Here are some miscellaneous items that I see often come up as issues when VA borrowers eligible for VA loan benefits apply for a VA Loan:
1. Remember in community property states like California, even if your spouse is not going on the loan with you, their credit report will still need to be submitted. Their debt obligations will have to be counted in your qualifying debt-to-income ratios. But remember, their credit quality cannot be a reason for the denial of the loan. So your spouse can have a very low credit score but it doesn’t matter if they aren’t going on the loan, all that matter is if they have a car loan, credit cards, student loans only in their name, those payments have to be counted as your debt as well.
2. Watch out for collections on your credit. If you have a creditor trying to collect on an old bill that is over $5,000, you may have to pay this before you can be approved for a VA loan.
3. If you are currently active military, to get a VA loan you will have to have 12 or months remaining with your service in the military. If you have less than 12 mos remaining, you have to have documentation of a civilian job lined up.
4. All VA homeloans require a clear termite report. When you a buy a property you must have a termite inspection done and all section 1 and 2 items must be cleared prior to the VA lending.
5. I just wanted to throw in here that many times I see large auto loans as a major reason borrowers can’t qualify for the amount of VA loan they would like. Many times VA home buyers will have two or more car loans and this really affects the purchase price of the house they can get. My advice is to try and buy a smaller car with cash or go with one car until after you have the house. A house is a much better investment than a car.
6. Make sure you never miss a payment on any of your bills. VA loan credit requirements require you to have a 620 or greater middle credit score to get the better VA interest rates. However you can still get a VA loan with a 600 score.
So those are six areas to look out for when preparing to apply for a VA loan. Here are some highlights of VA financing:
- 100% financing…VA borrowers are very lucky because there is really no 100% financing left out there unless you are VA eligible
- VA loan interest rates are at historic lows
- VA loan is flexible and will work with you on credit issues
- Conventional loans require 41% debt-to-income ratios if you have less than 20% down, VA loans will allow upwards of 55% debt-to-income ratios
- VA loans allow the seller to pay 100% of your closing costs
- VA loan streamline refinances allow you to lower your interest rate easily once you have a VA loan
- VA loans are assumable by other VA borrowers, making it easier to sell down the road
- VA loan limits in many areas of California are over $650,000 with 100% financing!
Give me a call (858-922-7899) or email (homeloan8@gmail.com) if you have any questions or want to apply for a VA loan.
Warmest Regards,
Rob Chomentowski
Sr. Loan Officer (and VA specialist)
858-922-7899
One of the main differences with conventional loan vs FHA is that FHA loans allow the borrower to receive 100% of the down payment and closing costs as gift funds. With a conventional loan, the borrower has to have at least 5% of their own funds into the transaction. Most conventional loans also require a minimum of 10% down and have much, much stricter qualifying standards as well. FHA loans require a minimum of 3.5% down and ALL of that 3.5% can be a gift from a relative, employer or lifetime family friend. If it is a lifetime family friend that is gifting the money, you will have to provide documentation in the file that person has been a lifetime friend of the family. However, the vast majority of FHA borrowers who use gift funds get them from a family member.
Here are some details on what to be prepared for when you qualify for a FHA loan and you will be using gift funds:
- You loan officer will supply you with a gift letter to be filled out, dated and signed by yourself and the gift donor
- You will need a copy of the bank statements of the account the gift donor is gifting the funds from to show their ability to gift the funds
- If you have the gift donor transfer the money to your account, you will need a copy of the withdrawal of the funds from the donor’s account and a copy of the deposit into your account
- A better way to go is to have the gift donor wire the funds to escrow at closing, in this case you only need a copy of the wire
And FHA also allows you to receive a gift for closing costs as well. So you can receive a gift for closing costs + ALL of the down payment.
So if you are in the market for a house to buy and you are short on funds for the down payment and/or closing costs, you might speak to a relative to see if they can assist. This is a great advantage of the FHA home loan program and not available with any other home financing today.
And here are some highlights to remember about FHA loans:
- To get a FHA loan credit score does not have to be perfect
- FHA loan interest rates are at historic lows
- You can use gift funds for FHA loan down payment
- Maximum FHA loan is $729,750, so you can get a FHA loan in expensive parts of California like Los Angeles, San Jose, San Francisco and San Diego
- Debt-to-income ratios on FHA loans are allowed up to 55% where conventional loans require 41% with less than 20% down
Give me a call (858-922-7899) or email (homeloan8@gmail.com) if you have any questions at all about getting approved for a FHA Loan.
Warmest Regards,
Rob Chomentowski
Sr. Loan Officer (and FHA specialist)
858-922-7899
Some major changes are starting today that will tighten the income guidelines for most conventional loans. These changes will be for loans bought by Fannie Mae, which includes most conventional loans. These changes will cause more borrowers to have to get a FHA loan because they cannot qualify for a conventional loan.
On Monday, Fannie Mae is lowering the maximum debt-t0-income ratio for loans sold to Fannie Mae to 45% for loans with 20% down or more. Currently, the maximum FHA loan debt-to-income ratios generally allow up to 55% and that is with only 3.5% down. As you can see, that is a dramatic difference in qualification guidelines for a conventional loan vs a FHA loan. If you put less than 20% down on a conventional loan your will need mortgage insurance. The mortgage insurance companies impose even tougher guidelines requiring a 41% debt-t0-income ratio AND a 720 credit score.
For a very quick overview, your debt-to-income ratio is your total housing payment (mortgage + monthly property taxes + monthly home insurance) + your current debt obligations (debt obligations are only items that appear on your credit such as car loans, student loans, credit card minimum monthly payments…NOT items like phone bills, etc..), divided by your gross before tax monthly income. So for example if you make $6,000 per month, have a car payment of $500/mo and credit cards of $200/mo, the maximum total housing payment you could qualify with a 20% conventional loan would be $2,000/mo and the maximum for a 3.5% down FHA loan would be $2,600. And if you put <20% down on a conventional loan, the maximum payment you could qualify for would be $1,760.
So as you can see, the new changes will restrict what many home buyers can qualify for with a conventional loan even if they put 20%+ down. However if you have 20%+ down payment, and can qualify based on the credit and income ratio standards of a conventional loan, it is the best choice as it has no mortgage insurance.
As usual, I like to end with a reminder of some highlights of FHA loans.
- FHA loan interest rates are still hovering around record lows
- Only 3.5% down needed to qualify FHA loan and that 3.5% does not have to be your own money, it can be a gift from a relative
- Maximum FHA loan limits go up to $729,750 in many counties to get a FHA loan in California and the rest of the U.S.
- Flexible income and credit qualifications
- FHA loan credit score standards are liberal, if you think you have bad credit your may still qualify for a FHA loan
- Non-occupying co-signers are allowed to help you qualify
Give me a call (858-922-7899) or email (homeloan8@gmail.com) if you have any questions at all about getting approved for a FHA Loan.
Warmest Regards,
Rob Chomentowski
Sr. Loan Officer (and FHA specialist)
858-922-7899
Ever since the U.S. Government created the mortgage interest tax deduction for homeowners, the tax advantages to buying a home vs. renting has been a major financial benefit to buying a home. VA loan eligible active military and veterans have a great advantage to access this tax advantage through their ability to get a VA loan with 100% financing. A huge special bonus right now on top of the standard mortgage interest tax deduction that has been available for decades, is the U.S. government is giving a $8,000 tax credit to new home buyers and a $6,500 tax credit to move up buyers available if you go into contract by April 30th 2010. This special one-time tax credit is discussed in other posts.
Here is a very quick and crude estimate of how much you will save by buying vs. renting. If you are a homeowner, you are allowed to deduct the total mortgage interest and property taxes you pay in a year from your taxable income. So let’s say you have a $350,000 VA loan on your house at 5%.
- $350,000 loan at 5% = $17,500 in interest per year
- $350,000 property purchase price, property taxes=$3,937 (estimating based on 1.125% average California property tax rate)
This would give you a total income tax deduction of $17,500 + $3,937 =$21,437. So as a very crude estimate I’m going to multiply this $17,500 by a tax rate of 35% and that is going to give a total tax savings of $7,502. So you are saving $7,502 in this case by buying vs. renting. This works out to be $625 per month. So say for example you had a rent payment of $1,500 per month. You could have a total housing payment (mortgage + taxes + home insurance) of $1,500 + $625= $2,125 and that $2,125 would be equivalent to paying $1,500 in rent, because when you rent you don’t get any tax advantages. Or let’s say you had a rent payment of $1,500 and total housing payment of $1,700. In this case you are saving $425 per month by buying vs. renting ($1,700 house payment MINUS $625 tax savings = $1,075). Of course if you are say paying $1,000 in rent and your house payment would be $2,125, then the tax advantages of buying vs. renting might not make sense. Unless you are moving up to a better living space by buying, or if you plan to fix up the house and create equity.
And as mentioned earlier, on top of this standard mortgage interest and property tax deduction that has been around for decades if you buy, is the once in a lifetime jackpot being offered by the U.S Government of $8,000 tax credit for home buyers until April 30th 2010. If you get a 100% VA loan and have the seller pay all your closing costs, this is like getting paid $8,000 to buy a home!
So I hope that helps explain some of the tax benefits of buying vs. renting.
And as always, I like to remind readers of the benefits of using their VA eligibility:
- 100% financing zero down
- Sellers can pay all your closing costs
- With a VA loan credit does not have to be perfect, you may be able to get a VA loan even if your think you have bad credit
- VA loan interest rates are still extremely low
- VA loan home buyers who have VA disability pay get the VA funding fee waived!
- a VA homeloan does NOT have monthly mortgage insurance (unlike FHA and conventional loans with less than 20% down)
- Flexible qualifying guidelines (conventional loans now require a much lower debt-to-income ratio than VA loans
- VA loan limits go up to well above $500,000 for a jumbo VA loan in many counties of California
- Easy VA loan streamline refinances available for who already have VA loans to lower their interest rates
- VA borrowers can get a second VA loan (or even 3rd, 4th, etc…) as long as they have sold or refinanced their old VA loan
Give me a call (858-922-7899) or email (homeloan8@gmail.com) if you have any questions or want to apply for a VA loan.
Warmest Regards,
Rob Chomentowski
Sr. Loan Officer (and VA specialist)
858-922-7899
Short sales are becoming more and more common every day and they offer excellent opportunities for VA loan home buyers to pick up a great bargain property. A short sale is when a seller needs to sell, but has a current loan on the property greater than what they can sell the property for. In order to sell in this case, that seller’s lender has to agree to take less than full balance for the loan currently on the property.
Recently the U.S. Treasury has announced plans to encourage loan services, loan note holders and sellers to do short sales. The Treasury will be offering payments to services, note holders and a certain amount in relocation funds to homeowners in the hopes that this will encourage them to complete more short sales. This is good news for VA loan home buyers, because often short sales offer incredible deals on properties that are in much better shape than bank foreclosures. Additionally, sellers of short sales are more willing to take a purchase offer from a VA buyer than bank foreclosures. Bank foreclosures often pass on VA purchase offers in favor of all cash or 20% down offers.
You may need some patience when you make offers on homes that are short sales, but it can be worth the wait. Many of my VA loan clients have successfully purchase wonderful properties all over California and other states as well that were short sales. Hopefully the new guidance from the U.S. Treasury will expedite short sales and allow VA home loan buyers to close on your new house faster.
Here are some highlights of VA loan benefits:
- 100% financing zero down
- Sellers can pay all your closing costs
- With a VA loan credit does not have to be perfect, you may be able to get a VA loan even if your think you have bad credit
- VA loan interest rates are still extremely low
- VA loan home buyers who have VA disability pay get the VA funding fee waived!
- VA does NOT have monthly mortgage insurance (unlike FHA and conventional loans with less than 20% down)
- Flexible qualifying guidelines (conventional loans now require a much lower debt-to-income ratio than VA loans
Give me a call (858-922-7899) or email (homeloan8@gmail.com) if you have any questions at all about getting ready to qualify for VA loan.
Warmest Regards,
Rob Chomentowski
Sr. Loan Officer (and VA specialist)
858-922-7899
Great news for home buyers in more expensive areas of California and the rest of the U.S. wanting to use a FHA loan to purchase their house. FHA has now removed the requirement for two appraisals on ”high balance” FHA loans. A high balance FHA loan is considered a loan over $417,000. Currently, a borrower in many more expensive parts of the U.S. can go up to a maximum FHA loan of $729,750 on a FHA loan. Previous to this change, a borrower would need to pay for two full separate appraisals on any FHA loans over $417,000.
This is a nice change as having to get two appraisals added to expense and made purchases with FHA jumbo loans much more complicated and drawn out. This rule also includes FHA rate/term and cash out refinances. You can get a cash out refinance on a FHA loan up to $729,750 and only one appraisal will be required.
With an FHA loan limits in the more expensive counties of the U.S. and California being $729,750, this means you could purchase a home for $756,217 and only put the FHA minimum down of 3.5%. This will be handy in 2010 as many of the coastal properties in Los Angeles, San Diego, Orange County, San Jose and other areas are coming down to fit into this price range. Deals can be had. Additionally, if you have not owned in three years you are likely eligible for the $8,000 home buyer tax credit if you go into contract on a house by April 2010, or also the $6,500 tax credit if you own currently and will be moving to a new primary residence.
And here are some highlights to FHA loans:
- More flexible qualification with FHA loans vs conventional loans
- FHA loan interest rates are still extremely low
- Maximum FHA loan $729,750 in many areas of California and the U.S.
- Only 3.5% down payment required and that 3.5% can even be a gift from a relative
- Non-occupying co-signers are allowed to help your qualify
- FHA loans are for everyone not just first time home buyers!
- You can have up to 9 other mortgage loans and still get a FHA loan
Give me a call (858-922-7899) or email (homeloan8@gmail.com) if you have any questions at all about getting approved for a FHA Loan.
Warmest Regards,
Rob Chomentowski
Sr. Loan Officer (and FHA specialist)
858-922-7899
As mentioned in earlier posts, the $8,000 federal tax credit was extended to April 2010. This can enable you to get $8,000 back from the IRS for buying a home and $6,500 if you are a move up buyer. Here are some important additional facts about the tax credit:
1. You must buy – or enter into a binding contract to buy a principal residence – on or before April 30, 2010.
2 . If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.
3. For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.
4. A long-time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you’ve lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009.
5 . The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250.
6. People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers.
7 . The IRS will issue a December 2009 revision of Form 5405 to claim this credit. The December 2009 form must be used for homes purchased after November 6, 2009 – whether the credit is claimed for 2008 or for 2009 – and for all home purchases that are claimed on 2009 returns.
8. No credit is available if the purchase price of the home exceeds $800,000.
9. The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.
10. A dependent is not eligible to claim the credit.
This type of give away from the IRS is unfrequented and hasn’t been seen for a long time if ever, and may never be seen again in your lifetime. It’s amazing to get handed $8,000 for buying a home.
Some highlights of VA loans today:
- VA loans go up to 100% financing
- Sellers can pay all your closing costs on a purchase
- Maximum VA loans can get all the up to above $700,000 in many areas of the nation where jumbo VA loans are possible
- VA loan streamline refinance are easy to drop your interest rate to today’s low rates
- You don’t need great credit to apply for a VA loan, so if you think you have bad credit you still may be able to get a VA loan
- VA loan interest rates at record lows and being held down by the government to stimulate the economy, this won’t continue forever
- California VA Loans 100% to $737,000+ in many counties
Give me a call (858-922-7899) or email (homeloan8@gmail.com) if you have any questions at all about getting approved for a conventional to VA refinance loan or VA purchase loan.
Warmest Regards,
Rob Chomentowski
Sr. Loan Officer (and VA specialist)
858-922-7899