Tip : Choose A Lender Youre Comfortable With
Dont be abused. I hear horror stories of lenders telling people their credit is bad and charging them thousands of dollars extra. If a lender treats you poorly or tries to bully you into doing business with them, walk away.
To learn more about the best mortgage lenders, follow Money for the latest information. You can also view Moneys selection of the best VA mortgage lenders or read our VA loan tips for veterans, service members and military spouses.
Conforming And Nonconforming Loans
Conventional mortgages fall into one of two categories: conforming or nonconforming loans. Conventional conforming mortgage loans must adhere to guidelines that the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation set. These loans are available to everyone, but they’re more difficult to qualify for than VA-guaranteed and FHA-insured loans. Because conventional loans don’t have government insurance, these loans pose a higher risk for lenders. So, credit and income requirements are stricter than for FHA-insured and VA-guaranteed mortgages.
Generally, you can get a conventional conforming loan if you:
- have good credit
- have a steady income, and
- can afford the down payment .
What Credit Score Do I Need to Get a Conforming Mortgage Loan?
As of October 2020, Fannie Mae generally requires borrowers to have a of 620 or 640, depending on how the loan was underwritten. Depending on the circumstances, Freddie Mac requires ascore of 620 or 660for a single-family primary residence. Of course, lenders may also have stricter requirements.
Other types of conventional loans, which aren’t conforming, include jumbo loans, portfolio loans, and subprime loans.
Va Loans: The Appraisal Process And What Does Tidewater Mean
Dear Friends If you have ever been involved in assisting a Veteran in purchasing a home, you may find this blog informative. Likewise, if you are a Veteran looking to purchase a home, or Seller who is considering selling their home to a Buyer who will be utilizing VA financing, you may also find this blog informative?
VA Appraisal Process:
First of all, VA appraisal orders work differently than FHA, RD & Conventional appraisal orders. Mortgage Lenders will order FHA, RD & Conventional Appraisals through their 3rd party AMCs . The AMC acts as a middle man in communicating information back to the appraiser on the initial order, as well as including the answering any of the underwriters questions, and requests for revisions or additional information. Typically, most lenders AMCs will have a designated list of approved appraisers that they will use in pre-determined geographical areas. As a result, a lender may have the same half dozen appraisers who are being assigned to their orders in the same metropolitan area, and this can be beneficial to a lender in providing consistent turnaround times on appraisals. This is not the case with VA Appraisal orders.
VA Property Requirements:
VA Processing & Closing times:
What is Tidewater? Or the Tidewater Initiative?:
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How To Calculate Your Own Va Loan Point Savings
Examples like the ones above can help you understand how VA loan points create savings on a hypothetical loan. But what about your specific loan? How can you find your own break-even point?
A VA loan calculator can help you find your potential savings. Heres how to do it:
If you expect to stay in your home loan beyond the break-even point, your discount points should pay off. The longer you stay in the loan after your break-even point, the more you can save.
Go Through The Va Appraisal And Underwriting:
Once under contract, your lender will order a VA appraisal of the property. The VA appraisal is not a home inspection, but a VA requirement to ensure the property meets fair market value and the VA’s minimum property requirements.
Around the same time underwriters will evaluate your income, financial and related documents along with the appraisal once its finalized. If everything checks out, youll be issued a clear to close and move on to your loan closing.
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What Does Va Guaranteed Really Mean
Put simply, its the VAs way of protecting veterans and rewarding them for their service.
VA loans are guaranteed by the VA, but the VA doesnt originate or provide loans. Instead, VA-eligible members need to find a lender that is willing to approve VA loans. The guarantee is what protects the home buyer and lender.
According to the VA, the purpose of the guarantee is to encourage lenders to make VA loans by protecting loan holders and lenders against loss. In other words, they serve as a sort of a third party that protects the two parties involved.
The lender is protected since the VA backs the loan. While loans with no downpayment are uncommon, VA loans allow this because the lender is guaranteed safety.
The home buying veteran is also protected with the guarantee. Without it, they would be unable to purchase homes with no downpayment.
- Assumability, meaning the mortgage can be transferred to someone else
- Assurance that all veterans receive an equal opportunity to buy a home
All of these features, plus others, are only available to veterans because of the guarantee. For example, one guarantee is that mortgage rates available through the VA loan must be competitive with conventional loan rates. This means that VA rates are often the best on the market.
Perhaps the best way to see the benefits of the guarantee is to compare it to other mortgage products.
Va Loans Vs Conventional Loans
Overall, conventional loans are the most popular loan type. According to the , 81% of all closed mortgages in June 2021 were conventional, compared to just 6% for VA.
The average interest rate for a conventional loan hovered at 3.25%, roughly 33 basis points higher than VA rates which were an average of 2.92%.
Despite the higher rate average, closed conventional loans averaged a 20% downpayment with an average FICO score of 752. These numbers are both well above VA numbers, but with a higher mortgage rate.
These trends are normal since the VA is committed to offering competitive rates.
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Where Do I Get A Va Certificate Of Eligibility
There are a few ways to go about getting a COE. You can apply online directly or for your COE from the VA website. You can also work with your lender to receive your COE, but keep in mind that not all lenders are able to do this due to VA guidelines. Make sure to ask your lender if theyre able to originate VA loans.
There are some instances in which your lender may be unable to request your COE for you. Please keep in mind that if any of the following factors apply to you, your lender may not be able to retrieve this document:
- Youre in the Reserves or National Guard
- Youve had a foreclosure in the past
- You received a discharge other than honorable
- Youre a surviving spouse
It is also recommended that you provide your proof of service form along with your COE. For veterans who entered the service after September 7, 1980, and were discharged after serving fewer than 2 years, proof of service is required. The DD Form 214 will ask you for information about your current living situation and your dates of military service.
Who Qualifies For A Va Loan
For those who are eligible, VA loans are attractive because they dont require a down payment. They also have lower interest rates than many other types of mortgage loans you can get for similar terms. They dont have monthly mortgage insurance.
Although lenders set their own requirements for certain aspects of qualification, VA loans have more lenient credit requirements than many other mortgage programs.
Not all who have served in the Armed Forces qualify for a VA loan. You must meet at least one of the following criteria to qualify:
- Served 181 days of active service during peacetime.
- Served 90 consecutive days of active service during wartime.
- Served more than 6 years of service with the National Guard or Reserves or 90 days under Title 32 with at least 30 of those days being consecutive.
- Are the spouse of a service member who lost their life in the line of duty or as the result of a service-connected disability. You generally cannot have remarried, although there are exceptions.
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How To Read A Certificate Of Eligibility
Once you obtain your Certificate of Eligibility, you’ll notice an array of information, including your name, Social Security number, branch of service and even the name of the VA employee who issued your COE.
Most of it is clear and straightforward, but some items you may not recognize. The one part that often leads to questions from prospective VA borrowers is what’s known as an entitlement code.
This two-digit number gives VA lenders more information about your military service history and whether you may be exempt from paying the VA Funding Fee, an upfront cost that goes directly to the Department of Veterans Affairs.
Borrowers receiving compensation for a service-connected disability, Purple Heart recipients on active duty, and eligible surviving spouses do not have to pay this fee.
There are 11 possible VA entitlement codes, which you can learn about here. Most of the entitlement codes relate to a period of military service. But an important one for Veterans who’ve used their VA loan benefit in the past is Entitlement Code 05.
This entitlement code notes that a borrower has previously obtained a VA loan, repaid the loan in full and restored the entitlement used on the property. Borrowers who’ve used a VA loan before are subject to paying a higher funding fee on future VA purchases unless their Certificate of Eligibility indicates they are exempt from the fee.
Va Purchase Loan Benefits
- One of the primary benefits of a VA loan is that if you qualify, it’s 100% financing without requiring mortgage insurance. This could mean hundreds of dollars of savings each year.
- There are no lender fees* when you get a VA loan from Movement Mortgage.
- Some states even offer property tax reductions to military borrowers .
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Va Loans Are Assumable: What Does That Mean
Normally, when homes are sold the existing mortgage is paid off. ?However, there are cases when the purchaser of a home can take over the existing loan payments. ?This is referred to as assuming the loan. ?Not all types of loans have this feature. ?Typically, it is adjustable rate mortgages that are assumable . ?However, VA loans are assumable even for fixed rate loans . ?Following is some more information about VA loan assumability.
How Va Loans Work
The government does not issue VA loans, but it does partner with private lenders so service members and their families can access this special benefit. The U.S. Department of Veterans Affairs guarantees a percentage of every VA home loan so borrowers dont have to make a down payment or pay for private mortgage insurance .
You can only use a VA loan if youre buying a home youre going to live in most of the time. You cant use it to buy a vacation home or an investment property. However, you can use it to build a home, remodel a home or make a home more accessible if you have service-related disabilities. You also can use your VA loan benefits more than once during your lifetime.
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Va Loan Vs Conventional Loan
With rare exceptions, you wont qualify for a conventional mortgage with a credit score lower than 620, no matter the lender. But you may be able to get a VA loan with a lower score. You also dont have to make a down payment and you dont have to pay PMI, an extra fee that borrowers with small down payments using conventional loans normally pay every month for years.
While youre researching this type of mortgage, youll probably read that VA loans have lower interest rates than conventional loans. Thats not necessarily true, so youll want to compare all your options. Look at the annual percentage rate instead of the interest rate to understand the loans true cost.
A 30-year conventional mortgage is slightly cheaper today than a 30-year VA mortgage, on average. But specific lendersparticularly those who cater to veterans and active duty personnelmay offer lower interest rates than on conventional loans. In most cases, VA loans require a one-time VA funding fee at closing, something you wont encounter with a conventional home loan. However, if you cant put 20% down on a conventional loan, a VA loan may be a better deal.
Va Loan Requirements For Sellers
One of the most important aspects of a VA loan for the seller to keep in mind is the inspection appraisal process. This inspects both the safety and integrity of your home, and places a fair market value on it. If either of these comes back negative, then it could mean difficulty in the buyer securing the loan.
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Purchase And Construction Loans
Due to the Blue Water Navy Vietnam Veterans Act of 2019, the VA funding fee is equalized for all branches of service starting January 1, 2020. For active duty military members and veterans, this means an increase in VA funding fee costs for a period of 2 years. If you have a service-connected disability that you are compensated for by the VA or if you are a surviving spouse of veteran who died in service or from service-connected disabilities, the funding fee is waived.
| Type of Veteran |
|---|
| Loan Assumptions | .50% |
- Veterans who previously lived in a home they had to then rent out will typically qualify for a no appraisal Interest Rate Reduction Refinance. The Veteran’s Administration also allows Veteran Homeowners to refinance from a Conventional loan to a VA mortgage Loan. This process, however, does require an appraisal.
What Are Va Loan Benefits
Here are some of the key features and benefits of a VA loan:
You can buy a home with no down payment. VA loans are one of the last zero-down home loans available today. In 2018, around 50% of homes bought using a VA loan were bought with zero down payment.5
There is no limit to the amount you can borrow on a VA loan, but there is a limit to the amount of liability the VA takes on. For 2019, the VA will guarantee a maximum of 25% of a home loan amount, which corresponds to a maximum loan of $484,350.6 Anything beyond that wont be guaranteed by the VA. Sound dangerous? It can be!
You wont have to pay Private Mortgage Insurance . Since the loans are backed by the government, you can kiss PMI goodbye! PMI can range from 0.5% to 2.25% of your loan. So for a $200,000 loan, if your PMI rate was 1% that would mean an additional $166 to your mortgage payment each month!
Theres no minimum credit score requirement. But lenders typically still look for borrowers with a credit score of 620 or higher. Although we believe your ideal credit score would be zerobecause that means you have no debt!be aware that no credit score might put lenders on edge when it comes to giving you a loan.
The VA offers assistance for struggling borrowers facing a potential foreclosure. The agencys loan technicians can negotiate with lenders on behalf of borrowers who are having trouble making mortgage payments.
There is no prepayment penalty. This means you wont be fined if you pay off your loan early.
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What Are Other Va Loan Eligibility Requirements
Even though the requirements for VA loan eligibility are basic and accommodating, a private mortgage lender who finances the purchase of your first home might have a different set of requirements. Some lenders, for example, require all applicants to have good credit when applying for a mortgage.
These same lenders might also require you to meet a minimum income level or hold a job for some length of time before qualifying you for a mortgage. During the application steps for the VA loan, a mortgage broker might examine your credit score and your debt-to-income stats.
Assuming A Va Loan After Death
If a VA loan borrower dies while the plan is active, their spouse will assume any applicable debt. If the VA loan borrower is unmarried and has no co-borrower at the time of death, the loan will be assumed by the borrowers estate. Surviving spouses can take action with the Department of Veteran Affairs and inquire about refinancing loan options.
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How Does A Va Loan Work
VA home loans are one of the two nonconventional loans available today. They dont work exactly like a regular mortgage you get from a bank because VA loans are specifically guaranteed by the government.
This just means the government will agree to repay a portion of the loan to the bank if you dont make your payments or if you face losing your home .
Since the banks assume less risk compared to a conventional loan, VA loans are relatively easy to get. In 2018, the VA guaranteed 610,513 purchase and refinance loans.2
