Is An Earnest Money Deposit Needed for VA Financing?

is an earnest money deposit needed for va financingIs an Earnest Money Deposit needed with VA Financing? This is a question that comes up quite a bit with Veterans using VA financing to purchase a home in Orange County, CA. Since no down payment is needed for a home purchase up to a price of $625,500, some would wonder why a deposit is even needed. Especially in a situation where the loan will be a VA No No. With a VA No No, not only is there no down payment, but the closing costs and prepaid expenses are also paid, either by the seller, the real estate agent, or the lender through a lender credit. The answer is “Yes”, an Earnest Money Deposit is necessary. To understand why it is important to understand the true purpose of the Earnest Money Deposit, or EMD for short.

Purpose of the Earnest Money Deposit

By providing an Earnest Money Deposit as part of the initial offer you are showing the seller how serious you are. The EMD is held in an escrow account, not by the seller or real estate agent. Imagine if you owned a home and had three offers to purchase your home for $500,000. The first offer comes in with a $15,000, or 3% of the purchase price. The second offer comes in with an EMD of $7,500. The third offer comes in with a $1,000 EMD. As the seller you would most likely feel that the two offers with an EMD of $15,000 and $7,500 are more serious, and may have a better chance of closing than the offer with only a $1,000 EMD. Unfortunately, the offer with a $1,000 EMD may not even receive a counter offer. In order to let the seller know you are serious,  the buyer will need to include an Earnest Money Deposit. The amount needed will vary from transaction to transaction. The real estate agent will most likely be able to give advice on the amount needed.

Is the Earnest Money Deposit Refundable?FAQ on VA loans

The Earnest Money Deposit is money that is held in escrow and will go towards the funds needed by the buyer to close escrow.  Even with a VA loan with no down payment, there may be some funds needed to close. Let’s assume an Orange County Veteran is purchasing a VA approved condo in Mission Viejo for $600,000 with no down payment. Their EMD is $10,000. All closing costs and most of the prepaid expenses are covered by a lender credit, leaving just $2,000 needed from the Veteran to close escrow. Since they already have $10,000 deposited to the escrow company, they will received a REFUND of $8,000 when they close escrow on their new home.

Is the Earnest Money Deposit at Risk of Being Forfeited?

There is always a risk of the EMD being forfeited, especially of the contract is poorly written. By using an experienced real estate agent who is familiar with working with Veterans using VA financing, contingencies can be written into the contract that will protect the Veteran deposit from being forfeited. A contingency for inspections, loan approval, and the appraisal will all help to protect the EMD. The VA Addendum, which is included with the sales contract, will help to protect the Veterans deposit in the event that the VA appraisal comes in low.

Knowing and understanding how the EMD works is important for any home buyer. For Veterans, it just add’s to the importance in working with experienced real estate professionals who are very familiar with the Jumbo VA loan program in Orange County, where home prices and VA loan limits are higher than most parts of the country.

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 Program is not just for first time home buyers

Orange County Veterans, home buyerMany Orange County, CA veterans think that the VA loan program is only for first time home buyers. Or is for low income home buyers. In Orange County especially, that is not even close to the truth. In the OC, where the 100% financing limit for a VA loan is $668,750 in 2013 *, there are many second and third time users of the VA program.  *2014 limit is $687,500

VA offers Veterans a great way to finance a home. Along with no down payment, there are several other advantages to VA financing.

  • VA allows for higher debt to income ratios than most other types of financing
  • VA more flexible guidelines when it comes to credit. Issues like bankruptcy, short sales, and foreclosure are more quickly forgiven with VA financing than other types of financing.
  • There is no monthly mortgage insurance on the VA loan program, even though the down payment requirements are low to $0. Other programs, like the FHA program, require the borrower to pay a fairly high mortgage insurance payment each month. This saves veterans money every month versus other loan programs.
  • VA does allow for financing above the counties $0 loan limit. This is known as a Jumbo VA loan. The Orange County 100% limit is $668,750 in 2013.  *2014 limit is $687,500

How to get Prequalified for a VA Loan in Orange County, CA

Getting prequalified for a VA loan is fairly easy. The most important step is to find an Orange County loan officer who specializes in VA loans. Probably more than any other type of loan program, working with a loan officer who is very familiar with VA guidelines can save time and stress. The loan officer should be able to provide custom loan scenarios. And meeting the loan officer is also possible when you choose someone who is local to you.

Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at the Emery Financial. Direct line at 949-640-3102. www.OrangeCountyVALoans.com

Who Pays Closing Costs on VA Loan in Orange County, CA

va loan requirementsA common myth with VA loans in Orange County is that the seller is required to pay some or all of the closing costs on behalf of the Veteran buying the home. This is not true. As a matter of fact the seller is not “required” to pay anything for the Veteran. Sadly, this misconception is held by many Orange County real estate agents and can make it difficult for a Veteran to get their offer to buy a home accepted in a multiple offer competitive bidding situation.

What about “Non allowable” Costs?

The reason for the confusion in regards to closing costs stems from the fact that there are costs which the Veteran cannot pay. Certain lender fees, escrow closing fees, and the termite inspection fee cannot be paid by the Veteran. Does this mean the seller has to pay them? No, they do not. As a matter of fact there are situations where the Veteran is allowed to pay these “non allowables”.

When can the Veteran Pay “Non Allowable” Costs?

According to VA guidelines the Veteran can pay a 1% Origination Fee. However many VA lenders do not charge an Origination Fee. In the case that the lender does not charge an Origination Fee, or at least the full 1% Origination Fee, then the Veteran is allowed to pay up to 1% of the loan amount in what would have been “non allowable” costs.

Orange County, which tends to have higher priced homes than other parts of California, has seen wide usage of the VA loan program. An Orange County Veteran can buy a home for a price as high as $668,750 (2013 Orange County VA loan limit) with no down payment. Let’s say that a Veteran buys a home for $500,000 with no down payment. A lender who doesn’t charge an origination fee would allow for the buyer to pay $5,000 towards what would have been “non allowable” closing costs. (1% x $500,000). In most cases the non allowable closing costs will be less than 1% of the loan amount, at least in Orange County where home prices are high.

What if the Veteran Doesn’t Want to Pay Closing Costs?

There are often times situations where the Veteran doesn’t want to pay closing costs and the seller doesn’t want to either. If there are multiple offers on a home it can be difficult for Veteran home buyer to have a seller pay closing costs if competing offers are not asking for costs to be paid. This is where knowing the options available is important. Most lenders have the ability to adjust the rate up slightly and then cover some or all of the closing costs. So yes, a VA NO NO (no down payment and no closing costs) is possible even when the seller and Veteran pay nothing towards closing costs. You just need to be working with a local Orange County VA lender who understands and can provide you with several loan scenarios to choose from.

Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at the Emery Financial. Direct line at 949-640-3102. www.OrangeCountyVALoans.com

CalVet Loan or VA Loan | Which is Better for Orange County Veterans

The CalVet loan program or the standard VA loan; which is better? It all depends on when the question is being asked and where you plan to buy a home. There are several distinct advantages the standard VA loan program has as of right now, September 2011, over the CalVet loan program. The biggest factor pushing most Veterans and active duty military personnel into the standard VA loan program is interest rate. But there are differences in loan limits which can sometimes favor the CalVet program depending on the California county the Veteran is purchasing in.

Low Interest Rates Favor the VA Loan Program

2011 has been a banner year for low interest rates. In September 2011, interest rates even hit all time lows. VA 30 year fixed rates are averaging 3.75% (3.98% APR)APR to 4.25% (4.48% APR) this year. VA interest rates have been consistently low for the last several years. CalVet loan program interest rates range from 5.5% (5.9% APR) to 5.95% (6.36% APR), which is a full 1.75% spread over the standard VA loan progam interest rates. To show what that interest rate spread does to the payment, lets compare a $300,000 loan. At 4%, the payment is $1,432. At 5.5%, the payment is $1,703. That is a $271 monthly payment difference, in favor of the standard VA loan program.

VA Loan Limit in Orange County is $700,000 | CalVet is $521,250

The VA loan limit for 2011 in Orange County, CA is $700,000, meaning a Veteran can purchase a home with Zero Down in Orange County (and Los Angeles) up to a $700,000 purchase price. A Veteran can even go with a higher priced home by bringing in a small down payment. The CalVet loan program caps out at $521,250. So for Orange County homebuyers looking at properties above a $521,250 price, who are undeterred by the higher interest rate a CalVet loan has, would still go VA because of the high loan amounts allowed.

VA vs CalVet | Homeowners Insurance

One advantage CalVet does over VA is a comprehensive homeowners insurance policy, which includes guaranteed replacement for your home, even in natural disaster situations like an earthquake or flood. Private insurance companies will charge extra for this type of coverage, and “guaranteed replacement” in California is very difficult to come by.

CalVet Does not offer a Refinance Program

CalVet requires that you apply for the loan before taking title to the property. Translated, this means it is only for a purchase, not a refinance. In contrast, VA offers the IRRRL program, or Interest Rate Reduction Refinance Loan. With this program you can lower your rate (if rates drop) without needing a full appraisal and without needing to qualify. It is a very “streamlined” process. However, it is only for current VA loan borrowers. For those Veterans who wish to refinance into a VA loan from a Conventional or FHA loan, they would need an appraisal and full income documentation. But the good news is they could refinance up to 100% of the properties value.

CalVet offers home Improvement loans up to $150,000 at competitive rates, which is a nice feature. VA does not currently have a home improvement loan program. However, another option is to use the FHA 203K Rehab loan program, which can later be refinanced into a VA loan.

VA Loan Versus CalVet Loan | Which is Better?

It depends. For most Orange County Veterans, the standard VA loan program is the way to go. Lower interest rates and higher loan amounts are two benefits that are hard to ignore. But it is important to keep abreast of changes. Who knows. VA could lower the 100% financing limit in 2012. Or interest rates, which change daily, could go up for the VA program. It is important to consult with an Orange County, CA VA loan expert who can prepare custom loan scenarios based on a Veteran’s qualifications. The VA loan expert can then help the Veteran get a VA Loan PreApproval.

Authored by Tim Storm, an Orange County, CA FHA and VA Loan Officer – Please contact my office at Emery Financial for more information about an Orange County, CA home loan.  Direct:  949-829-1846   MLO 223456

www.OCFHALoans.com

Contact us for your Orange County VA Mortgage:

Call our office today and see how we can help you and your family.

tstorm (at) ochomebuyerloans.com

2011 VA Loan Limits for Orange County, CA Good Through December

The 100% VA financing loan limit in Orange County, CA for 2011 is $700,000. The limit is typically changed, either up or down, at the end of September of each year. And while Fannie Mae, Freddie Mac, and FHA loan limits in Orange County will all be dropping from $729,750 down to $625,500, the Department of Veteran Affairs announced the VA loan limits will be extended through the end of 2011.

How Does This Effect the Maximum VA Loan Limit?

It is important to note that there is not a “maximum” VA loan limit. There IS a maximum “guaranty” provided by VA for loans meeting VA guidelines. In Orange County, a Veteran can still purchase a $700,000 home with no down payment. If the Veteran or Active Military wants to purchase a home for more than the 100% limit ($700,000), then a down payment is required. The down payment is equal to 25% of the difference between the $700,000 VA 100% financing limit and the higher purchase price. For example, if the purchase price will be $800,000, then the down payment required would be $25,000, or 25% of the difference between $700,000 and $800,000.

While there is not a maximum “loan limit”, most lenders will not lend above $1,500,000. Still, the VA program has provided a great way for Veterans to refinance their Convention loan to a low 30 year fixed rate, even when they have lost equity in their home. A “Jumbo” 30 year fixed rate is typically .75% to 1% higher than the going VA 30 year fixed rate.

Will the 100% Financing Limit in Orange County go Up, or Down, in 2012?

The Veteran’s Benefits Improvement ACT of 2008 provided a temporary increase in 100% VA financing limits for loans closed from January 1, 2009 through December 31, 2011. In 2008 the limit was only $417,000. In 2009 the limit increased dramatically to $737,000 in Orange County. In 2010 the limit dropped to $593,750, and in 2011 went back up to $700,000. Right now it is tough to tell what will happen with the VA loan limit. It most likely won’t go up. Based on what is currently happening with the Fannie Mae/FHA loan limits, the better guess is loan limits will drop. But how far? We should have a better idea within the next few months.

Veterans Purchasing Luxury Homes in Orange County Should Act Now

Because of the uncertainty regarding the Orange County 100% financing VA loan limit, Veterans who are considering a purchase of a home greater than $417,000 should get serious about finding a home before the end of 2011. The first step in determining eligibility and qualifications is to contact an Orange County Direct VA lender. The lender should be able to quickly retrieve your Certificate of Eligibility, as well as provide customized loan scenarios which will give the Veteran the details of a transaction that are needed when planning for a large financial event.

Authored by Tim Storm, an Orange County, CA FHA and 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

 

Contact us for your Orange County VA Mortgage:

Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.

tstorm (at) ochomebuyerloans.com