over the loans term than if you had paid the closing costs upfront. This can negate some of the benefits of refinancing.
Alternative refinance options
A VA Streamline Refinance may not be worth it if youll pay more in closing costs than youll save. And it wont help you cash out your home equity.
If you want to refinance with cash back to pay for home improvements, for example youll need to use the VA cashout refinance or another cashout loan program.
Refinancing to a conventional mortgage loan would be a great alternative to a VA Streamline refi if you dont qualify or the disadvantages outweigh the advantages, recommends Daniel Litvin, a mortgage broker with Advantage Lending Corp.
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When Is A Va Streamline Refinance Worth It
To determine if a VA IRRL is a good option, youll need to figure out how much you can lower your interest rate and how long it will take you to recoup your closing costs.
As with any refinance loan, closing costs typically equal 25% of your loan amount. And theres the VA funding fee to consider, which costs 0.5% of the loan amount for a VA Streamline refi although your mortgage lender may allow you to roll these all costs into your loan balance.
Calculating the breakeven point
The best way to calculate your payback period is to take the loan closing costs and divide that amount by the amount youll save in monthly mortgage payments. A trusted mortgage professional can help you figure this out, suggests , senior loan officer and certified military home specialist with Mortgage Network.
For example:
- Say your VA IRRRL closing costs come out to $6,000
- And youll save $200 per month by refinancing
- It would take 30 months to break even and see real savings
Keep in mind that to qualify for the VA Streamline Refinance, you have to be able to recoup your loan costs and fees within 36 months of closing on your refinance loan.
If you can do so within this timeframe, a Streamline refi is probably a good choice, adds Fagley.
However, you should also consider how long you plan to remain in the property. If its less than the time it takes to recoup your costs, you need to consider home values and home appreciation rates in your area, she explains.
Busted Myth: It Takes Forever For Va Loans To Close
This myth concerns the time between offer and closing. Some believe that the VAs bureaucracy operates ridiculously slowly.
And, as with some other of these myths, there may have been a time when that was true. But its in the past. In most cases, the lender is allowed to make the underwriting decisions, fund the loan, and then send it to the VA for insuring.
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What Is A Va Loan And How Does It Work
8 Minute Read | September 24, 2021
Reaching the point in your life when youre able to buy a home is hard work. And if youre a veteran or serving in the military it can be more of a challenge compared to folks who are not.
So what are your options if youre a veteran and want to buy a home? Well, theres one mortgage option specifically for veterans: the VA loan.
Lets take a closer look at how a VA loan works and if its your best option when youre about to jump into the real estate market.
Va Loans Cannot Be Used To Purchase Vacation Homes Or Investment Property
One of the primary limits of VA loans is that they can only be used to purchase or refinance owner-occupied properties.
If you want to purchase a vacation home or investment property, youll need to use conventional financing. That isnt to say you cant use a VA loan to purchase a home that provides rental income.
You can purchase a property that has up to four units, in which you occupy one, and rent out the other three.
But if you were to purchase the same property with the plan to rent out all four units, it wont be eligible for VA financing.
For that matter, you wont be able to use an FHA mortgage either. But conventional mortgages can accommodate both second homes and investment properties.
However, understand the conventional mortgage guidelines are more restrictive.
Youll have to make a larger down payment and have a better credit profile and a lower debt-to-income ratio to qualify.
VA loans are an excellent choice for your primary residence, but they cant help you finance other types of properties.
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What You Need To Apply For A Va Loan
If youre ready to get a VA loan, these are the steps youll usually take:
Seller Resistance To Va Financing
In truth, VA loans are only slightly more complicated than conventional mortgages, if theyre even more complicated at all.
However, many sellers think back to a time, just a couple of decades ago, when VA loans were more restrictive. This was particularly true with respect to the condition of the property.
That said, the VA has largely streamlined the home buying process, making it very close to that for conventional mortgages. Unfortunately, not all sellers are fully aware of that.
But there still are some VA loan factors that might make a seller uncomfortable:
In reality, none of these perceived obstacles are as significant as many sellers believe them to be.
But perception can be hard to overcome, and some sellers may definitely need to be persuaded by a good real estate agent to accept an offer that includes a VA loan.
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The Funding Fee Can Hurt
That isn’t to say that there isn’t at least one drawback with a VA loan. Youll have to pay a funding fee of 2.15 percent of your mortgage amount when taking out a VA loan with no down payment. Say you are taking out a VA loan for $200,000 and youre not putting anything down, that funding fee will come out to $4,300.
You can reduce that fee to 1.5 percent by coming up with a down payment of 5 percent or more of your home’s purchase price. You can drop the funding fee to further to 1.25 percent with a down payment of 10 percent.
The funding fee is higher for members of the reserves or national guard. They’ll have to pay 2.4 percent of their loan amount. If you are the surviving spouse of a veteran who died in service or from a service-related disability, you will not have to pay a funding fee.
This fee will increase if you take out a second VA loan, say after selling your first home and buying a new one. If you are veteran or active-duty member of the military or of the Reserves or National Guard you’ll pay a funding fee of 3.3 percent when taking out a VA loan a second time, or any other time, if you choose the zero-percent down payment option.
Become More Competitive In The Market
Borrowers who live in a competitive housing market can find that putting down some money upfront shows that youre a more serious buyer. Some of your funds could be put down as earnest money cash you have in escrow to show the seller you want to purchase the home. It could make you more competitive, especially when theres been more than one offer.
Private lenders who offer VA loans each have their own underwriting requirements. While there arent strict requirements for credit scores, you might want to make a down payment to strengthen your application and chances for approval. Making a down payment could also improve other factors lenders look at, such as your maximum debt-to-income ratio.
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Top 10 Va Loan Benefits
1. No down payment on a VA loan
Most home loan programs require you to make at least a small down payment to buy a home. The VA home loan is an exception.
Rather than paying 5, 10, 20 percent or more of the homes purchase price upfront in cash, with a VA loan you can finance up to 100 percent of the purchase price.
The VA loan is a true no-money-down home mortgage opportunity.
2. No mortgage insurance for VA loans
Typically, lenders require you to pay for mortgage insurance if you make a down payment thats less than 20 percent.
This insurance which is known as private mortgage insurance for a conventional loan and a mortgage insurance premium for an FHA loan would protect the lender if you defaulted on your loan.
VA loans require neither a down payment nor mortgage insurance. That makes a VA-backed mortgage very affordable upfront and over time.
3. VA loans have a government guarantee
Theres a reason why the VA loancomes with such favorable terms.
The federal government guarantees these loans meaninga portion of the loan amount will be repaid to thelender even if youre unable to make monthly payments for whatever reason.
This guarantee encourages andenables private lenders to offer VA loans with exceptionally attractive terms.
4. You can shop for the best VA loan rates
Instead, VA loans are offered byU.S. banks, savings-and-loans institutions, credit unions, andmortgage lenders each of which sets its own VA loan rates and fees.
What Are The Benefits Of A Va Irrrl Refinance
With an IRRRL or any other VA loan you wont have to pay private mortgage insurance , which is typically between $30 to $70 per month for every $100,000 on the mortgage, according to Freddie Mac. Most conventional lenders require you to pay PMI if you make a down payment thats less than 20% of the homes value.
Another perk of an IRRRL is that you wont have to provide much documentation. Unlike a cash-out refinance, the standards for documentation are much lower for an IRRRL, says Bronnenkant. Typically, lenders will need you to provide documents to prove the income, assets, and debt you self-report on the application, in order to verify your creditworthiness. With an IRRRL, the burden of proof is much lower, and therefore the application process is simpler.
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Finding The Best Irrrl Lender
How do you go about choosing the best IRRRL lender? Great question, finding the best VA IRRRL lender simply comes down to getting the best possible rates and finding an experienced VA mortgage specialist. Shopping around to find the best refinance rate is important, it could save you hundreds or possibly thousands of dollars over the life of the loan. You also need to be aware of predatory lending.
The Consumer Financial Protection Bureau and the VA have issued their first warning order to service members and Veterans with VA loans. There has been an uptick of unsolicited offers sent to unsuspecting homeowners promising cash back, skipped mortgage payments and super low rates. These lenders can be aggressive and use misleading advertising tactics to lure you in. To read what the VA has to say about this situation, click here.
Va Home Loan Refinance How Does It Benefit The Veterans
Veterans all over the country have some significant advantage over the other borrowers when it comes to refinancing their home loans. When any veteran is struggling to make their monthly mortgage payments, they can go for two options, home loan modification and refinancing their home loans. The US government has always thought about the former service members and has offered them quite a few options when they were found to be going through financial trauma.
Whether you just want to lower the monthly mortgage payments or you want a lump sum amount of money for other expenditure, VA home refinance loan will always offer you a cost-effective solution. There are many veterans who take VA loans when they need debt consolidation help as it allows you to get out of debt sooner. The following financing options are available through VA only and you can use it according to your financial needs.
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