Eligible Veterans Can Really Benefit from a VA Mortgage

If you are eligible for it, a VA mortgage can be a great way to finance a home.

The program comes under the Department of Veterans Affairs. Its purpose is to allow eligible veterans to finance a home at favorable terms. Effectively, with a VA loan an eligible veteran can buy a property for less money than through another financing option.

You obtain a VA loan from a private lender, and the Department of Veterans Affairs guarantees a portion of the loan, allowing the lender to offer favorable terms.

You’ll still go through the process of qualifying for a VA mortgage, as you would with any other type of mortgage. In order to qualify, you must have a Certificate of Eligibility, plus good credit and sufficient assets; occupancy rules are complicated, but basically you must personally live in the home as your primary residence.

There is no down payment unless the lender requires it or the price is higher than the home’s value. Other advantages include:

  • The benefit can be reused.
  • A VA loan can also be used to make improvements to your home at the time of purchase.
  • You can refinance in order to get a lower interest rate.
  • There are no mortgage insurance premiums, but there is a funding fee, which is a percentage of the purchase price. You may be able to roll it into the mortgage.
  • The loan is assumable. This means that a qualified potential buyer can take over your loan payments.

How to Finance a Condominium or Townhome

Financing a condominium or townhome differs from financing a single-family property. If you’re considering which of these options is right for you, you may want to factor in this information.

According to a blog post on nationwide.com, “A condominium, or condo, is a building or community of buildings in which units are owned by individuals, rather than a landlord.” Townhomes are defined as “conjoined units that are owned by individual tenants.”

One important difference: When you purchase a townhome, you own the structure you live in, as well as the land underneath it. In a condo, you own the interior, but the building exterior and the land on which the building sits is owned by a homeowners association (HOA).

The HOA is governed by a board of directors elected by the owners of individual units. There are monthly HOA fees for both townhomes and condominiums, designed to assist with maintaining the property. Typically, these fees are higher for condos, because they include lawn care, snow removal, pest control, and other regular maintenance tasks. Townhome owners usually have more responsibility for upkeep.

In financing a condo or a townhome, your lender may require that the development be on the Federal Housing Administration (FHA) approved condo list, which is maintained by the Department of Housing and Urban Development (HUD). This is a nationwide list of developments that have been approved, and are regularly reapproved, for loans. Depending on the way the development is classified, some townhome projects may not be included on the FHA list.

Your real estate attorney will be able to examine the HOA financials, as well as bylaws, insurance certificates, and other documents that indicate how well – or how badly – the HOA operates.

This is an important step; your purchase will likely hinge on what your attorney finds in those documents.

Benefits of Fannie Mae’s HomeReady Program

Individuals looking to purchase their primary residence in a lower-income neighborhood, or who qualify as lower income but have good credit, may find the following Fannie Mae program a good fit:

The HomeReady program doesn’t have an income limit for purchasing in lower-income neighborhoods designated by Fannie Mae. This means buyers can qualify for the program with a high income (perhaps making the purchase of a character home in an urban area financially worthwhile).

HomeReady buyers can purchase a variety of home types, including single-family homes, townhomes, condos, and some manufactured homes.

Under the program, you can also purchase a one- to four-unit property with another person, providing at least one of the borrowers lives in the home as his or her full-time residence.

HomeReady’s down payment amount is based on the buyer’s credit score. With very high scores, you may be able to put down as little as 3% of the purchase price for a one-unit property. The down payment may come from your own funds, or in the form of a gift from a close relative. With asset reserves, there are several factors that will determine the amount needed.

Income used to qualify for the property may include boarder income, if you can prove with canceled checks, for example, that the boarder was renting from you in nine of the most recent 12 months.

Many lower down payment borrowers may also consider FHA mortgages, but HomeReady mortgages are much less expensive to own, mostly as a result of the lower cost of mortgage insurance (MI).

MI is insurance for the lender in case a borrower should default, and almost all lower down payment mortgages have this. The difference with a HomeReady loan is that MI can be removed at some point, whereas with FHA, it remains in place for as long as you hold that mortgage.

Need more information? Your mortgage professional can help.

Locking In Your Mortgage Rate Is Not as Easy as It Sounds

As defined in Investopedia, a mortgage rate lock is “an agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage over a specified time period at the prevailing market interest rate.” However, there’s a bit more to the story.

Offering you a rate lock costs your lender money; by committing funds to lend to you, the lender is unable to use them for anything else until your loan closes.

In other words, that money isn’t making money at that moment. Many lenders are hesitant to do this until they are reasonably sure that the mortgage you are applying for is going to go through.

Things that could happen to stop the home purchase process include many that are not of your making and are outside of your control. These may be unforeseen and may include significant issues with the property you want to buy.

So when should you be locking in a mortgage rate? The truth is that nobody, including your lender, knows what the rates are going to do day to day. As is the case with stockbrokers who watch the market to advise their clients on buying and selling, there is no crystal ball.

The answer is that at some point, probably close to the day of closing, you and your lender will need to make an educated guess. Then do it.

If you have questions, your mortgage professional can explain the lock-in process in greater detail.

Down Payments in Conventional and FHA Loans

A common question from home buyers, particularly first-timers, is: “How much do I have to put down to buy a house?” The answer: It depends on other factors.

The most important of those factors will be your credit, followed by income.

Conventional Loans 

These mortgages are loans obtained through Fannie Mae or Freddie Mac. If you have really good credit, you may be looking at a minimum down payment of 3%.

This is definitely something that first-time home buyers should be looking into when they start the financing process. With a down payment this low, you will require mortgage insurance, which, when certain conditions are met sometime in the future, can be removed.

Also, ask your mortgage professional about the “HomeReady” mortgage program, obtained through Fannie Mae. This program caters to low-to-moderate-income borrowers, and those purchasing in lower income areas.

FHA Loans

The minimum down payment with FHA programs is 3.5%. This program is ideal for borrowers whose credit scores may be on the low side.

While FHA is good for people who may be unable to qualify for conventional financing through Fannie Mae or Freddie Mac, the challenge here is that these loans are generally more expensive to own.

This is due to the fact that you will be required to have two kinds of mortgage insurance, and, unlike in conventional mortgages, the mortgage insurance will be in place for the life of the loan.

Other cash outlays in addition to down payments

Keep in mind that for both of the loan types listed above, you can expect to have other outlays of cash associated with the purchase, including closing costs and some type of escrow account.

You will still be able to get seller credits to help you with these other outlays. But note: Seller credits cannot be used to help you with your down payment.

Fall Can Be a Great Time to Start Your Home Search

Driven by a possible need to change schools as a result of a move, many parents prefer to shop for a new family home during the summer months.

But fall can be a great time to buy if you’re looking for a deal – particularly in your current neighborhood, where changing schools may not be an issue.

Motivated sellers – such as those located in areas that are expected to see inclement weather during the winter months – are probably considering ways of encouraging buyers to extend their home search into the fall.

The thought of sitting on an unsold home until the spring market comes along can be a compelling reason for these sellers to explore their options.

This presents an opportunity to those who are prepared to buy a home at this time. One of the benefits of looking off-season is the possibility of being able to negotiate a better deal with a seller who is prepared to consider it.

Therefore you, as a potential buyer, may want to consider your options as well.

Start by talking to your mortgage professional. He or she will run your credit to see if you need to improve your credit score before starting your home search. And a discussion about income and assets will help you discover what you can afford in a home.

Increase Your Chances of a Mortgage Approval

Getting approved for a mortgage is easier than you think, but you do have to be proactive, plan ahead, and set your expectations appropriately before you begin.

In many areas of the country, homes are selling quickly, and there may be fewer properties on the market. So you’ll need to be on your A-game before you start to look.

If you’re planning to purchase a home and wondering how to go about it, a good place to start is with your mortgage professional.

Here’s the way it will go: To gain a baseline of information, your mortgage pro will ask about the basics, such as your income and your credit status.

He or she will run your credit information through what is called an automated underwriting system (AUS). Based on the information you provide, the AUS will show whether you can qualify for a mortgage at that time.

If for some reason you are unable to qualify, the AUS will provide very detailed information on what you need to do to qualify.

Even if you do qualify and are in a position to buy a home at that time, you still will want to find out from your mortgage pro what payments you can afford before you start looking. You don’t want to fall in love with a home only to find out later that it’s out of your reach.

Your mortgage professional can also discuss assets and credit; lender guidelines change frequently, and you will want to know what the current guidelines mean to you.

Credit is extremely important in determining whether a lender will approve you for a mortgage. If you need to pay down or pay off debt, it may take some time. Knowing ahead means you can start now.

Don’t be disappointed later; talk to your mortgage specialist now.

Confused about Mortgage Interest? Here’s How It Works

Many first-time home buyers are confused about the way mortgage interest works; in fact, it’s fairly easy to understand once you think about it.

As you know, any type of loan – whether it’s a mortgage or a car loan – requires you to pay interest to your lender for the use of this money while you’re paying it back.

However, the way you pay back a mortgage may be a little different from paying back other types of loans: you make your mortgage in what is called “arrears,” meaning that you pay for the use of the money after you use it.

For example, you take out a mortgage loan on April 15. At the time of closing, you will pay interest from that date through April 30.

Your first mortgage payment will typically be due on June 1 and that payment will cover the principal and interest for the month of May.

The payment due on July 1 will cover the principal and interest for the month of June, and so on, until the loan is eventually paid off.

If and when you go to sell the property, even years later, the process will work itself out as in the following example:

You sell your house and the closing date falls on October 8.

You had just made the October 1 payment, which took care of the principal and interest for the month of September.

So, at closing, you only pay the interest for the beginning part of the month.

More questions? Your mortgage pro can help.

The 411 on Buying a ‘Distressed Property’

“Distressed properties,” meaning those that have been either taken back or are at risk of being taken back by lenders, aren’t as numerous as they were 10 years ago during the real estate meltdown. But they still do exist, and you may be interested in purchasing one.

Here’s why: While the term “distressed” may conjure up images of homes that are in poor – maybe even unlivable – conditions, this often isn’t the case. Many of these properties have been well- and in some cases meticulously maintained by their owners, who, for whatever reasons, are now unable to keep making the mortgage payments.

In the case where the property is in less than ideal condition, the lender may be offering it in “as is” condition.

This isn’t as scary as it sounds, in that you will still have the opportunity to get a home inspection, and then make a decision based on the results of that inspection.

Often the owners will still be living in the properties. In a short-sale situation, for example, the owners may be current on their mortgage payments, but expect that the payments will be more than they can afford once the rate on their adjustable-rate mortgage adjusts upward.

In this case, the owners work with their lender to sell the property before it gets to the point of foreclosure. They do this mainly to keep a foreclosure off their credit report, as this may cause a significant drop in their credit score.

One thing to keep in mind is that purchasing a distressed property may take longer to complete than a traditional sale, but that’s not always the case. What often determines how long the transition will take is the caseload of the seller’s lender, and how well-staffed the lender is to handle that case load.

If you are interested in buying a distressed property and want more information, contact your mortgage professional.

Down Payment Help Is Great but Be Sure to Read This First

Good news! You can use a gift of money to assist you in making a down payment toward your dream home. But while you don’t want to look this gift horse in the mouth, there are things to know before accepting.

Both Fannie Mae and FHA loan programs allow you to receive a gift as a down payment from a person related to you by blood, marriage, or adoption. (Yes, you can tap “the Bank of Mom and Dad!”)

However, the gift must be accompanied by documentation. The first such document is the gift letter. This shows that the gifted funds are being used to purchase a specific property, and that the donor does not expect you to repay the gift.

The second is proof that your donor is able to give the gift. This paper trail includes the source of the funds, such as a bank account statement demonstrating the donor has the money to give.

More important, it should show an average balance in the account over several recent months. This is to demonstrate to the lender that the funds were there and were not deposited from an undocumented source only to be withdrawn shortly after being given to you.

There may be other sources of down payment assistance, but it’s best to check with your mortgage pro before counting on them. One important point to note: your seller is not able to provide you with down payment assistance, although he or she can offer you seller credits toward your closing costs.