Homebuyingguide

VETERANS HOME BUYING GUIDE THE IMPORTANCE OF WORKING WITH PROFESSIONAL REAL ESTATE AGENTS YOUR GOOD CREDIT: UNDERSTANDING YOUR CREDIT SCORE VA HOME LOAN PROGRAM

Helping Military and Veteran families realize the American Dream!

Established in 2011, Veterans Association of Real Estate Professionals (VAREP), is a non-profit 501.c.3 organization dedicated to increasing sustainable homeownership, financial-literacy education, VA loan awareness, and economic opportunity for the active-military and veteran communities.

While our focus is on the active-military and veteran communities, our services are also offered to eligible low-to-moderate income (LMI) families. Our doors are open to all that want to realize the American Dream of homeownership.

As a housing non-profit for vets, by vets, our success is measured not by a balance sheet for shareholders, but by how many lives we can improve through our programs and services. Our proactive stance of providing financial-literacy education and advocating “homeownership may not end the epidemic of homelessness among the veteran community, but can prevent it from happening in the future, one veteran at a time.”

Son Nguyen, VAREP National President and Founder

888-273-7267 · info@VAREP.net

www .VAREP. net

TABLE OF CONTENTS THE IMPORTANCE OF WORKING WITH PROFESSIONAL REAL ESTATE AGENTS Learn how hiring a real estate agent when buying a home can save you time and money through the home buying process. Don’t get caught unaware!

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YOUR GOOD CREDIT: UNDERSTANDING YOUR CREDIT SCORE Your credit score plays a huge role in determining

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THE VA LOAN PROGRAM How it works, when is the best time to buy, choosing a program for your situation, and much more. Make the home buying process simplier.

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THE HOME BUYING PROCESS

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The Importance of Working with

Professional Real Estate Agents Not using a professional real estate agent to save money in your process may cost you later. Whether you are buying or selling, you are negotiating a complex transaction with potential pitfalls that could impact your bottom line. A professional agent can use their knowledge and skills to guide you through the real estate process.

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CONNECTIONS Real estate agents have connections in the market that benefit buyer and seller. Agents work with many people involved in the real estate transaction process, including loan officers, home inspectors and attorneys. If you have a problem or need a service, your agent has the contacts necessary to help you immediately. For example, if you need a home inspection but can’t find anyone to do the job before the lender’s deadline, your agent may have an inspector she has a relationship with who will help.

KNOWLEDGE OF MARKET Knowledge of the real estate market you are buying in is invaluable in the home buying or selling process. An agent can give a buyer informed opinions about the home’s future value, the neighborhood amenities and schools and whether the investment is solid. Sellers benefit from an agent’s market knowledge because the agent uses it to market the property to the most interested audience and get the highest price. Proper marketing is crucial. Buyers may be wary of an over-marketed home, while a poorly marketed home may not sell for months.

FINDING A MILITARY & VETERAN-FRIENDLY REAL ESTATE AGENT Now that you know the importance of working with a professional real estate professional, you need to find an agent that is a VA home loan specialist.

NEGOTIATION EDGE Buyers and sellers both negotiate the home price. The buyer is looking to get the house at the lowest price, while the seller wants the highest price possible. Agents apply their experience to the price negotiations without actively interfering by providing advice to their party. Your agent can help you evaluate the pros and cons of each offer or counteroffer you receive.

An agent helps with the legal paperwork required for offers so your interests remain protected during the negotiations.

• Ask them to share their opinion about the VA loan program.

LEGALITIES Buying or selling a home involves a lot of paperwork and is a complex process with different deadlines. Since an agent has experience in real estate transactions, they can use their knowledge to ensure the process goes smoothly and nothing important is missed. If you have any questions about the papers you are signing, your agent will help you nd get the answers if they do not know.

EDUCATION & TRAINING All real estate agents must have a license in the United States.

While the exact licensing process varies by state, professional agents must have some specific real estate education and usually have to pass a test to get one. An agent also has knowledge of the specific real estate laws and procedures in the area they are working in, as some of the required training is location specific.

When interviewing for an agent, use the following guidelines: • Self-identify as military or veteran.

• Ask about the agent’s experience working with the military and /or veteran community.

• Ask the agent if they have specific training on the VA loan program.

• Ask for references and check them.

The responses above may vary and it comes down to your gut instinct. However, under no circumstances should you work with an agent or lender that discourages you in any way from using your VA loan benefit during the home buying process. Your agent should be an advocate for you and the VA loan to the seller. There are times when the VA loan is not your best financing option in a particular market, but remember, no one should ever discourage you from using a benefit that you have earned.

BEST PRACTICE Once you have identified the home that you want to make an offer on, ask your real estate agent and/or VA approved lender for an apple to apple written loan comparison between the VA loan, FHA loan, and a conventional loan. This will put the decision of which financing option is best for you in your hands.

Your Good Credit

Understanding Your Credit Score

Reviewing credit reports is time consuming, and in the business world, time is money. Instead of analyzing your credit report to make a decision about whether or not you are a good credit risk, lenders will most likely look at your credit score.

The credit score boils all the information in your credit report down to a three-digit number between 350 and 850 - anything over 720 is considered above average.

This number, your credit score, is based on complex equations utilizing mountains of data collected and analyzed over the years about the bill paying behavior of consumers.

Like it or not, the credit score is a remarkably reliable predictor of who is and is not a good risk for a loan. The lower your credit score, the higher the risk and the more you will pay in finance charges for credit. The higher your score, the better you look to lenders.

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To determine if your credit score is above average, compare your credit history with that of the average consumer. According to the Fair Isaacs Corporation, developer of the FICO credit score, the average consumer: ·· Has 11 credit obligations. ·· Carries less than $5000 in debt, excluding mortgages. Among those that carry a balance, about half (48%) carry a balance of less than $1,000. Nearly thirty percent carry more than $10,000 of non-mortgage debt. ·· Has access to $12,190 in available credit from all credit cards combined. More than half of all people with credit cards are using less than thirty percent of their total credit limit. Only about 1 in 8 uses 80 percent or more of their credit card limit. ·· Has had a credit account that they have had for at least 13 years.

One in 5 has a credit history longer than 20 years. ·· Has had only one new credit inquiry within the past year.

Fewer than 7 percent had four or more new credit inquiries in the past year. ·· Has a near-perfect repayment history. Less than 40 percent show a payment more than 30 days past due, about 20 percent show a payment more than 60 days past due, and only 15 percent show payments more than 90 days past due. Less than 10 percent show accounts closed by lenders due to default.

The information in your credit report does not change much from month to month, unless you do something different or something happens. Your credit score may vary by a few points with each new month and with any changes in the factors that make up the score.

Factors that Influence Your Credit Score The exact formulas used to calculate credit scores, aside from being extremely complex, are proprietary. While we may not know exactly how the score is determined, we do know the relative weights of the five areas examined.

Payment History. The biggest piece of the credit score pie is your repayment history, accounting for 35 percent. That’s why paying bills on time is the single-most important thing you can do to improve your credit score. When you start falling behind, credit scores fall fast. The difference between 30 days or more late and the next category (60 days or more) is significant, with 90 days or more being even more damaging to your credit score. Similarly, when you are starting over to improve your score, every month you pay your debts on time improves your score.

The longer your track record of making payments on time the better. That’s one reason why it pays to contact creditors at least once a year to ask about interest rate reductions or other concessions.

Amount Owed. The second biggest slice of the pie (30%) relates to the amount you owe and how much of your available credit you are using. Using lower percentages of your available credit will raise your score. Lowering credit limits and closing unused accounts may lower your score in the short run, but are good ideas that will likely improve your score in the future. Keep balances low on credit cards, pay off debt instead of moving it around, and avoid adding new debts or credit accounts.

Length of Credit History. The third factor, accounting for 15 percent of your credit score, is the length of time you have used credit based on the day your oldest account was opened. Avoid closing your oldest account to prevent reducing the length of your credit history. If you are just starting out, avoid opening too many accounts too quickly.

Types of Credit Used and New Credit each account for ten percent of your score. All debts are not created equal. A 30-year fixed mortgage is a good debt. A debt consolidation loan from a finance company, on the other hand, is not. A lot of new debt will lower your score. Lenders like to see a nice balance including a home mortgage, a car payment, and no more than 2 or 3 credit cards with no sudden increases in borrowing. Scores calculated for other purposes may add or subtract points for other kinds of debt. When you do obtain new credit for an auto or mortgage loan, or from a lender that provides auto or mortgage loans, shop for it within 30 to 45 days so that the inquiries will count as one inquiry instead of many.

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Your credit score determines whether or not you will be likely to receive a loan. Individuals with high credit scores qualify for loans with the lowest available interest rates.

The fact that your credit score is high in no way guarantees that you will receive the best available credit terms.

Different credit options can significantly increase the cost of the item to be financed. Consequently, it is just as important to shop for the credit as for the item you are financing. Read the entire agreement, especially the fine print, before you sign. If necessary, ask to take the contract or agreement home with you so you can look it over more carefully without an anxious lender standing over your shoulder. Keep a copy of the agreement and any disclosures on file. Watch for inserts in statements with information about changes to the original terms of the agreement.

Unfortunately, you usually have to pay one of the three major CRAs to find out your credit score. The score they provide may vary because your file at each CRA may not contain the same information.

Whether or not it is worth the cost to find out your credit score depends on you, the situation you are currently in, and whether or not you have any plan or need for credit in the future. For example, if you are financially secure, own your own home, pay all your debts each month (and have for years), and have no plans to borrow for anything other than a car every few years, you probably don’t need to know. Your score is likely high enough that you qualify for the best rates.

Knowing what you are dealing with can give you an idea of how much work is needed, how long that work might take to complete, and give you a tool for measuring your progress. The lower your score, the longer it is going to take to raise it to the 720+ level.

If you are about to buy a new house or plan to borrow for other purposes in the near future, knowing your credit score can help you to evaluate whether or not the rate you are being offered is appropriate for you. If you have a high credit score and are offered a high rate, you know you can probably get a better deal somewhere else. Finding out that your score is lower than expected might be sufficient reason to postpone the purchase long enough to address negatives and take other steps to improve your score.

Get your free credit report today!

To get your free credit report, Please visit the following website at: www.annualcreditreport.com or call directly at: 1-877-322-8228 To get your second free copy of your credit report, contact each
CRA individually: Equifax: www.equifax.com 1-800-685-1111 Experian: www.experian.com 1-888-397-3742 TransUnion: www.transunion.com 1-800-888-4213

If you are just starting to build a credit history, or perhaps you are starting over again and trying to get beyond some of the problems of the past, it might be worth the cost.

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Featured:

The VA Loan Program Not sure how the VA Loan works? Do you know if you are eligible?

Become more informed to make the home buying procces easier.

If you are an active military or veteran, take the time to know what your options are. Learn about the VA Loan and home loan programs tailored for your situation.

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LOAN PROGRAM SUMMARY VA Loan Highlights The abbreviation VA stands for “Veterans Affairs.” The United States VA department began insuring home loans for our military veterans in 1944 as part of a plan to combat the devastating aftermath associated with war.

The VA department does not fund, approve or close VA Home Loans themselves. They do however set forth the guidelines that mortgage lenders must follow when originating VA mortgages. In addition, VA insures each and every loan made to a veteran which makes it possible for mortgage lenders to offer veterans such an amazing home financing option.

To date, the VA has insured over 18 million home loans made to veterans. The loan terms extended to our military veterans provide them with an outstanding option when purchasing a new home or refinancing a current home loan.

· No Down Payment Required · Flexible Debt to Income Ratio · Flexible Credit Guidelines

· Competitive Interest Rate · VA Loan Can Be Used Multiple Times · No Pre-Payment Penalty

Basic Rules and Regulations of a VA Loan What can a VA Loan be used to buy?

Maximum loan amount (varies by county):

Primary residence purchases only No maximum loan amount VA does limit its guaranty.

Veterans can borrow up to $417,000 without a downpayment in most of the country. Find out the limit in any county by visiting: www.benefits.va.gov/homeloans

Down payment requirement: Available loan terms: Is mortgage insurance required?

Are there property eligibility requirements?

0% Down 3yr or 5yr ARM, 15, 20, 25, and 30 year fixed No monthly mortgage insurance See “VA Funding Fee” Yes See “VA Property Requirements”

Income eligibility requirements:

No minimum or maximum income limits

Maximum debt to income ratio:

No maximum debt radio Lender must provide compensating factors if total debt ratio is over 41%

Minimum required credit score: Are seller paid closing costs allowed?

Are gift funds allowed?

No minimum credit score VA requires a lender to review the entire loan profile to make a lending decision

Yes - up to a maximum of 4% of sale price Yes - borrowers can receive gifts for down payment and closing costs

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THE VA HOME BUYING PROCESS It is a Great Time to Buy! 1. Secure a Real Estate Professional Servicemembers and veterans should find a real estate professional to work with. Someone who has a basic knowledge of the armed forces and VA Home Loan Program. The real estate professional is essential and will guide the servicemember or veteran through the maze known as the home buying process.

2. Find a Participating VA lender Locate a lending institution that participates in the VA program. Borrowers may want to get “pre-qualified” at this point - that is, find out how big a loan you can afford.

Lenders set their own interest rates, discount points, and closing points, so borrowers may want to shop around.

3. Get a Certificate of Eligibility (COE) The Certificate of Eligibility (COE) verifies to the lender that the borrower meets the eligibility requirements for a VA loan.

4. Find a Home and Sign a Purchase Agreement Work with a real estate professional and negotiate a purchase agreement. Make sure the purchase and sales agreement contains a “VA Option Clause.” Here’s a sample of a “VA Option Clause”: “It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs.”

5. Apply for a VA Loan Work with the lender to complete a loan application and gather the needed documents, such as pay stubs and bank statements.

6. Loan Processing The lender orders a VA appraisal and begins to “process” all the credit and income information.

7. Closing The buyer or seller chooses a title company, an attorney, or one of their own representatives to conduct the closing.

This person will coordinate the date/time and the property is transferred. If the borrower has any questions during the process that the lender can’t answer to satisfaction, please contact the VA through the VA Regional Loan Center.

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VA HOME LOAN PROGRAMS Choose a Program Best Suited for Your Situation Depending on your situation, there are different VA Home Loan Programs that suit your needs. We want you to make the most out of your loan, so knowing what you need is the first step.

Purchase and Cash-Out Refinance Home Loans

Housing Grants for Disabled Veterans

The VA Purchase Home Loan helps purchase a home at a competitive interest rate often without requiring a down payment or private mortgage insurance. With a Purchase Loan, VA can help you purchase a home even if the borrower has found it difficult to find other financing.

The VA Cash-Out Refinance Loans are for homeowners who want to take cash out of their home equity to take care of concerns like paying off debt, funding school, or making home improvements. The Cash-Out Refinance Loan can also be used to refinance a non-VA loan into a VA loan. The VA will guaranty loans up to 100% of the value of your home.

VA provides grants to servicemembers and veterans with certain permanent and service-connected disabilities to help purchase or construct an adapted home or modify an existing home to accommodate a disability. Two grant programs exist: the Specially Adapted Housing (SAH) grant and the Special Housing Adaptation (SHA) grant.

Streamline Refinance Loan The Interest Rate Reduction Refinance Loan (IRRRL) also called the “Streamline Refinance Loan” can help obtain a lower interest rate by refinancing an existing VA loan. By obtaining a lower interest rate, your monthly mortgage payment should decrease. You can also refinance an adjustable rate mortgage (ARM) into a fixed rate mortgage.

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VA Jumbo Loan In most veteran loan scenarios, the VA guarantees up to 25% of the total amount of the loan up to the VA loan limit in your county – which, in much of the US, is $417,000. However if the veteran wants to purchase a home over the loan limit, then a VA Jumbo Loan would be a good option to explore. Jumbo loans range from $417,000 up to $1,094,625. If you live in Alaska or Hawaii, the maximum loan amount is $1,500,000.

Native American Direct Loan (NADL) The Native American Direct Loan (NADL) Program helps eligible Native American Veterans finance the purchase, construction, or improvement of homes on Federal Trust Land, or reduce the interest rate on a VA loan.

VA ELIGIBILITY How is it Determined?

One of the first and most important steps a lender must take when helping a veteran get pre-approved for a VA Loan is to determine what their “eligibility” is. In the world of VA mortgages, eligibility determines whether or not a veteran is eligible for a VA Home Loan. The VA outlines a Veterans eligibility on a document they call a Certificate of Eligibility (COE).

Active Military and Veteran who prefer to order their own COE, they have two options: 1. Complete a VA Form 26-1880, Request for a Certificate of Eligibility, online through eBenefits.

Visit: www.eBenefits.va.gov

2. Submit a completed VA Form 26-1880, Request for a Certificate of Eligibility, to the Atlanta Eligibility Center, along with proof of military service.

Mailing address: VA Loan Eligibility Center PO Box 100023 Decatur GA 30031 Phone # (888) 768-2132

A veteran’s eligibility for a VA home loan is determined and measured by what type and what amount of entitlement they have. The most common type of entitlement is called “Basic Entitlement.” There are a few things that may cause a veteran not to have full Basic Entitlement.

They include: 1.

A previous foreclosure on a VA Loan

2.

Already owning real estate that is secured by a VA Loan

If a veteran does not have full Basic Entitlement their ability to qualify for a VA loan based solely on Basic Entitlement may be impacted. VA has developed something called “Bonus Entitlement” for these situations. Bonus Entitlement can help veterans who do not have sufficient Basic Entitlement to still purchase a home using a VA loan.

Bonus entitlement is a bit more complex than Basic Entitlement.

Please contact a qualified VA Lender if you have any questions.

Example of a Certificate of Eligibility (COE)

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VA FUNDING FEE How it Works - Rates for Purchase and Refinance In order to maintain a healthy insurance fund (which is what allows the VA to continue to insure VA loans) each veteran pays an insurance premium called the “VA Funding Fee” (see exception below). The VA Funding Fee charged depends upon the veteran’s level of service, the type of transaction (purchase or refinance), how many times the veteran has used their VA mortgage benefits, the veteran’s disability status with the VA and the down payment the veteran makes on a purchase. See the charts below for specific VA funding fee rates.

VA Funding Fee Rates - Purchase

Regular Active

Regular Active

Reservist / NG

Reservist / NG

1st Time Use

Subsequent Use

1st Time Use

Subsequent Use

0% Down Payment

2.15%

3.30%

2.40%

3.30%

5% Down Payment

1.50%

1.50%

1.75%

1.75%

10% Down Payment

1.25%

1.25%

1.50%

1.50%

Amount of times veteran has used VA MTG Benefit

NG = National Guard

VA Funding Fee Rates - Refinance Amount of times veteran has used VA MTG Benefit

Regular Active

Regular Active

Reservist / NG

Reservist / NG

1st Time Use

Subsequent Use

1st Time Use

Subsequent Use

2.15%

3.30%

2.40%

3.30%

0.50%

0.50%

0.50%

0.50%

Cash Out or Reg Refi IRRRL aka “Streamline Refi”

IMPORTANT VA FUNDING FEE EXEMPTION: If the VA considers a veteran disabled, then the veteran is exempt from paying a funding fee and their funding fee factor is 0%.

Sample VA Funding Fee Calculation The following example is based on a veteran that is using their VA mortgage benefits for the first time to purchase a $200,000 home with 0% down.

x

$200,000 Loan Amount 2.15% Appropriate Funding Fee Factor

+

$4,300 VA Funding Fee $200,000 Loan Amount $204,300 Final VA Loan Amount

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VA NON-ALLOWABLE FEES What Are They?

VA does not allow a veteran using a VA loan to purchase a home to pay for certain fees. They call these fees “VA Non-Allowable Fees.” Any party involved in the transaction other than the veteran (lender, real estate agent and seller) may pay for them.

Non-Allowable Fees Include: •

Lender’s appraisals that are required in addition to the VA appraisal

•

Amortization schedules, pass books, and membership or entrance fees

•

Lender’s inspections (except in construction loan cases)

•

Escrow fees or charges

•

Loan closing or settlement fees

•

Notary fees

•

Document preparation fees

•

•

Preparing loan papers or conveyance fees

Commitment fees or marketing fees of any secondary purchaser of the mortgage and preparation and recording of assignment of mortgage to such purchaser

•

Attorney’s services other than for title work

•

Trustee’s fees or charges

•

Photographs

•

Loan application or processing fees

•

Interest rate lock-in fees

•

•

Postage and other mailing charges, stationery, telephone calls, and other overhead

Fees for preparation of truth-in-lending disclosure statement

•

Fees charged by loan brokers, finders, or other third parties whether affiliated with the lender or not

•

Tax service fees

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VA PROPERTY REQUIREMENTS Minimum Property Requirements - Safe, Sound, and Sanitary Property condition is one of the factors involved in obtaining full loan approval. Each loan type has its own set of guidelines that are used to measure the eligibility of a subject property.

When a VA appraiser visits a property they assess the home’s market value. They also evaluate the home to make sure it meets the general property requirements set forth by the VA. The VA has created a very specific set of guidelines they call Minimum Property Requirements or “MPRs.” A VA appraiser will utilize these MPRs to determine if a property is eligible for a VA mortgage. Generally speaking, VA appraisers measure a property against three primary standards.

They require that the property is Safe, Sound and Sanitary.

If a property’s condition violates any or all of these standards according to a VA appraiser, that appraiser will require that the violation be remedied either before the loan closes or after the closing through a fully approved escrow holdback (the VA does not allow veteran/buyer to fund escrow holdback). While minor and cosmetic property deficiencies are not considered grounds for ineligibility, they may factor into the appraiser’s valuation of the home.

Primary VA Minimum Property Requirements (MPRs) Each Residential Unit Must Have Space For: • • • •

Living Cooking and dining - property needs stove installed Sleeping Sanitary facilities

Mechanical Systems Must:

(Pool, Plumbing, Heating/Cooling, etc.)

• • •

Have reasonable utility, durability and economy Be safe to operate - must be in good shape!

Pool must be functional at the time of closing

Heating Requirements: • • • •

Heating must be adequate and comfortable for living conditions Homes with a wood burning stove must also have a conventional heating system Homes with a solar heating system must be 100% backed by a system as reliable as a conventional heating system Air conditioning is not required

Water Supply Requirements: Each property must have: • • •

Domestic hot water Continuing supply of safe/potable water for drinking and other household uses Sanitary facilities and a safe method of sewage disposal

Roofing Requirements: The property’s roof must: • •

Prevent entrance of moisture Provide reasonable future utility, durability and economy of maintenance

VA also has a set of specific guidelines relative to a property’s crawl space(s), ventilation and electricity. Please contact VAREP if you have any additional questions about VA MPRs.

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VA APPRAISAL PROCESS Following the Steps The purpose of an appraisal is to help a mortgage lender determine the fair market value and general physical condition of the property that will serve as collateral for your new home loan.

Appraisal Steps 1. Order the Appraisal We (your lender) submit an appraisal request to the VA on your behalf. The VA randomly assigns a VA licensed appraiser to inspect and appraise your home. The VA appraiser has 10 days by law to inspect the property once the appraisal request has been received.

2. Research The assigned VA appraiser visits and inspects the property. The appraiser reviews the home’s livable square footage, features/upgrades, general overall condition and the property’s systems. (heating/cooling, plumbing etc.)

3. Valuation The assigned VA appraiser researches recently closed home sales in the same vicinity as the subject property. He or she finds similar homes that compare to the subject property. This data, combined with information from Step 2, helps the appraiser determine the subject property’s value.

4. Delivery Once the assigned VA appraiser has completed both the valuation and research processes, a completed VA appraisal report is emailed to your lender. A copy of the report is also sent directly to you (the buyer). The overall VA appraisal process can take up to 10 business days.

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VA VERSUS FHA AND CONVENTIONAL Knowing the Differences Significance of the VA Funding Fee and the FHA Up Front Mortgage Insurance Premium (UFMIP) The VA funding fee and the FHA Up Front Mortgage Insurance Premium are used for defaults. The VA funding fee is used for VA guarantees.

The VA is self-funding which means that the VA funding fee is used to cover all management costs and defaults associated with the VA home loan. FHA is getting more public scrutiny these days while VA is more favorable and has lower default rates. FHA has higher default rates and under its current conservatorship, has had to ask for money from congress to cover losses due to lack of funds. Lenders require the FHA UFMIP and the VA funding fee to help protect them against loss in the event of a foreclosure.

One of the main benefits of the VA home loan is the fact that the veteran does not need a down payment. This is a huge benefit, but compared to FHA, the real difference can be seen in the monthly payment because the VA home loan does not require monthly mortgage insurance. Below we show a side-by-side comparison of a VA and FHA loan.

VA

FHA

Purchase Price

$400,000

$400,000

Interest Rate

3.75%

3.75%

Down Payment

Zero ($0)

3.5% ($14,000)

Up Front Fee

2.15% ($8,600)

1.75% ($6,755)

Mortgage Insurance

Zero ($0)

1.35% ($441.85 per month)*

Loan Amount

$408,600

$392,755

Payment

$1,892

$2,260 ($1,819 + $441.85 - PMI)

* New monthly Mortgage Insurance will be .85% as of 1/26/15

Where VA Shines versus FHA First, the VA buyer did not need the $14,000 for the down payment. Second, even though the VA buyer paid $1,845 more for the Up Front Fee than the FHA buyer, the VA buyer will not have to pay the additional $402 per month for mortgage insurance. The overall savings for the VA buyer is thousands of dollars.

VA Compared to Conventional Loan Programs One of the biggest differences between the VA loan and Conventional loan programs has to do with the down payment requirements of the two programs. With the VA home loan, no money is required for a down payment.

A conventional loan requires a buyer to put 20% down or have mortgage insurance (MI). Mortgage insurance qualifications are very dynamic and can be restrictive. Having mortgage insurance on a loan also means there is a second set of guidelines for the MI company that your buyer will need to meet in addition to the standard lender guidelines. This is only one area that creates a challenge; the other is of course the cost associated with MI payments.

Conventional loan programs also have tighter requirements for qualification. While FHA loan guidelines will change by committee, conventional loan programs can change guidelines overnight as we witnessed during 2007 and 2008.

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VA DEFAULTED PROPERTY PRODUCTS Options to Help Retain Home or Alternative Options to Foreclosure

The VA has a longstanding policy of encouraging servicers to work with veteran borrowers to explore all reasonable options to help them retain their homes, or when that is not feasible, to mitigate losses by pursuing alternatives to foreclosure.

Short Sale

VA Loans after Foreclosure

When a VA borrower starts having trouble in making VA mortgage loan payments, sometimes the only alternative to foreclosure is a short sale, also known as a VA Compromise Sale. The VA Compromise sale is based upon the VA compromise claim which states “If your property cannot be sold for an amount which is greater than or equal to what you owe on the loan, VA may pay a ‘compromise claim’ for the difference to help you complete the sale. You must contact the VA to discuss the situation and get prior approval for a sale with a compromise claim payment. Some mortgage companies are authorized by VA to approve a sale with a compromise claim.” The short sale is a last resort in many cases, but if foreclosure seems unavoidable it may be the best option.

Foreclosure is understandably a bitter pill to swallow for a lot of military homeowners. But it’s important to remember that defaulting on a home loan, even a VA backed one, doesn’t mean another VA loan is forever out of reach. The reality is it’s possible to get another VA loan after experiencing a foreclosure, a short sale or a deed-in-lieu of foreclosure. One of the key questions is how much VA loan entitlement you have remaining, if at all, since some will be tied up in that foreclosed property. Unless a borrower defaulted on a really expensive mortgage, they may have enough VA loan entitlement left over to qualify for another loan.

Deed-in-Lieu A borrower may be able to avoid foreclosure through a deed in lieu whereby the homeowner agrees to transfer the title of the property to the lender. In return, the lender will release the borrower from all obligations from the mortgage. This is beneficial to the borrower because the negative effect of the deed in lieu on his credit score is much less than that of a foreclosure.

Meanwhile, the lender benefits because he is able to forgo the expenses and the effort that are usually needed for a formal foreclosure.

VA Loans and Bankruptcy There are two major types of personal bankruptcy protection - Chapter 7 and Chapter 13 - and both will crush your credit. Consumers can expect their credit scores to drop by 130 to 240 points. That alone will make qualifying for a VA loan incredibly difficult, but lenders also require borrowers to be a “satisfactory credit risk.” VA- approved lenders want to see that prospective borrowers can return to a solid financial footing over a two - year period. And that means there’s almost no way for a borrower to secure financing until at least the two - year mark after a bankruptcy discharge.

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VA HOME LOAN FAQ Additional Questions are Addressed about The VA Home Loan What is the VA Loan?

The VA home loan is a mortgage loan option offered exclusively to activemilitary servicemembers, veterans, and surviving spouses. VA loans are financed through private lenders and guaranteed by the Department of Veterans Affairs.

What are the steps to obtaining a VA Loan?

The steps to obtaining a VA Loan are: determining eligibility, viewing and inspecting the home, requesting the loan, appraising the property, and finally, closing the sale.

How do I know if I am VA Loan Eligible?

You may be eligible for a VA loan if you meet one or more of these conditions: • You have served 90 consecutive days of service during wartime; or • You have served 181 days of services during peacetime; or • You have more than 6 years of service in the National Guard or Reserves • You are the spouse of a service member who died in the line of duty or as a result of a service-related disability.

What is the Certificate of Eligibility (COE)?

The COE verifies to the lender that you are eligible for a VA-backed loan. A VA loan specialist can assist you in obtaining the COE. How do I obtain my Certificate of Eligibility (COE)?

You can obtain your COE by filling out a Certificate of Eligibility Request Form (VA Form 261880). The form can be downloaded through the Veterans Administration website and mailed directly to the VA, however, your VA loan specialist will be able to help you obtain the COE in a matter of minutes – depending on your eligibility status.

What is a Statement of Service?

A statement of service is a letter from your commanding officer stating how long you have been in the service and what your status is. It is often required for underwriting purposes for active duty applicants.

What does it mean when I hear that a VA Loan is guaranteed?

This means the VA guarantees the loan to the lender in case of default.

The lender is the one who actually loans the money. It does not mean that you are guaranteed a loan; you still have to qualify for it based on credit and income standards set by both the VA and the lender.

What does entitlement of $36,000 actually mean?

Your entitlement is the amount that the VA will guarantee for your loan with the lender. $36,000 is the maximum entitlement and with this entitlement the VA will guarantee a home loan up to the county loan limit, which is $417,000 in most areas, but can be higher in some high cost counties.

Does the VA offer interest only loans?

No, the VA does not offer any interest only programs at this time.

On all VA Loans you pay back to the principal of the loan and gain equity with every payment.

Does the VA offer home equity lines of credit (HELOCS)?

No, at this time the VA does not guarantee HELOCS. The VA will allow you to cash out on your existing property with a cash-out refinance.

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Will my VA Loan be through the government, a private lender or both?

Your VA mortgage will be through a private lender. The VA doesn’t give the loan itself; it guarantees the loans that lenders issue. All lenders have to follow the same guidelines of approvals in order to get the loan guaranteed by the VA. The VA guarantee allows them to offer this special program to those that served or are serving. Lenders may then have additional guidelines on top of those established by the VA in order to approve your loan.

Is mortgage insurance required with a VA Loan?

No, the VA guarantees the lender on the loan. There is no third-party mortgage insurance required with a VA Loan.

How do I know how much I qualify for?

Qualification is based on many factors. Assuming your credit is sufficient to qualify, your income will be examined. Normally, with good credit, your debt-to-income ratio (what you earn a month versus what you pay out per month, including your new house payment) should be about 41%. The best way to find out your exact debt-to-income ratio have a VA Loan Specialist crunch the numbers for you.

What if the house I want to buy costs more than $417,000?

If your home will cost more than $417,000 and it’s not in a high cost county, one option is to put enough money down to close the gap between the purchase price and the $417,000 loan limit. If a VA Loan is not right for you, we can assist you in choosing an alternative mortgage solution.

Do I need to have a property picked out?

No, you can get pre-approved before you even start looking for a property.

By getting pre-approved prior to entering into contract on a home you can ensure that you are contracting on a home that you can afford.

I have a VA loan, can I Refinance my VA Loan?

If you’re looking to refinance your VA loan, you have a few choices available to you. There are two major options to consider for your VA loan refinance. These options include VA Streamline refinance and the VA Cash Out refinance - used both for taking cash out of the equity on your home and refinancing from a conventional loan to a VA Loan.

What is the Streamline Refinance or IRRRL? Streamline refinance, or Interest Rate Reduction Refinance Loan (IRRRL), is a great option for borrowers who currently have an existing VA loan and wish to lower their interest rate - saving additional money each month. This type of refinance is beneficial not only because it is meant to lower the borrower’s interest rate, but it also offers features that include no appraisal or credit underwriting package is required when applying, no out-of-pocked expenses, less documents and more lenient requirements. Borrowers should understand that if they are refinancing an Adjustable Rate Mortgage (ARM) to a fixed rate, there is the possibility that their rate may increase.

What is a Cash-Out Refinance?

Individuals who currently have a VA loan and have built up equity in their home may wish to consider Cash Out refinance (also called Debt Consolidation refinance). This type of refinance can allow the borrower to take cash out or pay off debts. The borrower can receive cash out for up 100% of the value of their home. This money can then be used to pay debt or make improvements to the home.

Can I Refinance a Conventional Loan to a VA loan?

The last type of VA refinance is Conventional to VA refinance. This option is for individuals who are eligible for a VA loan, but do NOT currently have one. In this case, the conventional mortgage can be refinanced to a VA mortgage. A Conventional to VA refinance is beneficial because it requires no out-of-pocket closing costs, no monthly mortgage insurance, and the possibility of a lower interest rate (regardless of credit history). This type of refinance does, however, will require the funding fee which the government uses to insure the loan. This fee can be financed into the loan.

Does running my credit affect my score?

There has been a great deal of debate on this subject. Having a long history of many pulls for various types of credit can lower your score, but over a short period a few pulls for one type of purchase (such as an auto loan or mortgage) should not significantly affect your score. Pulling your own credit does not have an impact on your score.

What does a clean credit history mean?

A clean credit history means that you do not have collections, judgments, late payments or other blemishes on your credit report.

You have made all your payments on time and do not have any items on your credit that could negatively affect your approval.

Is the rate on a VA Loan better than any other loan?

Rates on VA Loans change on a daily basis, just like a conventional loan’s rates. Due to this fluctuation, it is hard to say if they are better or not. VA loan rates are very competitive with other mortgage products.

You can speak with a VA mortgage specialist to determine what rates are available based on your specific factors, such as your credit score.

Does the VA control interest rates?

No, the VA does not control interest rates. The rates are controlled by private investors buying and selling mortgage bonds. They change and differ on a daily basis just like conventional rates.

Do VA Loans have closing costs?

Yes, all VA Loans have closing costs. A significant amount of borrowers using their VA loan benefit are able to contract with the seller to have the seller pay all or a portion of the closing costs on the loan. If you are unable to get seller paid closing costs, these fees will have to be paid out of pocket at closing as they can’t be financed into the loan.

What is the difference between closing costs and pre-paid items?

Closing costs are costs associated with originating and closing the loan, such as processing fees, title work, origination fees, title insurance, etc.

Pre-paid items are costs associated with setting up your escrow accounts for homeowners insurance and property taxes. Pre-paid items also cover any interest your loan will accrue between closing and your first payment.

Can the seller pay my closing costs for me?

Yes, the VA allows the seller to pay all closing costs, and a certain amount of concessions (if you have any) toward your purchase.

Do I get extra benefits for having a service-connected disability?

Yes, having a service-connected disability of 10% or higher provides you with an addition benefit: the funding fee is waived. A funding fee is a percentage of the loan (up to 3.3%) charged by the VA to keep the VA mortgage guarantee program operational.

Can I buy a home with no money out of pocket?

Yes, it’s possible to get into a home with no money down and no money for closing costs. To do this, the seller has to agree to pay all closing costs.

How much of a down payment will I need for a VA Loan?

You do not need a down payment for a VA Loan unless the home you intend to purchase costs more than the county loan limit established by the VA. In most other cases you can get into your home with no money down and often with no money out of pocket.

Contact a VA Loan Specialist today to get started on your VA Loan.

Is there a pre-payment penalty on a VA Loan?

No, there is no pre-payment penalty on a VA loan. You are allowed to pay off the loan at any time without penalty.

Are VA appraisers harder on appraisals than conventional appraisers?

Not necessarily. VA appraisers are trained and approved by the VA to represent the best interest of the home buyer and Department of Veterans Affairs. They will give you a true value of the home based on comparable listings in the area. In order to protect you as the buyer, the VA does require that the appraiser specifically look for certain conditions referred to as Minimum Property Requirements (MPRs). These requirements are set by the VA to ensure the home is safe, sound and secure. Any MPRs listed on the appraisal will have to be resolved prior to closing.

What sort of things could cause a problem with the appraisal?

The VA requires that a home be considered move-in ready and free of any safety hazards. These minimum property requirements ensure the home is safe and secure. An example of a few safety issues include, stairs with no railing or peeling lead based paint. These MPRs must be fixed by the seller, at no cost to the buyer, prior to closing.

Do the improvements have to be done before closing on my VA Loan?

Yes, for the most part all repairs noted on an appraisal have to be completed before closing on the new loan. Sometimes if circumstances arise beyond your control the lender will allow you to escrow for a repair and take care of it when weather or other factors permit.

What happens if the appraisal comes in lower than the sales price?

If this happens, there are a few things you can do. The VA will allow you to ask for what is called a reconsideration of value. With a reconsideration of value, you can request the value of the home be adjusted based on other comparable homes not used in the initial appraisal. Another option is for you to renegotiate the contract to the lower price or, if your situation permits, you can also pay the difference between the appraised value and the contract price. The VA only permits the mortgage amount to be the lower of two values: the sales price and the appraised value.

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VA GLOSSARY Homeownership and Real Estate Terms and Phrases You Should Know A A cceleration - The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

A djustable R ate M ortgage (ARM) - A mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the re-negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

A djustment I nterval - On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

A mortization - Means loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

A nnual P ercentage R ate (A.P.R.) - Is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

C ertificate of E ligibility - The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).

C ertificate of R easonable V alue (CRV) - An appraisal issued by the Veterans Administration showing the property’s current market value.

C ertificate of V eteran S tatus - The document given to veterans or reservists who have served 90 days of continuous active duty (including training time). It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status).

CFPB - Consumer Protection Financial Bureau. Visit their website for more information: www.ConsumerFinance.gov/the-bureau

A ssessment - A local tax levied against a property for a specific purpose, such as a sewer or street lights.

C losing - The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.

A ssumption - The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller.

Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply. The VA requires prior approval for assumption.

C ommitment - A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions.

An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paper work or compliance with stated conditions.

A ppraisal - An estimate of the value of property, made by a qualified professional called an “appraiser”.

B B alloon (P ayment ) M ortgage - Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

B lanket M ortgage - A mortgage covering at least two pieces of real estate as security for the same mortgage.

B orrower (M ortgagor ) - One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

B roker - An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself.

Brokers usually charge a fee or receive a commission for their services.

B uy -D own - When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan.

While the payments are initially low, they will increase when the subsidy expires.

C C aps (I nterest ) - Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

C aps (P ayment ) - Consumer safeguards that limit the amount monthly payments on an adjustable rate mortgage may change.

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C ash F low - The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc).

C onstruction L oan - A short-term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.

C ontract S ale or D eed - A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

C onventional L oan - A mortgage not insured by FHA, USDA, or guaranteed by the VA. C redit R eport - A report documenting the credit history and current status of a borrower’s credit standing.

D D ebt - to -I ncome R atio - The ratio, expressed as a percentage, which results when a borrower’s monthly payment obligation on long-term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.

D eed of T rust - In many states, this document is used in place of a mortgage to secure the payment of a note.

D efault - Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

D eferred I nterest - When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the

unpaid interest is deferred by adding it to the loan balance. See negative amortization.

D elinquency - Failure to make payments on time and can lead to foreclosure.

D epartment of V eterans A ffairs (VA) - An independent agency of the federal government, which guarantees long-term, low-or no-down payment mortgages to eligible veterans.

D iscount P oint - See point.

D own P ayment - Money paid to make up the difference between the purchase price and the mortgage amount.

D ue - on -S ale -C lause - A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

E E arnest M oney - Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

E ntitlement - The VA home loan benefit is called entitlement.

Entitlement for a VA guaranteed home loan. This is also known as eligibility.

E qual C redit O pportunity A ct (ECOA) - Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

E quity - The difference between the fair market value and current indebtedness, also referred to as the owner’s interest. The value an owner has in real estate over and above the obligation against the property.

E scrow - An account held by the lender into which the homebuyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.

F F annie M ae - See Federal National Mortgage Association.

F armers H ome A dministration (F m HA) - Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

F ederal H ome L oan M ortgage C orporation (FHLMC) also called “F reddie M ac ” - A quasi-governmental agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers.

F ederal H ousing A dministration (FHA) - A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

F ederal N ational M ortgage A ssociation (FNMA) also known as “F annie M ae ” - A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

FHA M ortgage I nsurance - A fee paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 1.35% percent of the current loan amount, paid in monthly installments.

The lower the down payment, the more years the fee must be paid.

FHLMC - The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as “Freddie Mac.” Firm C ommitment - A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.

Fixed Rate Mortgage - The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

F oreclosure - A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

F reddie M ac - See Federal Home Loan Mortgage Corporation.

G G raduated P ayment M ortgage (GPM) - A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

G uaranty - A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

H H azard I nsurance - A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

H ousing E xpenses - to -I ncome R atio - The ratio, expressed as a percentage, which results when a borrower’s housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.

I I mpound - The portion of a borrower’s monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

Also known as reserves.

I ndex - A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

I nterim F inancing - A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

I nvestor - A money source for a lender.

FHA L oan - A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderately-priced homes almost anywhere in the country.

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VA GLOSSARY Homeownership and Real Estate Terms and Phrases You Should Know J J umbo L oan - A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

L L ien - A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Loan-to-Value Ratio - The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

M M argin - The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

M arket V alue - The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

MIP (M ortgage I nsurance P remium ) - It is insurance from FHA to the lender against incurring a loss on account of the borrower’s default.

M ortgage I nsurance - Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.

M ortgagee - The lender.

M ortgagor - The borrower or homeowner.

N N egative A mortization - Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.

Net Effective Income - The borrower’s gross income minus federal income tax.

N on A ssumption C lause - A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt, as a mortgage note.

O O rigination F ee - The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.

P P ermanent L oan - A long term mortgage, usually ten years or more.

Also called an “end loan.”

PITI - Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

P oints (L oan D iscount P oints ) - One-time fee paid by a home buyer (usually at the time home mortgage loan is advanced) to compensate the lender for the difference between the market interest rate and the lower rate applicable to home buyers. One discount point is equal to one percent of the principal, and number of discount points charged on the loans varies with the market.

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P ower of A ttorney - A legal document authorizing one person to act on behalf of another.

P repaid E xpenses - Necessary to create an escrow account or to adjust the seller’s existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

P repayment - A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

P repayment P enalty - Money charged for an early repayment of debt.

Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.

P rimary M ortgage M arket - Lenders making mortgage loans directly to borrower’s such as savings and loan associations, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.

P rincipal - The amount of debt, not counting interest, left on a loan.

P rivate M ortgage I nsurance (PMI) - In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment – as low as 3 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on you loan’s structure.

R R ealtor - A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

R ecision - The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

R ecording F ees - Money paid to the government for recording a home sale with the local authorities, thereby making it part of the public records. It is a fee collected by the lender through escrow.

R efinance - Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

R enegotiable R ate M ortgage - A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.

RESPA - Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

S S econd M ortgage - A mortgage made subsequent to another mortgage and subordinate to the first one.

S econdary M ortgage M arket - The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders. Security.

S ervicing - All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

S ettlement / S ettlement C osts - See closing or closing costs.

Simple Interest - Interest which is computed only on the principle balance.

S urvey - A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.

S weat E quity - Equity created by a purchaser performing work on a property being purchased.

T T itle - A document that gives evidence of an individual’s ownership of property.

T itle I nsurance - A policy, usually issued by a title insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender’s interests.

T itle S earch - An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

T ruth -I n -L ending - A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan.

Also known as Regulation Z.

U U n d e r w r i t i n g - The decision whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

USURY - Interest charged in excess of the legal rate established by law.

V VA L oan - A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

VA M ortgage F unding F ee - A premium depending on the size of the down payment paid on a VA-backed loan.

V ariable R ate M ortgage (VRM) - See adjustable rate mortgage.

V erification of D eposit (VOD) - A document signed by the borrower’s financial institution verifying the status and balance of financial accounts.

V erification of E mployment (VOE) - A document signed by the borrower’s employer verifying his/her position and salary

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THE HOME BUYING PROCESS Resource Guide

Questions to Ask Yourself Before You Buy

pers, and magazines that have real estate listings. Make a note of particular homes you are interested in and see how long they stay

What can I afford?

on the market. Also, note any changes in asking prices. This will give

• You’ll first need to determine what’s affordable. Keep in mind, when you’re buying a home, you’ll have upfront costs—down payment, closing costs—and you’ll need to be prepared for these expenses.

you a sense of the housing trends in specific areas.

Where do I want to live?

• It’s helpful to narrow down your search to the key neighborhoods where you want to live. Keep in mind, you may need to expand your search (based on what’s affordable for the area), but it helps to have a starting point.

What do I want/need?

• Make sure you have a good idea of what you’re looking for in a new home and prioritize accordingly. There are many quality and affordable homes—from townhomes and condominiums to single-family or multi-family homes—so make sure you conduct a thorough search. You may not be able to get everything on your wish list, but knowing what your requirements are before you get started will make your search easier.

What do I need to start?

• Before you get serious with your search, you’ll want to find a real estate agent and get your financing in order. We’ll go through these steps in detail, but it’s a good idea to start gathering your financial records (pay stubs, W2s, bank statements, etc.) and have them ready. Have a co-borrower?

Their information will be required, too.

How much do I need to put down?

• At one time, lenders may have required a 20% down payment to buy a home. Today, there are options for homebuyers who can’t afford to pay that much upfront.

Check with your lender about mortgage programs that allow down payments as low as 3% of the purchase price.

What about my credit?

• You should take a look at your credit report before you start the home buying process. This is the time to clean up any past issues and make sure there are no inaccuracies or mistakes. To qualify for a mortgage, you’ll need to meet the lender’s credit qualifications (which may vary by lender but you typically need a minimum credit score of 620).

Get Prequalified and Preapproved for credit for Your Mortgage While you are getting to know the market, you will need to know how much you can actually spend. The best way to do that is to get prequalified for a mortgage. To get prequalified, you just need to provide some financial information to your mortgage banker, such as your income and the amount of savings and investments you have. Your lender will review this information and tell you how much we can lend you. This will tell you the price range of the homes you should be looking at. Later, you can get preapproved for credit, which involves providing your financial documents (W-2 statements, paycheck stubs, bank account statements, etc.) so your lender can verify your financial status and credit.

Below are the basics of different lender types. This will give you a better understanding when finding the right lender for you.

Mortgage Broker • Is approved with various banks.

• They do not fund the loan.

• They do not draw documents or approve the loan.

Mortgage Banker • They fund the loan with their own funds.

• They approve loan and draw their own documents.

• They sell the loan to the secondary market and have to follow secondary market guidelines.

Retail Bank • Traditional Bank –Checking, savings, cd’s, mortgages.

• They underwrite, fund and very often keep their own loans (do not sell them).

Tip: Choose a lender that knows about ALL the mortgage options including the VA loan.

Get to Know the Marketplace

For a lot of active military and veterans, the VA home loan program

Once you feel that you are ready, start reading Web sites, newspa-

is their only real path to homeownership. The VA loan program’s

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advantages over other loan types are a big reason why VA loan volume has continually grown over the last five years. Here are the main benefits of VA loans: 1. No down payment, 2. No private mortgage insurance,

• Brings buyer to the listing agent • AKA “Selling Agent” • Gets paid a commission split from the listing agent – FREE TO BUYER!!!

3. Lower average interest rates than traditional loan types, 4. Relaxed credit requirements,

Be an informed consumer, do your research and ask these

5. Limits on closing costs,

questions.

6. No pre-payment fee or penalty, 7. Ability to finance the VA Funding Fee,

• What is their real estate experience?

8. Lifetime benefit,

• What is there experience in working with veterans?

9. VA loans are assumable, and

• How well do they know the VA Loan?

10. Foreclosure avoidance support from the VA.

• Are they at the slightest trying to talk you out of a VA Loan?

Note: The VA loan has a bad PR problem base upon many myths

• Are they timely in responding to you?

and bad experiences from real estate agents and lenders…howev-

• Can you see yourself working with them?

er, today VA loan proves has vastly improved and are on the same plying field as FHA and conventional loans. This is why you need to

• Ask for references.

find a VA-savvy lender.

Do not hire someone, just because they are a friend, or family Finding the Right Real Estate Agent Real estate agents are important partners when you’re buying or selling a home. Real estate agents can provide you with helpful information on homes and neighborhoods that isn’t easily accessible to the public. Their knowledge of the home buying process, negotiating skills, and familiarity with the area you want to live in can be extremely valuable. And best of all, it doesn’t cost you anything to use an agent – they’re compensated from the commission paid by the seller of the house.

Below are real estate agent’s roles. This gives you an understanding of who will best represent you.

Listing Agent • Represents Seller’s best interest • Markets property • Reviews and presents offers • Gets paid commission by seller Buyer Agent • Represents the Buyer’s Best Interest

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member… or because they will give you their commission back.

Hire them, because you feel they can represent you in the best light to the seller.

If you are a veteran or servicemember, find a VA-savvy agent that know the VA Loan. A VA-savvy agent can help borrowers avoid properties likely to pose a problem for the VA’s appraisal process.

They can also lean on their understanding of VA closing costs to maximize your dollar.

Note: The VA loan has a bad PR problem base upon many myths and bad experiences from real estate agents and lenders…however, today VA loan proves has vastly improved and are on the same plying field as FHA and conventional loans. This is why you need to find a VA-savvy agent who will go to bat and overcome any objections from listing agents or sellers that might not want to sell to you based upon misinformation.

Shop for Your Home and Make an Offer Start touring homes in your price range. It might be helpful to take notes on all the homes you visit. You will see a lot of houses! It can be hard to remember everything about them, so you might want to take pictures or video to help you remember each home.

Make sure to check out the little details of each house.

Get a Home Inspection

• Test the plumbing by running the shower to see how strong the water pressure is and how long it takes to get hot water.

Typically, purchase offers are contingent on a home inspection of the property to check for signs of structural damage or things that may need fixing. Your real estate agent usually will help you arrange

• Try the electrical system by turning switches on and off.

to have this inspection conducted within a few days of your offer being accepted by the seller. This contingency protects you by giv-

• Open and close the windows and doors to see if they work properly.

ing you a chance to renegotiate your offer or withdraw it without

• Are the other homes on the block well maintained?

Both you and the seller will receive a report on the home inspec-

• How much traffic does the street get?

• Is there enough street parking for your family and visitors?

• Is it conveniently located near places of interest to you: schools, shopping centers, restaurants, parks, and public transportation?

penalty if the inspection reveals significant material damage.

tor’s findings. You can then decide if you want to ask the seller to fix anything on the property before closing the sale. Before the sale closes, you will have a walk-through of the house, which gives you the chance to confirm that any agreed-upon repairs have been made.

Tip: ALWAYS, INSPECT, INSPECT & INSPECT! Home Appraisal

Take as much time as you need to find the right home. Then work

Lenders will arrange for an appraiser to provide an independent

with your real estate agent to negotiate a fair offer based on the

estimate of the value of the house you are buying. The appraiser is

value of comparable homes in the same neighborhood. Once you

a member of a third party company and is not directly associated

and the seller have reached agreement on a price, the house will go

with the lender. The appraisal will let all the parties involved know

into escrow, which is the period of time it takes to complete all of

that you are paying a fair price for the home.

the remaining steps in the home buying process.

Contract to Close Coordinating the Paperwork As you can imagine, there is a lot of paperwork involved in buying a house. Your lender will arrange for a title company to handle all of the paperwork and make sure that the seller is the rightful owner of the house you are buying.

Close the Sale At closing, you will sign all of the paperwork required to complete the purchase, including your loan documents. It typically takes a couple of days for your loan to be funded after the paperwork is returned to the lender. Once the check is delivered to the seller, you are ready to move into your new home!

• What is Title?

A contract policy that protects the buyer or the lender against any loss stemming from title issues on the property.

• What is Escrow?

Escrow generally refers to money held by a third-party on behalf of transacting parties. The escrow makes sure all mutually agreed contractual obligations are fulfilled by all parties.

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ATTN: ACTIVE MILITARY & VETERANS

Find Military and Veteran–Friendly Real Estate and Lending Professionals www.VetHomeownership.com is a website dedicated to assisting active military and veterans to realize the American Dream of homeownership!

Programs and Services Available to Servicemembers and Veterans: The VA Home Loan Program

Servicemember Civil Relief Act (SCRA) Webinar

Financial Literacy Education

Application for Military and Veteran First Look Home Buyer Purchase Program

Homeownership Information First-Time Home Buyer Course Using Credit Wisely Education

Combat Wounded Warrior Application for Mortgage-Free Donated Home

Foreclosure Prevention Education

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Housing and Credit Counseling

... and Much More!

For more information about the services listed above, please call or click:

888-273 -7267 www.VetHomeownership.com