VA Loans and How They Work

Veterans are a big part of our community in the United States. The country honors these men and women who have served in the United States Armed Forces in many ways. One example is through VA Loans for veterans who would like to purchase a home. A VA Loan is provided by private lenders and is partially guaranteed by the Department of Veterans Affairs.

VA Loans are a great way for military borrowers to obtain a mortgage. They have been helping military families purchase a home since 1944. If you are interested in purchasing a home through a VA Loan here is what you need to know.

According to veteransunited.com, “A VA loan is a $0-down mortgage option issued by private lenders and partially backed, or guaranteed, by the Department of Veterans Affairs (VA). Eligible

borrowers can use a VA loan to purchase a property as their primary residence or refinance an existing mortgage.”

Unlike conventional mortgages, VA Loans are partially backed by the Department of Veterans Affairs (VA). Lenders who originate the loans have more confidence with this guarantee from the VA and are able to offer $0 down financing and many great rates and terms.

There are many ins and outs of a VA Loan. A borrower can use full VA entitlement as many times as they would like to if the loan is paid off each time. You can have more than one VA loan at a time and even obtain another VA loan if you lost one to foreclosure.

VA Loans are mainly used for properties that are “move-in ready” and are not usually used for a fixer-upper or a property such as a working farm. They can only be used for a primary residence and not for investment properties or vacation homes.

Even though a VA Loan does not require mortgage insurance, you will be required to pay a mandatory fee. The VA Funding Fee enables the VA to keep VA Loans available and can be paid all

at once or rolled into the loan amount. The VA loan entitlement will not let you get a loan with just any co-borrower. You can find some lenders who lend a joint loan. One of the great benefits of a VA loan is there is no prepayment penalty. Making an extra payment or adding money on top of your monthly payment is not penalized like with some conventional mortgages.

If you are a military veteran and would like to obtain a VA loan, here are the steps to the process. Before you can be approved for VA loan entitlement, you must be prequalified for a loan. A lender will be able to prequalify you for what you can afford based on income, credit, entitlement and any other financial factors they require. Once a lender prequalifies you, then you must be preapproved. This is the step in the process where a lender will verify income and your financial information. Once preapproved, the lender will give you a preapproval letter. When searching for a home and placing an offer, you must make sure that the home is VA loan approved.

Once you place your property under contract you will begin the VA appraisal. The VA appraisal is a requirement to make sure the property under contract is of fair market value and meets the VA requirements. When the VA appraisal is cleared you will be able to close on your new home.  Remember when purchasing a home, VA loans represent the most powerful lending program on the market for military borrowers.


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Mortgage Rates to Stay Near Historical Lows in May

The Federal Reserve has stepped up to ensure the rates stay near historical lows. During the policy meeting held on April 29th, the central bank said they would keep buying mortgage-backed securities to allow credit to keep flowing.

Jerome Powell, the Federal Reserve’s chairman, says the Fed will keep purchasing the mortgage-backed securities for “the next year or so” with the unknown economic consequences from the COVID-19 pandemic. The Fed said in its most recent announcement that it foresees “considerable risks to the economic outlook over the medium term.”

The Fed has brought a lot of money to the table when it comes to mortgage-backed securities. In a comment, the Federal Reserve relayed this was necessary “to support smooth market functioning.” Before the Fed stepped in, mortgage rates fell during late February but took a turn up in March because of the market turmoil.

The Federal Reserve has purchased more than half a trillion dollars’ worth of mortgage-backed securities since the middle of March. According to the Fed purchasing these mortgage-backed securities has given lenders the confidence that there will be enough money to keep funding mortgages to consumers. The mortgage rates will stay stable because the Federal Reserve is standing in as a reliable buyer.

Luckily there strategy is working. Currently, the average rate on a 30-year fixed-rate mortgage is 3.389%, a 15-year fixed-rate is at an average of 2.923% and the average for the 5/1 ARM is down to 3.117%. During Nerdwallet’s survey of mortgage rates, they found that the 30-year fixed-rate mortgage is 88 basis points lower than this time last year.

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The Ins and Outs of Mortgage Closing Costs

When buying a home there are many steps to the process. Once you have made an offer, you need to make sure you have money for a down payment, but that is not all the money you will need to bring to the table. Many home buyers do not take into account closing costs. This can come as an unpleasant surprise, but if you understand closing costs and have saved for them, the home-buying process will run much smoother.

First, you will need to understand what closing costs actually are. This is important to the buyer

because most of the closing costs are the buyer’s responsibility. Closing costs consist of the many fees for the services and expenses it takes to finalize a mortgage. Typically they are broken down into property-related fees, loan-related fees, mortgage insurance fees, property tax and homeowners insurance and title fees.

More importantly, is how much are closing costs? The amount usually runs between 2% and 5% of your loan amount. So if you have a $300,000 home purchase, your closing costs would run between $6,000 to $15,000. The best way to pay for them is out of pocket all at once. Some lenders do allow you to finance them by merging them into the loan, but you will end up paying more because of interest over the life of the mortgage. Some states, counties and cities offer low-interest rate loan programs and grants for first time home buyer’s closing costs.

Next, let’s look at the property-related fees that are included in the closing costs. These include the appraisal fee and the home inspection fee. When purchasing a home you will need to know how much the property is worth and what shape the property is in. A certified professional appraiser will be sent to the home to evaluate the home’s worth. This is very important when obtaining a mortgage. The lender needs to know if the property is worth the amount that you want to borrow. A lender wants to make sure they can recoup the value of the home if you default on your loan. Typically the appraisal fee will run between $300 to $400. A home inspection is required when getting a mortgage. A lender wants to make sure the home is structurally sound and in good enough shape to live in. A home inspection fee usually runs between $300 to $500.

Other fees included are loan-related fees. First, there is the application fee which covers the costs of processing your application. These costs usually include credit checks and administrative expenses. Assumption fees can also be included when there is an assumable mortgage that you are taking over from the seller. Many states will require the use of an attorney at the closing. This will add attorney

fees which will vary depending on the amount of work the attorney does for you. Pre-paid interest fees are also included. Lenders typically require you to pay the interest that accrues on the mortgage between the date of settlement and the first monthly payment due date. The biggest chunk of loan-related fees goes to the loan origination fee a.k.a the underwriting fee, administrative fee, or processing fee. This fee is the cost for the evaluating and preparing of your mortgage loan. This cost is about 0.5% of the loan amount. Just like a realtor, if you work with a mortgage broker, there will be a fee. A broker commission will usually be about 0.5% to 2.75% off the home’s purchase price.

Mortgage insurance fees are also included. These include mortgage insurance application fees, upfront mortgage insurance and FHA, VA and USDA fees. Mortgage insurance application fees are included if you make a downpayment of less than 20% of your mortgage. Upfront mortgage fees are there because many lenders require first-time borrowers to pay the first year mortgage insurance premium upfront. FHA, VA, and USDA fees will be tacked on if the Federal Housing Administration insures you, Department of Veterans Affairs, or the U.S. Department of Agriculture. For an FHA you will pay 1.75% of the loan amount, for the VA loan you will pay between 1.25% to 3.3% and the USDA will cost 1%.

Property taxes, annual fees and insurance will also need to be considered. Property taxes will cost about two months’ worth of city and county property taxes at closing. The homeowners association fees will also be required upfront as well as the homeowner’s insurance premium.

When purchasing a home one of the most important documents handled is the title. Title fees include the search fee (to make sure the title is clean and the seller really owns the property), the lender’s title insurance (this protects the lender in case there is an error in the title search) and owner’s title insurance (this protects the buyer if the title comes up with any problems).

So there will be no surprises before you go to closing, mortgage documents will be given to you prior to closing. The loan estimate and the closing disclosure are the two most important. The loan estimate details all the fees, interest rate and other closing costs for your loan and the closing disclosure confirms what was written in the loan estimate. These documents need to be read carefully before you go to closing.

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A Positive Outlook From Home Buyers

The economy might be in questionable times right now, but home buyers across the country are having a positive outlook on their home search. According to the recent Housing Trends Report (HTR), ” the share of prospective home buyers expecting their house search to get easier in the months ahead rose to 25% in the first quarter of 2020, up from 16% and 22%, respectively, in the first quarters of 2018 and 2019.”  This has been the third consecutive year-over-year increase in the share of buyers that anticipate more housing inventory.

The Housing Trends Report (HTR) is created by the NAHB Economics team. Their goal is to measure prospective home buyers’ impressions regarding the availability and affordability of homes for sale in the current market. The report is done quarterly and asses the changes in a buyer’s perception over time.

The HTR breaks down its findings by generation. They found that Gen X buyers were among the highest that felt the housing availability will improve while the Boomers were the lowest. The breakdown by generation of buyers expecting their house search to get easier was Gen X at 27%, Millennials at 26%, Gen Z at 22% and Boomers on the bottom at 20%.

Across the country’s regions, the report finds that 20% to 27% feel that their home search will become easier during the following months. The West came in with the highest percentage at 27%, followed by the Northeast and South at 25% and the Midwest came in last at 20%.

Not only do share buyers believe that the numbers will improve but they are reporting that they actually see more houses out there that they like and can afford. The first quarter of 2020 reported 31% compared to the first quarter of 2019 at 30%.

The report shows the breakdown by generations and regions. The highest generation found was Millennials and the highest region was the West. The breakdown for generations came in at 34% Millennials, 32% Gen Z, 29% Gen X and 24% Boomers. For regions, the West was 33%, the South came in at 32%, the Northeast at 30% and the Midwest last at 25%.

This is good news for the moral of the current housing market. Now is a great time to purchase a new home.

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