4 Myths about the VA Loan Program in Orange County

ocmyths

The VA mortgage program is a fantastic benefit that has made the Orange County home buying process much easier for our Veterans. However there are a few myths and misunderstandings about the program that sometimes cause veterans to look at different programs when buying a home. Here are 4 of the most common myths about the VA program…

Myth #1: You need perfect credit for a VA loan

The VA acts as an insurer for VA loans to offset the risk of a potential default. VA does not have a minimum FICO score requirement. However, because VA loans are sold on the secondary market, lenders do have their own requirements.  Many VA lenders will look for a credit score of at least 620. That 620 score is an arbitrary limit that is self-imposed by some lenders, so there will be some lenders that will close a VA loan with FICO scores of 580 or even lower. If you are looking for a VA loan and the first lender you visit won’t accept your loan request, it is worth looking to see if you can find a different lender that will accept your request. Also, VA only requires a 2 year wait period after a bankruptcy or foreclosure. And no wait period after a short sale.

Myth #2: VA loans take longer to close than other types of loans

The VA loan program has become a faster and more streamlined process. According to Ellie Mae, VA FAQ on VA loansand Conventional loans both on average close in about 43 to 46 days (2017 statistic). On top of that VA loans are also more likely to close than a conventional loan. Because the VA loan program is a “niche”, Veterans should seek out lenders and loan officers who specialize in the VA loan program. An Orange County Loan Officer who specializes in VA loans should have no trouble closing a VA loan in 30 days or less. (or even 22 days)

Myth #3: VA loans are risky loans

The no down payment aspect of a VA loan may make it seem like it’s a much riskier loan. However, VA loans have the lowest foreclosure rate when compared to other Conventional programs. VA is unique in that not only is the Debt to Income ratio reviewed, but a Residual Income calculation is also reviewed. No other loan program reviews Residual Income in the way that VA does.

Myth #4: VA loans can only be used one time

Many Veterans in Orange County think that the VA loan program can only be used once or your eligibility expires after a certain period of time, which is simply not true. The VA program is a lifelong benefit that Veterans are able to use multiple times. Every Veteran has a “basic entitlement” with the VA loan program, which represents the amount of their loan guaranteed by the VA. Once their first loan has been paid off and their entitlement has been reestablished or restored, they are able to get another VA loan. On top of that, it is important to understand how Bonus Entitlement works and how it is possible for get a VA loan even if your Certificate of Eligibility shows “Zero” Entitlement.

For more questions about the VA loan program or to receive custom VA loan scenarios,  please call Tim Storm at 949-640-3102.

 

Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.OrangeCountyVALoans.com. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.

VA Loan Limits Increase in Orange County, CA for 2018

VA loan limits for 100% financing in Orange County, CA will be higher in 2018, jumping from the 2017 limit of $636,150 up to a new limit of $679,650. This is a fairly significant increase that will help Orange County Veterans buy or refinance homes in Orange County, where homes prices increased in 2017 and seem to be continuing to go up.

$679,650 Purchase Price with Zero Down Payment

Orange County, CA is considered a “high cost” county in California, along with Los Angeles county. Buying a home in Orange County has been challenging as home inventory has not kept up with the number of buyers wanting to purchase a home. And while being able to buy a home for $679,650 with no down payment may sound too good to be true, it is possible for eligible Veterans and Active Duty military.
Orange County has one of the largest populations of Veterans in the country, but many Veterans don’t realize they are eligible for the VA loan program.
Question: What if a Veteran Wants to Buy a Home for more than $679,650?FAQ on VA loans

The VA Jumbo Loan Program Explained

Although $679,650 will help Veterans in Orange County, what happens when the purchase price is above the Zero Down limit? The obvious, but incorrect, answer is the down payment would need to cover the difference between the purchase price and Zero Down limit. But the Jumbo VA Loan program is better than that. A down payment of only 25% of the difference between the purchase price and the loan limit is required. For example, if the purchase price is $779,650, or $100,000 above the Zero Down limit, the down payment would only be $25,000. The VA loan would be $754,650. That is a great deal for Veterans who can afford a higher priced home.

Refinancing into a VA Loan

The increased loan limits do not only effect purchase transactions. They also effect those who want to refinance into a new VA loan to pull cash out. Over the last few years there are many Veterans who bought homes and now would like to pull cash out for home improvements (or to cover debt that has built up on credit cards). The increased limits make it easier for those who were previously right at the 100% loan limit, especially when property values have also increased.
The first step in figuring out how the new loan limits can benefit you is to contact a VA loan specialist located in Orange County, CA. The VA program is unique, and working with a local VA loan specialist who understands what it takes to get a VA loan closed quickly on a high priced home (Single Family or VA approved Condo) is beneficial for the Veteran. The VA loan officer should be able to provide multiple loan scenarios with specific details on the numbers involved in a refinance or purchase.
Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.OrangeCountyVALoans.com. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.

Residual Income and how it can affect your VA loan in Orange County

residual income flagVA Residual Income is…

A safeguard established by VA to ensure you can afford the new loan payment, with any debt you currently have, and still have enough for food, entertainment and housing expenses (because eating dinner is important). The Veteran’s Administration has dubbed this leftover monthly amount VA Residual Income. In order to qualify a Veteran and their spouse for a VA loan, we must first calculate their gross monthly income. Then federal, state, and social security taxes,  determined by the amount of dependents filed on the most recent tax return, are subtracted out. From this we get what is called Net Income, which is the amount taken home each month after taxes. After the net income is determined, the rest of the debts are deducted to reveal the Veteran’s residual income amount. In order below:

  • New proposed house payment (principle, interest, taxes, insurance, and Home Owners Association payment for Orange County VA approved condos.)
  • Maintenance of the house – using a factor of .14 cents per square foot of the home
  • Debts (monthly credit card payments, all installment and revolving accounts)
  • Child Care
  • Alimony or Child Support

A mortgage payment can put a significant strain on family finances. So borrowers looking to start the VA loan process must have a minimum amount of residual income depending on where they live and how many people live in the home.

Residual income must be equal to or more than the amount in the chart:

VA Residual Income by Region on all loan amounts $80,000 and higher
Family Size Northeast Midwest South West
1 $450.00 $441.00 $441.00 $491.00
2 $755.00 $738.00 $738.00 $823.00
3 $909.00 $889.00 $889.00 $990.00
4 $1,025.00 $1,003.00 $1,003.00 $1,117.00
5 $1,062.00 $1,039.00 $1,039.00 $1,158.00
Over 5 Add $80 for each additional member (up to a family of 7)

*For VA loans in Orange County we use the numbers from the West column to determine the Veteran’s residual income for Southern California loans.

How will it influence the loan decision?

Not meeting the residual income requirement should not trigger an automatic denial of a loan, but can be a deal breaker in most cases. This is a non-negotiable requirement that is in place to protect the Veteran from getting into a credit situation they cannot handle. Because each loan candidate’s particulars differ, their entire financial position is reviewed by a VA Direct Endorsed underwriter (the underwriter works for the lender – no VA). Common elements that are methodically reviewed will include your credit score, history and use of credit, employment history, liquid assets and/or down payment (if made, VA Funding Fee may be reduced). All of these areas in addition to the residual income calculation, will either strengthen or weaken the underwriter’s view of the file, and will further impede their decision to extend an approval or denial of the loan.

Truth be told, the bigger the loan amount the lower the chance that residual income will be a factor. And since property values are so high in Orange County, residual income rarely is an issue. A Veteran purchasing a home in Orange County who has a wife and two children will only need $1,117 in Residual Income. In reality, that is not really enough to cover food, clothing, and other potential problems that could arise when owning a home. Still, the Residual Income will always be reviewed to make sure the requirements set by VA are met.

Bottom Line

The Department of Veteran Affairs aims to keep Southern California home buying an affordable experience for all Veterans and their families. By having high 100% financing loan limits, flexible credit and income requirements, and aggressive loan pricing with no monthly mortgage insurance, the VA loan program is the best loan program available for Orange County home buyers. The first step is to talk with a local Orange County VA loan officer who can prepare custom VA loan scenarios and handle VA loan PreApproval.

Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.OrangeCountyVALoans.com. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.

Why getting Pre-Approved for a VA Loan should be your first step

hungry dogWhy is VA Loan Pre-Approval an important step in the home buying process?

Markets across the country, and undeniably in Southern California, report that the number of buyers on the hunt for a home largely out number the amount of homes currently for sale. In our highly competitive Orange County real estate market we find ourselves in today, getting pre-approved for a VA loan has become an essential component of making an offer on a home. Buying a home in Orange County is not an unobtainable dream for Veterans, but something special is needed to separate them from other house hunters. Being pre-approved by an Orange County VA lender has the power to separate your offer from any others submitted. It’s important to demonstrate to the seller that you are serious about buying, and have been thoroughly vetted to show that you are a responsible candidate. This is an essential step that must be completed prior to shopping for a home. Pre-Approval not only qualifies you for a VA  mortgage, but approves you for the highest loan amount you can acquire with the lender. This gives you a legitimate handle on what you can reasonably afford while simultaneously instilling the confidence needed to stand out and win in the home buying process.

How does getting Pre-Approved work?

To begin the VA loan pre-approval process you’ll need to select an Orange County Loan Officer who specializes in VA financing that you trust to give you a fair deal. Once you’ve found the right fit, you’ll need to complete their loan application and provide them with what Freddie Mac calls the 4 C’s that will assist in the analysis of your situation:

  1. Capacity: Your current and future ability to make your payments (income, job history, employment verification)
  2. Capital or Cash Reserves: the money, savings and/or investments you have that can be sold quickly for cash (bank statements)
  3. Collateral: The home, or type of home, that you would like to purchase (where you would like to buy, in proportion to what is in your price range)
  4. Credit: Your history of paying bills and other debts on time (credit pulled, debts considered, lates’ recorded, ect.)

“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”-Freddie Mac’s “My Home” section of website

Once the information is received and reviewed, your VA Loan pre-approval letter will be issued. The letter will show the highest VA loan amount you have been approved to receive from the lender. Your real estate agent can use this to show you homes at or below the amount then use it further when submitting an offer.

cloudy house poster

Bottom Line

Many potential home buyers who are Veterans overestimate the down payment ($0 down to $679,650) and credit scores needed to qualify for a mortgage today. Getting Pre-Approved will give you peace of mind and a clear path to buy the home of your dreams!

 

 

 

 

Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.OrangeCountyVALoans.com. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.

 

 

2017 Orange County VA Loan Limit Increase

VA has announced the increase of the 2017 VA loan limits.

2017 VA loan limits increase in Orange County, CA

 

 

What is the “VA loan limit“?

The Veterans Administration (VA) sets a limit of what a qualified Veteran buyer, with full entitlement, can borrow within each county without making a down payment. They calculate this limit based on the average price a home is selling for in that county. That means that in places like Orange County, CA the limit will be significantly higher than in a county with lower housing prices like Riverside County. This does not mean that you cannot purchase a home at a higher sales price (that would be a Jumbo VA Loan), just that you as the buyer, will be responsible for coming in with 25% of the difference between the loan limit and the purchase price. And if you think about it, that is a very favorable formula for those Veterans who want to purchase a home for a price higher than $636,150. Jumbo VA loans in Orange County, CA are fairly common.

“VA does not set a cap on how much you can borrow to finance your home. However, there are limits on the amount of liability VA can assume, which usually affects the amount of money an institution will lend you.” -Department of Veterans Affairs website

What the loan limit increase means for Orange County and Los Angeles County VA Buyers

This is an encouraging change for many prospective VA qualified buyers that have the income, satisfactory credit, appropriate debt-to-income ratios but may not have the savings for a conventional or FHA loan program. The VA loan limit for Orange and Los Angeles Counties is now at $636,150. That is up $10,650 from last years limit of $625,500. As housing prices increase in this popular area it is a welcome opportunity.

Let’s look at the highest purchase price for the new loan limit, showing a Veteran using benefits for the first time w/ 100% financing:

Purchase Price: $636,150 (<–Anything higher than this, the buyer will need a down payment equal to 25% of the difference between the loan limit and purchase price = Jumbo VA Loan)

Down Payment 0%

Base Loan Amt: $636,150

VA Funding Fee 2.15%: $13,677   – (assuming this is first time use for Regular Military with no Disability waiver)

Total VA LA: $649,827

We see that with the VA loan limit increase this year buying in Orange County or Los Angeles county now becomes a tangible option for more borrowers that are ready to take the leap into homeownership.

Do I have to have a VA funding fee? If so, what is it?

The VA Funding Fee is a set percentage, traditionally combined into the final loan amount, that will go directly to VA to help cover any losses accrued by loans going into default. The fee amount will change to accommodate the borrower’s unique circumstances. Some common factors to consider when calculating the amount would be purchase price, the nature of the borrower’s service, if they’ve had a previous VA loan, surviving spouse of a soldier, and if they choose to bring in a down payment. There are some Veteran’s that will not have a VA Funding Fee, if they receive service connected disability benefits from VA making them Exempt from the Funding Fee. Refer to the tables below to see which funding fee that would apply to your buying situation:

VA Funding Fee for Regular Military Borrowers
Down Payment 1st Use Funding Fee Subsequent Use Funding Fee
None 2.15% 3.30%
5% – 10% 1.50% 1.50%
10% – Higher 1.25% 1.25%
VA Funding Fee for Reserves & The National Gaurd
Down Payment 1st Use Funding Fee Subsequent Use Funding Fee
None 2.40% 3.30%
5% – 10% 1.75% 1.75%
10% – Higher 1.50% 1.50%

 

VA ICARE Mission

Bottom Line:

VA is certainly staying true to their “I CARE” values as they work to steadily adjust with the economy, and benefit the Veteran and military service members. They will effectively help many families to realize their dream of owning a home with an Orange County zip code this year.

 

 

Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.OrangeCountyVALoans.com. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.