VA loan financing is going strong in Orange County cities like Lake Forest. With the 2011 VA loan limit for 100% financing in Orange County at $700,000, Veterans in Orange County, CA are able purchase very nice homes with no down payment. Below is an example of a recent closing in Lake Forest where an Orange County first time home buyer bought a house using a VA loan with no down payment.
Zero Down VA Loan on $620,000 Lake Forest, CA Home
Not all first time buyers are looking for a $250,000 condo. In Orange County, first time home buyers are quite often very well qualified, high salaried, couples or individuals. In this case, Charlie and Suzanne Gunner (names have been changed to protect the privacy of the home buyers) were shopping for a home in the south Orange County cities of Mission Viejo, Lake Forest, Ladera Ranch, and Rancho Santa Margarita. There credit was excellent, with FICO scores of 731 and 745. They also had over $25,000 in the bank, along with a 401K. The Gunner’s had talked to a few Orange County lenders who suggested that FHA financing was the best way for them to go. They were told that VA financing, even though they were eligible since Charlie had served in the Marine’s during Desert Storm, was too difficult and took too long to close. But then they found a local Orange County VA loan expert who was able to lay out a comparison of an FHA loan versus a VA loan for them.
FHA Loan Versus VA Loan
For those Orange County home buyers who are eligible, a VA loan has many advantages over FHA financing, which will save the VA borrower thousands of dollars over the life of the loan.
- VA will finance up to $700,000 in Orange County with no down payment. FHA will finance up to $729,750 in Orange County, but requires a 3.5% down payment. On the Gunner’s $620,000 home, they needed $0 to buy their home, not counting closing costs. With FHA, they would have needed $21,700 for the down payment. Since they only had $25,000 liquid in the bank, the FHA loan would have cleaned them out, and they would have needed to have the seller pay all of their closing costs. With VA, if they were in a competitive offer/counter offer situation, they would be able to pay their own closing costs and still have money left over.
- VA has a Funding Fee of 2.15% for first time user VA borrowers. On a $620,000 base loan, this equates to a $13,30 VA Funding Fee, which is added to the loan. So the total VA loan amount is $13,330. FHA actually comes out a little better here. FHA has an Upfront Mortgage Insurance Premium equal to 1% of the loan amount. After factoring the down payment requirement, the FHA UFMIP would be $5,983. While there is some savings, both the Funding Fee and the UFMIP are not paid out of pocket, they are financed into the loan. The result is minimal. Also, for Orange County VA Loan eligible home buyers who have a minimum 10% VA disability (you’ll know if you have it), the Funding Fee is waived. No Funding Fee.
- FHA has a Monthly Mortgage Insurance added to the payment. The MMI is equal to .9% of the loan amount, divided by 12. On a $620,000 purchase price, the MMI would be approximately $465 per month. VA loans do not have any type of Monthly Mortgage Insurance. This resulted in a savings for the Gunner’s of $465 per month. $5,580 per year, or $61,000 over the 11 years that the FHA loan would have the MMI.
Typical Concerns about VA Financing in Orange County
The Gunner’s were still a little concerned about whether they could buy a home with a VA loan. They had been told that sellers didn’t like VA financing and the Listing Agents tended to shy away from VA financing. Also, there was concern that the VA appraisal process would be more rigorous that on an FHA or Conventionally financed loan. But that is not the case. FHA and VA appraisals are very similar. The primary focus of an appraisal is to make sure the property is worth what the home buyer is paying for it. On Government loans, the appraiser will look a little more closely at safety issues, such as loose wires, peeling lead paint, broken windows, water damage, etc. But most home buyers, especially a first time home buyer, should be concerned about those issues as well. They typically will come up on the Home Inspection report, which is recommended for all home buyers. Also, VA requires a termite inspection report, with all items cleared. Again, this is something that most homebuyers should want anyway.
VA Loan PreApproval
Once the Gunner’s were comfortable with the fact that a VA loan was in their best interest, they moved forward with getting PreApproved. The process was quick, but thorough. They needed to provide two years tax returns and W2’s, one months paystubs, two months bank statements, copies of their drivers license and social security cards, as well as Charlie’s DD214. The Orange County VA lender was able to quickly retrieve the VA Certificate of Eligibility, run credit, and get the initial “Automated” loan approval. The Gunner’s annual gross income of $130,000 easily qualified them for a purchase price of $670,000, even with the $600 car payment they had.
The lender also had an in house VA Underwriter review the file, providing an underwritten loan approval. The whole process only took a few days. But now, the Gunner’s were ready to get serious about finding a home.
Time to Buy an Orange County Home
The Gunner’s also found a great Orange County Real Estate agent familiar with VA financing. Within weeks they had viewed several homes before finding a great home in Lake Forest, offered at $630,000. After a week of counter offers, they went into contract to purchase the home for $620,000 with the seller paying $10,000 in closing costs. The VA loan closed in 30 days. Closing was very smooth, primarily because the Gunner’s had done their research and had been PreApproved before making an offer on a home. The Gunner’s are now happily in their beautiful Lake Forest home. They are doing a few minor upgrades, which they are able to do because of the money they saved by choosing a VA loan.
Authored by Tim Storm, an Orange County, CA VA Loan Officer – Please contact my office at Home Point Financial for more information about an Orange County, CA home loan. 949-640-3102. MLO 223456
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tstorm (at) ochomebuyerloans.com