(Updated Feb 19, 2018) Although VA financing is a great way to purchase a home in Orange County, CA, it is still used rarely enough that Orange County real estate agents are unfamiliar and even uncomfortable with VA buyers. It is not uncommon for a VA buyer to feel like they are being pushed aside if there are multiple offers on a property. For this reason, it is important that the real estate agents who choose to work with a VA buyer are familiar with certain aspects of VA financing.
VA Financing in Orange County is Easy! Trust Me
VA financing is actually fairly easy compared to other types of financing.
- Credit and FICO scoring – VA is very flexible, with most lenders allowing FICO scores as low as 620, and that is for 100% financing. Try getting a Conventional loan with even 5% down and a 640 FICO score. – and no reserves? Also, VA requires less time after a bankruptcy (2 yrs) or foreclosure (2 yrs) than a Conventional loan.
- Debt to Income ratio – The guideline for a VA loan is 41%, meaning 41% of the Veterans income can go towards the mortgage payment, car payments, etc. But approvals are common with debt to income ratios over 50%. (even 60% in some circumstances). Conventional financing tends to cap out at 45%. FHA is fairly similar to VA when it comes to debt to income ratios.
- Down payment – this is the biggy. In Orange County a Veteran can buy a home with no down payment up to a price of $679,650 (in 2018). FHA requires 3.5% down payment up to a loan of $679,650 (2018). On a Conventional loan under $453,100, 3% down is possible, but 5% down is more probable. When the loan amount is over $453,100 (the Orange County Conforming limit is $679,650) then a 5% down payment is required. And of course, with a Conventional loan with less than 20% down payment, mortgage insurance is required. FHA also has mortgage insurance, both up front and monthly. And FHA’s mortgage insurance premiums are fairly high. VA has no monthly mortgage insurance!
- Jumbo Loan Amounts – While Conventional and FHA loans cap out at $667,650 in 2018, VA doesn’t really have a limit. But it is difficult to find a lender that will go higher than $1,500,000. Yes, the $0 down limit in Orange County is $679,650 in 2018, but if a Veteran purchases a home for more than that price, they can still get a “Jumbo VA Loan“. They have to come in with a down payment equal to 25% of the difference between the purchase price and their 100% limit.
- Interest rates – VA interest rates (like FHA) tend to be lower than Conventional interest rates. But again, while FHA has mortgage insurance, VA does not. And considering that at the moment it is difficult to get an aggressive Jumbo 30 year fixed rate, VA can be a great option for a $1,000,000 30 year fixed rate for those that are eligible.
So all of this sounds great. What is the issue then? Why is there a misconception of VA financing in Orange County? I think it is a fear of the unknown. Most real estate agents have not been involved in a transaction with a VA buyer. If they have, it was a long time ago. What are the concerns?
Common Concern with VA Financing and the Answers
- “I’ve heard is take a long time to close escrow”. Well, it doesn’t if the lender knows what they are doing. As with any type of financing these days, its important that the Veteran be PreApproved before they make an offer on a home. Get all their ducks in a row. But again, this is the case with any type of financing. Closing a VA loan in 30 days is not difficult. One of the hardest things to do in the processing of a loan is to document funds to close. At least with VA there’s not much money needed, if any.
- “I’ve heard VA appraisers are very conservative”. Huh? Where does this come from? Most VA appraisers also do FHA and Conventional appraisals. The value analysis is no different than any other type of appraisal. A VA appraiser will look more closely for safety issues than on a Conventional appraisal. If there are broken windows, holes in the floor, or loose wires hanging from the walls, be ready for some repairs. But this is no different than FHA. And if the house really looks that bad, a Conventional appraiser could call out the same things.
- “Doesn’t the seller have to pay the buyers costs”. The quick answer is “no”. In the old days (a few years ago), certain expenses, like lender fees, escrow fees, and a few other smaller fees could not be paid by the buyer. But a VA buyer is allowed to pay up to 1% of the loan amount in what would be called “non allowable fees” if there is no Origination Fee. Partly because Orange County tends to have larger loan amounts than other parts of the country, and because after changes a few years ago to the Good Faith Estimate, any Origination Fee is typically just the lender fee anyway. On most deals there is plenty of room to fit the other “non-allowable” fees in the the 1% threshold. Non-Allowable fees have effectively become a non-issue and the seller is not required to pay closing costs for the buyer.
- “Is a termite inspection required”. Yes. And this is one big difference between all other types of financing. While other types of financing do not require a termite inspection, or clear termite report, VA does. This is a “regional requirement”. All Section 1 items are required to be cleared on the Report, but it should be noted that at the underwriters discretion, Section II items may also need to be cleared. And since Section II items tend to be relatively minor, it should just be made clear that “All Section I and Section II items need to be clear.” Also, it should be noted that while VA does not allow the Veteran to pay for the actual termite inspection, the Veteran IS allowed to pay for the repairs listed on the report.
Find a Lender AND a Real Estate Agent Knowledgeable with VA Financing in Orange County
Working with real estate professionals who are familiar with VA financing is important. The first step should be to contact a local Orange County VA lending specialist who can walk you through the loan process. Once Preapproved for a VA loan, you will be able to confidently begin the search or a home. While working with a Real Estate agent who is familiar with VA financing is important, a good VA lender can quickly advise your agent on the keys to VA financing.
*updated February 19, 2018
Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at the Home Point Financial. Direct line at 949-640-3102. www.OrangeCountyVALoans.comGoogle+