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.

 

Getting A VA loan after bankruptcy or foreclosure

vaforeclosure2

 

 

Getting a VA loan after bankruptcy or foreclosure is really not that difficult for Veterans in Orange County, CA.  But many Veterans do not realize how quickly the VA loan can become a viable option after a major credit event.

 

Foreclosure and bankruptcy are definite obstacles for many Veterans trying to buy a home, but with the VA mortgage program it is possible to maneuver around these obstacles more quickly than with other types of financing. Bankruptcy’s and foreclosures only require a two year waiting period before qualifying for a VA loan.

Waiting Period After Bankruptcy

There are two primary type of bankruptcy that an individual can file for. A Chapter 7 bankruptcy seizes an individuals assets and liquidates their value to satisfy the necessary debts. All debts are “discharged” through the bankruptcy. The VA program requires a waiting period of two years after a Veteran discharges a Chapter 7 bankruptcy. A Chapter 13 bankruptcy is a court-mandated process that restructures an individual’s debt and sets up a repayment plan. Chapter 13 repayment plans can take anywhere from three years to five years to complete. The VA loan program will allow a Veteran to qualify for  VA loan after only a 12 month wait period, starting from from the date of the filing. The Veteran will need to prove that they have been making their Chapter 13 payments on time, but this is still a very opportunity for a Veteran to purchase a home. A potential borrower with Chapter 13 bankruptcy must also get permission from the bankruptcy trustee before taking on an additional monthly payment. It’s also important to note that it is possible to refinance into a VA loan and pay off the Chapter 13 with proceeds from the loan.

FICO Score Requirements for the VA Loan Program

Many VA lenders will look for a credit score of at least 620 when qualifying for a VA loan, but there are lenders who will go down to a 580 FICO score. Still, it is important to begin working on credit restoration immediately after the bankruptcy is discharged. To minimize the damage, it is very important to put a lot of effort into repairing and strengthening your credit score during their waiting period prior to qualifying. And definitely do not have any late payments after the bankruptcy is discharged.

VA Loan After Foreclosure or Short Sale

A foreclosure or short sale are also significant derogatory credit events. Most loan programs require wait periods of up to 7 years before qualifying for a loan. But VA only requires a two year wait period from the date of the foreclosure or short sale. The “clock” can start earlier than the actual recorded date of the foreclosure if the mortgage for the property was included in an already discharged bankruptcy and the Veteran can prove they moved out of the property prior to the bankruptcy discharge date.

Not all lenders underwrite the same. It is beneficial to meet with a local Orange County VA lender to ensure you are on the proper path toward future qualification. The VA loan specialist you consult with should be able to prepare custom loan scenarios that will provide you with the numbers you’ll need to know about before you start the home buying process.

 

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.

CalVet Home Loan versus VA Home Loan | Which is Better?

California Veterans can choose between the CalVet home loan or the VA home loan. Both programs offer Zero Down Financing. But which program is better? It depends on several factors. The type of property you are purchasing, the purchase price of the home, and your long term plans with the home. A home loan is a major decision and it is important to select the right loan program for your situation. For California Veterans, the two primary programs are the Calvet and VA home loan programs. While both programs are very similar, there are important differences to consider before selecting the best program for you.

Eligibility for a CalVet Home Loan versus a VA Home Loan:

Both programs require a period of active duty service of at least 90 days as well as a discharge status other than dishonorable. CalVet is only available to veterans and active duty military living in California, while VA is available nationwide.

CalVet Home Loan:

When using the CalVet program, the desired home is purchased by CalVet and then sold to the veteran using a contract of sale. CalVet holds legal title, while equitable title is given to the veteran occupying the property. This process still gives veterans several ownership rights including property tax and mortgage interest deductions. Since CalVet holds the legal title, they can obtain a lower group rate for homeowner’s insurance. With CalVet holding legal title to your property, it can make it difficult to refinance or obtain a second mortgage in the future. CalVet does not refinance their loans, so if a Veteran wishes to takes advantage of lower rates or pull cash out based on increased equity, they will need to refinance out of the CalVet loan. The CalVet loan program is very flexible when it comes to purchasing manufactured homes, and is the better option if the manufactured home is on leased land.Orange County Veterans, home buyer

VA Home Loan:

With a VA loan, the veteran receives full ownership rights and legal title to the property, just like most other types of home loan programs. VA also allows for more flexibility in terms of occupying the property. With a VA loan the veteran must initially occupy the property, but after a few years they are able to live elsewhere and rent out the property. Compared to CalVet, which requires the purchased property to be the primary residence until the loan is fully repaid. Also, VA loans are much easier to refinance. VA offers the Interest Rate Reduction Refinance Loan (IRRRL), which allows the Veteran to refinance their loan to lower their interest rate and payment without doing a new appraisal and without supplying income documentation.  Also, while the VA loan program does allow for financing of manufactured homes there are not many lenders who will fund a VA loan on a manufactured home, especially if it is on leased land.

County VA Loan Limits and Loan Entitlements:

The size of the loan you need will likely influence which program better suits your needs based on which county you live in.  In Orange and Los Angeles counties the current VA loan limit is $625,500 whereas in Riverside County the current loan limit is $417,000. It is even possible to get a Jumbo VA loan that is above the county $0 down loan limit by coming in with a down payment. VA loans in the $800,000 to $1,000,000 range are not unusual.

Understanding your options are very important. Make sure to research both VA and CalVet to make sure you are choosing the right loan program for your needs.

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.