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VA Loans: What are the Big Changes
If you or your spouse has served in the military you’ll benefit a lot from this article as we go on to discuss the big changes to VA Loans this 2020.
In a nutshell, we’re looking at higher borrowing power and increased fees for active members of the service and veterans.
The Blue Water Navy Vietnam Veterans Act of 2019 is responsible for delivering the details of the changes which were put into effect as of January 1, 2020.
On top of giving benefits to more disabled veterans from the Vietnam War with exposure to Agent Orange, the law eliminates VA loan limits for borrowers who have full entitlement.
Moreover, VA funding fees are increased for most borrowers with the exception of National Guard and Reserve members.
Lastly, recipients of the Purple Heart are now exempt from the VA loan funding fee obligation as much as those entitled to VA compensation.
What Does a VA loan do?
A VA home loan is a no down payment mortgage option issued by private VA lenders that are partially backed, or guaranteed by the Department of Veterans Affairs (VA).
Borrowers who go through a successful loan application for a VA loan program can use it to purchase a property that is their primary residence or refinance an existing mortgage.
Who can qualify for VA loans?
VA loan programs are easily among the best ways to finance your home, vacation home or investment property especially with the recent changes offering a rate reduction and increased VA loan funding fee.
See if you or a loved one qualifies as a VA borrower. Here are the criteria:
- Active service during wartime for at least 90 consecutive days
- Active service during peacetime for 181 days
- Being in the National Guard or Reserves for 6 years
- Being the spouse of a disabled veteran or service member who died in the line of duty due to a service-related disability
One thing making VA loan requirements different from FHA and USDA loans is that it doesn’t look at a VA borrower’s credit score. VA lenders would need to review their loan profiles instead of the credit score.
What caused the rule changes in the VA loan?
The Blue Water Navy Vietnam Veterans Act of 2019
This was implemented in 2019 with the goal of further supporting veterans who may have developed medical conditions possibly caused by Agent Orange where they may have had exposure to herbicides during their service in Vietnam.
More specifically, active service members or veterans who have served offshore of the Republic of Vietnam within the period of January 9, 1962 to May 7, 1975 are all considered to have been exposed or whose condition may have been aggravated for such service for as long as there is no record of already having the disease at the time.
The legislation was deemed necessary because of the number of claims tied to Agent Orange and herbicides that were possibly used during the Vietnam War.
Agent Orange was an initiative to destroy any form of cover the opposing troops in North Vietnam may have had – mainly forest cover and crops.
Herbicides used at the time were contained using a chemical – dioxin. Said chemical is known for causing cancer, birth defects, and possibly even psychological problems.
During the war, more than 20 million gallons of Agent Orange were used in Vietnam between 1961 and 1971.
Additional Benefits of VA Loan
For quite sometime now, veterans and active service members who want to purchase a home whose worth is above their respective county VA loan limit would need to make a down payment. Not this 2020 though.
Veterans across the country can now enjoy larger mortgagee loans with the removal of loan limits and allow for budgets to be maximized or to be able to live in more expensive housing markets.
Though this should not be taken literally, this will definitely help veterans who are looking to fund their home at a 0% down payment.
VA loan limits will still be present in the year 2020 for those who have defaulted on a loan initiated before January 2020.
Down payment requirements may still apply if the purchase price exceeds the loan limit. However, the formula used for computing will still take entitlement and home price into consideration.
Worth noting in the removal of loan limits is that any lender exercises the right to disapprove transactions where the borrower cannot be expected to afford the VA mortgages upon assessment.
On this note, VA borrowers and lenders still need to properly evaluate transactions and follow the usual process to qualify the home loans or in other words, exercise due diligence.
VA Funding Fee Changes
Any previous down payments made will determine the funding fee veterans pay in the year 2020.
Whatever the case, the loan can either be a ‘first use’ or a ‘subsequent use’ kind where the upfront fees can either be paid upfront or integrated into the monthly payments.
First-use and zero-down loans now have 2.3% funding fees of the loan amount coming from 2.15% in 2019.
Subsequent use loans are now 3.6% coming from 3.3%
Do note that the rate reduction and other new loan benefits will only stay for two years. We can expect this to go back to normal between 2022 to September 30, 2029, 7 years later and proceed to go even lower after that period.
VA Home Loan Buying Process
Here are the following steps you need to take to apply for a VA loan program:
Apply for a Certificate of Eligibility whenever you transact for a VA-backed home loan The COE will serve as proof for qualifying the VA loan benefit.
Assess your current financial situation
Your income, expenses, monthly budget, and credit profiles should all be ready when you are about to buy a home.
Set the amount you’re willing to spend on a VA mortgage and be sure to consider closing costs and all other costs on top of the base price.
Find a lender
Lenders offer varying rates for fees and interest whether you’re going for a mortgage company, credit union, bank, or other financial institution.
Be sure to shop for the best rates for you. In doing so, you may find the bank does not offer the best interest rates for your VA loan program.
Set aside a budget for lender fees as lenders charge a 1% flat fee or loan origination fee. Always be sure to ask for fee details from your lender and seize every opportunity to negotiate for interest rate reductions.
Find a real estate agent
Scout for reliable real estate agents who can make the process as fluid as possible for you. You can perhaps start with friends, family, and neighbors who received great service from an agent.
Meet with as many as you need to and ensure you understand the whole process from paper to purchase as well as any fees and rights you have as a buyer in the transaction.
Go and find yourself a new home
Once you have the desired budget, find a house that works within it. Always have notes on how to get better appraisals for the one you wish to buy and a good set of comparisons.
Details you need may include but are not limited to location, living conditions, and condition of interior/exterior of the house.
VA Streamline Refinance
Also known as an IRRRL or Interest Rate Reduction Refinancing Loan, VA Streamline Refinance offers the following:
- An opportunity to lower monthly VA mortgage payments through lower interest rates and…
- A choice to move between variable interest rates to fixed ones so your monthly payments can be more predictable. With the recent changes in VA loans for veterans and active service members, you can now take advantage of the recent changes to VA loan arrangements through refinancing.
However, when you choose to apply for refinancing loans, note that closing costs can account for thousands of dollars. So be sure to weigh the move properly so you don’t end up losing money instead.
To compute for this, just spread out the savings across the months your loan is payable and compare from there. Consult a VA lender to find out what costs you incur with each option and what loan benefits there are for pursuing them.
Qualifying for a VA Streamline Refinance first needs a currently VA financed property. This means veterans who go for the IRRRL cannot do so if the loan is a non-VA one.
Some guidelines may vary from one VA lender to another. These include policies on appraisals, loan-to-value ratio, credit scores, how long you’ve had your current mortgage, etc.
Some may also have a ‘no 30-day late payments’ requirement for the past 12 months upon transacting.
Another benefit of the IRRRL is that it doesn’t require the current occupancy of a home. So you can proceed with refinancing even if you do not intend to occupy the property being refinanced.
This means the same VA home loan can be used for a vacation home or investment property.
Lastly, the IRRRL cannot work as a Cash-out refinance loan.
The Blue Water Navy Vietnam Veterans Act accounts for the effects of Agent Orange to further provide for housing opportunities among veterans and active service members.
With that, VA loans now offer additional benefits in the form of increased funding fees and the removal of loan limits.
When looking for VA lenders and real estate agents, always be on the lookout for good deals.
Not only will they have different interest rates, but they will also have varying guidelines for granting VA loans that look at the loan amount, previous loans, and many others.
Finally, this new wave of changes may be the perfect time to leverage the VA Streamline Refinance option.
If you haven’t already, you can refinance existing loans to make use of the low-interest rates and loan funding fees that stretch out from 2020 until 2022.
The VA May Owe Disabled Veterans Millions In Home Loan Fee Refunds
Over 50,000 veterans with disabilities could be owed up to $190 million in refunds from the Department of Veterans Affairs, an investigation has found. The refunds are for VA home loan fees that veterans no longer owe or were wrongly charged for.
According to an investigation by the VA inspector general, senior leaders at the VA knew that veterans weren’t being refunded their fees. However, leaders did nothing to ensure that veterans were paid their dues.
What are VA home loan fees and how are refunds due?
Veterans pay home loan fees when they buy a house with the help of the VA Home Loan Guaranty Program. But when a veteran is disabled and uses the Home Loan Guaranty Program, they’re meant to be exempt from these fees.
VA home loan fees can total up to 3.3% of a house’s total value. This is a significant amount of money.
According to the 2017 Home Buyer and Seller Generational Trends Report, which was conducted by the National Association of Realtors, up to 13% of all home buyers said that saving for just a down payment is one of the most difficult steps in the home buying process. The average downpayment on a house is 7%.
The VA is meant to issue refunds when disabled veterans are improperly charged or when the VA has later determined they were disabled. However, the VA didn’t refund thousands of cases dating more than 10 years. The department claims they didn’t issue refunds because the veterans didn’t ask for them.
“It is the review team’s opinion that requiring a veteran to submit a claim for a refund improperly places the burden and responsibility solely upon the veteran,” said investigators.
VA expected to see an internal quality improvement
At the time when the inspector general was preparing a release of the investigation results, the VA issued a press release announcing that they would notify veterans when they are exempt from fees when they buy homes under the program whether they are currently or later determined to be disabled.
Investigators from the inspector general’s office said that VA loan managers knew about the outstanding debts to veterans since 2014. However, the managers said they had been focused on other priorities. These priorities included processing high volumes of applications for home loans.
Investigators called the report on the investigation troubling. “Through an internal quality improvement effort, VA has put a plan in place to better inform veterans through key communications when the law allows VA to waive the fee for a veteran,” said Robert Wilkie, the VA secretary.
Veterans who believe they are owed a home loan refund ought to consult the VA website for more information about VA home loan funding fees. The inspector general estimated that, of the wrongly charged fees, disabled veterans accounted for $286 million.
VA Loans: What You Need to Know
Applying for a home loan can be frustrating and confusing for anyone, especially first-time buyers. First-time buyers, according to the 2016 National Association of Realtors Profile of Home Buyers and Sellers, account for 35% of home purchases. Veterans who are buying a new home have the ability to apply for a specific type of loan even if they’re first-time buyers. Since there are so many little things needed to know about applying for home loans, things can get jumbled and what is supposed to be an exciting process of finding your new home becomes a painstaking ordeal. So here are some things about a VA home loan that you may find useful if you’re in the market:
How to Qualify for a VA Loan
If you’ve served in the military you could potentially qualify for a VA loan. These loans are tailored specifically towards veterans and are offered through lenders. The Department of Veteran Affairs sets a list of requirements needed to be met in order to qualify for a VA loan. These are the general requirements:
- Must be an eligible Veteran with available entitlement
- The loan must be for a verified and acceptable purpose
- The home will need to be occupied shortly after closing
- Credit must be at a certain minimum
- Source of income from the Veteran and spouse (if any) must be sufficient enough to cover housing expenses i.e. mortgage payments, repairs, family costs, etc.
Benefits of a VA Loan
- In most cases, there is no down payment required.
- No monthly mortgage insurance premium
- Sellers can potentially pay for all of the buyer’s closing costs associated with the loan and up to 4% in concessions.
- A VA loan has the lowest average interest rates than all other types of loans
- Buyers can pay off their loan early with no fees or penalties
- Mortgage payments can be assumed by another party if necessary
- Foreclosure specialists who help find alternatives if it gets to that point.
As with every home purchase, you will need to find a qualified lender, one who can provide the VA loan — the Department of Veteran Affairs is not a lender. If you are seeking to use the VA loan and are beginning or in the process of finding a new home it would be beneficial to find a realtor that is familiar with the loan process and working with Veterans. They may be able to explain things that an average realtor could not and give you the maximum amount of benefits possible.
VA Warns Veterans to be Careful of Refinancing Scams
Last month a survey by the AARP indicated that veterans are a frequent target of refinancing scams. 16% of veterans have lost money to fraud, compared to 8% of the general public. The VA has issued a warning to veterans about common refinancing scams. We’ll help you identify some of the common features of refinancing scams so that you can protect yourself from criminals.
How do refinancing scams work?
The concept of refinancing scams is simple enough: The scammers work to convince you that they are a real lender and entice you to do business with them by offering an unrealistically good service. Once they have your trust, they take your financial information, drain whatever money they can, and promptly vanish.
Right up until the moment that they disappear, refinancing scams are meant to seem like an interaction with a normal lender, albeit one with an unusually good offering.
Oftentimes these scammers attempt to prey on those who are desperate for a good deal on a refinance. Veterans who are struggling should be especially cautious when it comes to VA loan offers from unfamiliar parties.
Identifying refinancing scams
Many refinancing scams offer a variety of to-good-to-be-true benefits to veterans. While it is true that home loan and refinancing programs for veterans are quite generous (with low rates and often no down payment requirement), you should be suspicious if an offer includes:
- No waiting periods
- Thousands of dollars in cash back
- Skipped mortgage payments
- No out-of-pocket-costs
Extremely aggressive sales tactics should also be a red flag. Unsolicited offers should always be treated with suspicion. If you receive contact from a lender without having gone to a lender or private agency, be aware that this is highly unusual. This doesn’t mean that it’s a scam necessarily, but a good course of action is to contact the Department of Veterans Affairs directly and request advice.
When contacting the VA, be sure to use to research the number of the nearest VA center and call them directly. Do not use a number provided in third-party advertising, as this may be part of the scam.
Alternatively, you could contact your lender. They will be able to help you determine whether or not the offer is legitimate.
Want more information about VA refinancing in Redding? Concerned about illegitimate refinancing schemes? Megastar Financial is a trusted mortgage bank with 15 years of exceptional service to its customers. Contact our Redding branch for more information.
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Example of 30 year mortgage:
$300,000 sales price, $60,000 down payment, $240,000 loan amount, 360 months, 3% interest rate, 3.132% APR, $1,029 Principle and Interest monthly payments, Payment does not include taxes, insurance premiums or HOA dues. The actual payment amount will be greater. Rates shown valid on publication date of June 29th, 2020. This example is for a conventional, not jumbo, mortgage product; there are restrictive upper loan amounts for conventional loans based on the property’s location. Example given requires a minimum 740 credit score with a debt to income ratio of under 45%. Applicant must be employed. This is not a promise to lend. All terms and conditions are based on the subject property, the applicant’s credit worthiness and the applicant’s ability to repay the loan.
15-Year Fixed-Rate Mortgage:
The payment on a $300,000 15-year fixed-rate loan at 2.723% and 80% loan-to-value ratio (LTV) is $1,626. The annual percentage rate (APR) is 3.178%. Payment does not include taxes and insurance premiums. The actual payment amount will be greater. Rates shown valid on publication date of June 29th, 2020. This example is for a conventional, not jumbo, mortgage product; there are restrictive upper loan amounts for conventional loans based on the property’s location. Example given requires a minimum 740 credit score with a debt to income ratio of under 45%. Applicant must be employed. This is not a promise to lend. All terms and conditions are based on the subject property, the applicant’s credit worthiness and the applicant’s ability to repay the loan.