Cash-Out Refinance

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Posted on: February 2, 2022

Choosing the right VA lender is incredibly important. Not only does it impact your VA home loan experience but it also influences your costs.

Are you trying to decide between VA home loan lenders? Here’s how to choose the best one.

Get matched with a mortgage lender. Start here (Apr 29th, 2023)

How to find the best VA mortgage lender 

Who is the best VA home loan lender? There’s no clear-cut answer to that one. All lenders offer different rates, fees, and levels of service, and their qualifying standards can vary, too. To find the best one for your unique scenario, you’ll need to:

#1. Prepare for your mortgage application

Before you can begin applying for VA loans, you need to set the stage first. This means saving up for your down payment (if any), getting your credit and budget in order, and avoiding big financial changes in the months before applying for a mortgage (jobs, income, new credit cards, etc.).

You should also begin gathering up all the documentation you’ll need for your loan. This includes your Certificate of Eligibility (COE), your bank statements, and your tax returns.

#2. Set your budget

Your next step is to prep your budget. Before you can begin the loan process, you need to have a good idea of what you can spend each month on your mortgage payment. Keep in mind your mortgage will also include things like homeowners insurance, property taxes, and HOA dues, if necessary. 

You can use our VA loan calculator to get a good idea of what you might be able to comfortably spend on a house.

#3. Familiarize yourself with your mortgage options

You already know you want a VA loan, but there are actually several types of VA mortgages to choose from. It’s helpful to know what type of mortgage you want before you start shopping.

For example, if you’re a Native American veteran and are buying on certain federal lands, you’d use the VA’s NADL program. If you’re refinancing, you could opt for a VA cash-out refinance or VA Streamline Refinance (also sometimes known as an Interest Rate Reduction Refinance Loan (IRRRL)). 

The VA has a full breakdown of these loan options on its website.

Determining which VA mortgage program you want to use will help narrow down your choice of VA lenders since not all companies offer the full suite of VA loans. 

#4. Compare rates and terms from at least 3-5 lenders

Next, it’s time to get quotes from at least three VA home mortgage lenders. This requires providing a little basic information — your income, credit score, and other details — but they usually take only a day or two to receive. 

Once you have estimates from each lender, compare them line by line. How do the closing costs and fees measure up? What about the interest rate? You should also factor in the level of service and responsiveness you’ve received thus far.

#5. Get pre-approved

When you’ve chosen the best VA home loan lender for you, it’s time to get pre-approved for your loan. This essentially means the lender has evaluated your financial details and thinks you’re a good candidate for a loan.

To get your pre-approval, you’ll fill out a short application with the lender. Once they’ve gone over it, you’ll get a pre-approval letter stating how much you can borrow and at what interest rate. You’ll include this in any offers you make to show you’re serious about the home.

#6. Read the fine print

Finally, make sure you understand your loan’s fine print. You should have a good grasp on all your loan’s terms before you sign, including:

  • What is your closing date?
  • Does your rate lock extend through the expected closing date?
  • How much money do you need to bring to closing?
  • What will your monthly payment be and how will you pay it?

If you have any questions or are unsure about something, ask your loan officer before heading to the closing table.

Get a personalized mortgage quote. Start here (Apr 29th, 2023)

Why you should shop around for a mortgage lender

Shopping around for your veteran mortgage lender is incredibly important, especially if you want to minimize your costs as a buyer. According to Freddie Mac, getting quotes from just five lenders can save you as much as $3,000 over the life of the loan.

Some of these savings come from fees and other closing costs. Much of it comes from interest rate discrepancies.

Here’s an example: Say you were quoted a 3% rate on a 30-year, $200,000 loan with Lender A and a 3.25% rate on that same loan with Lender B. It doesn’t seem like much, but Lender A would actually save you $27 per month and a whopping $10,000 in interest over the next three decades.

How to compare mortgage loan offers 

To compare your loan offers, you’ll want to look at the loan estimate — a three-page document given to you by the lender. These forms break down all the costs, fees and other financial details of your loan. These loan estimates are standardized, so comparing them line by line is quite simple.

You’ll want to pay particular attention to the loan amount, the interest rate, the estimated monthly payment, and your estimated closing costs. The “Comparisons” section on page 3 can be helpful, too. It shows what your balance will be in five years and can be a good way to compare loan option costs.

Questions to ask your mortgage lender

Before you decide which VA loan lender to go with, make sure you ask them some questions. 

You’ll want to know things like:

  • How long do you expect the process to take? Some lenders take longer to process loans than others, so be sure and get an estimate before moving forward. You’ll need to know an estimated closing date when making offers and negotiating with sellers. (It will likely play a role in which offer they choose, too). 
  • Who will be my main point of contact throughout the process? You’re going to have a lot of questions along the way, and you need a go-to person. You’ll also want to ask how you can get in touch with this person. Are they available via phone, email, or text? And during what hours?
  • Which parts of the process will be online and which will be in-person? Most lenders will let you do everything remotely and online these days, but it still helps to ask. How will the logistics of your loan work? Where will you sign the closing papers? Get all the details.

You might also ask how often the lender does VA loans. These mortgages can be more complicated than other types of loans, so you want one who’s experienced and well-versed in the process.

Start comparing mortgage lenders today (Apr 29th, 2023)

Benefits of a VA loan

VA loans come with countless benefits, but the biggest perk is that they require no down payment.

Because these mortgages are guaranteed by the U.S. Department of Veterans Affairs, lenders can afford to pass substantial benefits along to VA borrowers.

Unlike other mortgage programs, which ask for anywhere from 3% to 20% down, VA loans require no down payment at all. This can offer significant savings right off the bat. (A low-cost FHA loan requires at least $7,000 down on a $200,000 house, for example, while a VA loan requires $0 down).

Some of the VA loan benefits include:

  • Competitively low interest rates
  • No credit score requirements
  • Limits on closing costs
  • Loans are assumable, meaning future buyers can take over the loan (and the favorable rate and terms it comes with)
  • No private mortgage insurance (PMI)
  • No loan limits
  • Can be used multiple times

VA loan mortgage rates 2023

When compared to other loan types — conventional loans and FHA loans, for example — VA home loans offer consistently lower rates than loans for the average consumer.

  VA Conventional FHA
December 2021 2.99% 3.38% 3.39%
November 2021 2.95% 3.32% 3.32%
October 2021 2.88% 3.22% 3.22%
September 2021 2.85% 3.17% 3.20%
August 2021 2.88% 3.19% 3.23%
July 2021 2.94% 3.27% 3.27%

Source: Ellie Mae Origination Insight Report, June 2021

A lower interest rate translates to a lower monthly mortgage payment and substantial savings over the life of your loan.

VA Home Loan Lender FAQ 

Do all lenders provide VA loans?

No. Only approved lenders can offer VA loans, so you’ll need to be choosy about which mortgage company you work with. That said, most major lenders are authorized to originate VA loans. 

Who is the best lender to get a VA loan from?

That really depends on your financial situation, where you’re buying, your budget, and the level of service you want. A great place to start is our best VA home loan lenders guide.

Who is eligible for a VA home loan?

VA loans are only for active-duty military members, veterans, and their families (including surviving spouses), so there are strict service requirements you’ll need to meet to qualify.

The VA doesn’t set specific financial standards for its loans, though private lenders — the companies who actually issue the loans — do. These vary from one lender to the next, but in most cases, borrowers need at least a 620 credit score and a debt-to-income ratio of 41% or less.

If you fall short of these requirements, you still might qualify. Just make sure to shop around for your lender, work on improving your credit, and consider making a down payment.

What is the VA funding fee?

To get a VA home loan, you’ll need to pay the VA funding fee. This is a one-time cost at closing which helps the VA maintain the VA home loan program and continue to offer valuable home loan products to military homebuyers. The VA funding fee can be financed into your total loan amount and paid down over time.

The amount of the VA funding fee depends on your loan type, the nature of your military service, the number of times you’ve used your VA loan benefit and the amount of your down payment.

What is the minimum credit score for a VA loan?

The VA doesn’t have a minimum credit score for these mortgages, but individual lenders do. These minimums vary and are usually around 620 or 640.

What is a VA direct loan?

This is a loan issued directly by the VA (meaning the VA is the lender). They’re only available for Native American veterans buying or refinancing in certain areas of the country. 

What is the max loan amount for a VA loan?

There are no maximum loan amounts for VA mortgages. While there is a cap on how much you can borrow without making a down payment, the loan program technically has no limits.

What is the lowest VA mortgage rate ever?

The lowest VA rates have typically been in the low 2% range. You’ll get lower rates on shorter loan terms (so, 15-year loans typically have lower rates than 30-year ones). Higher credit scores will also help you qualify for lower interest rates.

Can I use a VA loan to buy a second home?

You cannot use the VA loan for a second home or investment property. The VA home loan program is intended to help military service members become homeowners and is specifically meant for the purchase of a primary residence.

Do different lenders offer different rates on VA home loans?

Yes. All mortgage lenders offer slightly different rates and fees. Your rate will also depend on your creditworthiness and the size of your down payment (if any). 

Which lenders offer VA home loans for people with bad credit?

There aren’t any bad credit VA home loan lenders per se, but every VA lender sets its own credit score minimums. This is why it’s so important to shop around — especially if you have a low credit score. Generally speaking, most lenders require a score of at least 620 or 640. If your score is below this, you can often make up for it with a larger down payment or by having more in cash reserves.

How do I decide which lender to use?

You’ll want to compare the loan estimates, factor in the service and responsiveness you’re receiving, and look at online reviews and ratings. Not all lenders are created equal, nor will they come with comparable pricing.

VA home loan lenders: The bottom line

Because the Department of Veterans Affairs guarantees VA loans, lenders can offer substantial benefits to veterans, active-duty service members and their families. The VA home loan program includes some of the best mortgage products on the market.

Get a personalized mortgage quote. Start here (Apr 29th, 2023)

Source: militaryvaloan.com

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Posted on: March 17, 2021

There are different types of mortgage loans available to today’s consumers, each with slightly different guidelines. Some have inherent advantages so it takes some time to consider which loan type best suits your requirements.

Let’s take a look at the different programs to see what’s right for you.

Click here to check today’s VA loan rates.

VA Refinance

VA loans are available for eligible veterans, certain active-duty personnel, borrowers with six years’ service in the National Guard or Armed Forces Reserves, and other selected borrowers. VA loans offer two types of refinancing, a standard or a streamline — all backed by the Department of Veterans Affairs.

A standard VA refinance requires the borrowers to provide complete documentation of their loan file including a new appraisal, income and employment verification and fair credit. This loan is also known as a VA cash-out refinance, and is typically only used when getting cash out or paying off a non-VA loan.

Apply for a VA cash out loan here.

For those with a VA mortgage, there’s the VA streamline refinance, officially called the Interest Rate Reduction Refinance Loan (IRRRL). This refinance in essence allows eligible borrowers to drop their rate with very little documentation, time, or money. No income or asset verification and no appraisal are required.

Click here to apply for a VA streamline refinance.

The streamline program may be used to finance a property that was previously occupied and a VA loan used to finance the original purchase. Only an existing VA loan may be eligible for the streamline program. No cash out is allowed.

All VA loans require a funding fee which can be as high as 3.3 percent of the loan amount and may be included in the final loan. For the VA streamline, the funding fee is dramatically reduced to as low as 0.50 percent.

Non-VA Refinance Types

For eligible homeowners, the VA loan is usually the cheapest and easiest option. However, in some cases, those looking to refinance might choose another loan type.

Here are the main non-VA choices.

1. Conventional Refinance

Conventional mortgages are those approved using guidelines established by Fannie Mae and Freddie Mac and are by far the most popular program. Almost every lender offers them and guidelines are mostly consistent from lender to lender, with very few differences.

Mortgage rates on conventional loans are very competitive as lenders compete using the same programs. The best use of a conventional refinance occurs when the homeowners have at least 20 percent equity in the home. In this case, no private mortgage insurance is required.

A VA refinance requires an upfront funding fee, which ranges from 0.50% to 3.3% depending on refinance type. But conventional loans don’t require an upfront fee. This could save Veterans money, provided they have enough home equity for a conventional refinance.

Check your refinance eligibility here.

A conventional loan can also be used to finance an investment property. Other programs, VA, FHA, and USDA loans are only available to purchase an owner-occupied home while a conventional loan can be used to finance the purchase of a primary residence or a rental property.

Borrowers are also allowed to pull equity out of the home in the form of cash when refinancing, referred to as a “cash out” refinance. Most lenders allow for a cash out refinance up to 80 percent of the value of the property, although you’ll likely get a lower interest rate if you stay below 75 percent.

Conventional refinance loans are always “fully documented” meaning the borrowers must qualify in the same manner as during the purchase with paycheck stubs, appraisal, and income tax returns in addition to other standard requirements.

2. FHA Refinance

The FHA refinance also has a streamline program, very similar to the VA program.

No credit score requirement, no appraisal, and no income or employment verified. The FHA streamline is available for FHA-to-FHA transactions. In other words, you have an FHA loan currently.

It may also be used to finance a property that was previously occupied by the borrowers but is now rented out.

The new loan rate and mortgage insurance must drop. The refinance must benefit the borrower.

There can be no payments within the previous three months more than 30 days past the due date.

FHA loans require a monthly and upfront mortgage insurance premium. If the original FHA loan was opened prior to June 1, 2009, the mortgage insurance premiums receive a nice discount.

If you have a VA loan, however, your best option is the VA streamline.

3. USDA Refinance

The USDA program is for properties located in rural or semi-rural areas and the borrowers must not exceed specific income guidelines. The USDA refinance is a standard refinance requiring a fully documented loan including an appraisal, credit, and income among others.

There is a pilot streamline refinance program available in 35 states and operates in a similar fashion as VA and FHA streamline programs. The USDA streamline is for a 30 year fixed rate only and the rate must be at least one percent lower than the existing one and can only be a USDA-to-USDA transaction. No cash out is allowed.

VA, FHA, USDA or Conventional: Which Refinance is Best?

It really all depends on your home equity. VA, FHA, and USDA loans all have some form of mortgage insurance or funding fees applied, increasing the loan amount as well as the monthly payment. If there is at least a 20 percent equity position in the property refinancing out of one of these three loan types into a conventional one is the better choice.

If there are loan to value issues and there isn’t at least 20 percent equity in the transaction then the applicable streamline should be considered.

There can always be additional lender requirements on top of any issued guidelines called overlays. Some lenders may ask for an appraisal for a streamline for instance. If you’re thinking about refinancing, consider all your options. Not only could you benefit from a lower rate, but you might also be able to get rid of mortgage insurance premiums as well.

Click here to check today’s VA refinance rates.

Let’s look at a comparison of the four major loan types for a $250,000 purchase price.

Head to Head – VA Compared to other Loan Types

VA FHA Conventional USDA
APR* 3.721% APR 4.798% APR 5.192% APR 4.246% APR
Principle and Interest $1146 $1102 $1168 $1163
Monthly Mortgage Insurance or Fee $0 $269 $210 $84
Estimated Taxes and Insurance $268 $268 $268 $268
Total Monthly Payment $1414 $1639 $1646 $1515

Qualification:

Comparison of Qualification Requirements

VA FHA Conventional USDA
Down Payment Percentage 0% 3.5% 5% 0%
Approx. Cash Needed** $0 $8750 $12,500 $0
Typical Minimum Credit Score Needed*** 620-640 620-640 680 620-640
Streamline Refinance Available? Yes Yes No Yes

**Assumes $6000 in seller-paid closing costs;
***Varies based on lender; All scenarios assume 700 credit score, property in WA

Additional Benefits of VA Home Loans

  • VA home loans have more lenient credit and debt ratio guidelines. You may qualify for a VA loan even if you can’t be approved for other loan types. Get your  free rate quote.
  • You can refinance or sell your home at any time without penalty with a VA loan.
  • The seller is allowed to pay all of your closing costs up to 4% of the purchase price.

I’m Ready to Apply for This Great Benefit

The VA home loan program is a great opportunity for active-duty service members and veterans. Take advantage of your entitlement.

Request a no-obligation eligibility check here.

More VA Loan Resources:

Source for VA loan information: VA Handbook

Source: militaryvaloan.com

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Last Updated on December 6, 2021 by Mark Ferguson

Many people want to buy investment properties because of the fantastic returns they can provide. However, many people do not have the 20 percent down payment (or more) that most banks require. There are ways to buy an investment property with little money down. The easiest way to buy an investment property with less than 20 percent down is to buy as an owner-occupant and later rent out the house, but there are many other options for investors as well. Using a line of credit, refinancing your home, house hacking, the BRRRR method, or even credit cards can provide ways to buy investment properties for less money. Seller financing is a great way to put less money down on a rental property if you can find sellers who are willing. A more advanced technique is to use hard-money financing that you can refinance into a conventional loan. Whatever way you choose to buy a rental property, research the method to make sure that it is legal in your state, your lender approves it, and that you are not stretching your finances too thin.

How much money down do most banks require?

An investor will have to put down at least 20 percent to buy a property from a typical bank. If you own more than four properties, that figure can increase to 25 percent down, providing that they are even willing to finance more than four properties. On top of the down payment, an investor will have to pay closing costs, which can range from two to four percent of the loan amount. It is very expensive to buy an investment property using financing from a typical bank. I have found a great portfolio lender who will finance as many properties as I want with 20 percent down, but they are not easy to find. Once you factor in repairs, carrying costs, down payment, and closing costs it can cost as much as $30,000 to buy a $100,000 rental property.

The video below goes over ways to buy with little money down as well:

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How to buy as an owner-occupant

The easiest way to buy an investment property with little money down is to buy as an owner-occupant, satisfy your loan requirements, rent out the property, and keep it as an investment. Most owner-occupant loans require the buyer to occupy the home for at least a year. Once that year is up, you can rent out the house and turn it into an investment property. There are many owner-occupied loans available, with down payments ranging from 0 to 5 percent down. You can put as much money down as you want if you want to put 20 percent down or even 50 percent down. USDA and VA have great no-money-down programs and little to no mortgage insurance, which will save an investor a lot of money each month. You will have more costs with little money down loans because mortgage insurance is required. Mortgage insurance can add hundreds of dollars to your house payment and eat away at your cash flow. The process of buying as an owner-occupant and then turning the house into an investment property is as follows:

1.  Buy a house as an owner occupant, which will cash flow when you rent it out.

2.  Move into the house and live there for at least a year.

  1.  After the year is up, find another house that will cash flow and purchase that home as an owner-occupant.

4.  Move out of the first house and keep it as a rental. Move into the new house and repeat the process every year!

Eventually, you will be building up equity and extra cash flow, which will enable you to buy properties with a 20 percent down payment. Repeating this process 10 times would be an excellent way to get started, but no one wants to move ten times in ten years. It can also be tough to convince your family to live in a home that would be a great rental.

Low down payment owner occupant loans

For more tips on real estate, check out the InvestFourMore Instagram page.

If you are going the owner-occupant route there are many loans available that have from very little to nothing down required.

FHA loan

FHA loans are government-insured loans that can be obtained with as little as 3.5 percent down. You can only have one FHA loan at a time unless you have extenuating circumstances like a job relocation. You do have to pay mortgage insurance on FHA loans, which I will discuss later in this article. There are limits to the amount an FHA mortgage can be, which varies by state and even city.

USDA loan

USDA is a loan that can be used in rural areas and small towns. The loan can’t be used in medium-sized towns or large towns/metro areas. The loan is a fantastic loan for those that qualify and want to buy a home in the designated areas. USDA loans can be had with no money down, but do have mortgage insurance as well.

VA loans

VA loans are run through the United States Veterans Administration. You have to be a veteran to qualify for the loan, but they also can be had with no money down and no mortgage insurance! VA is a great option for those that qualify because the costs are so much less without mortgage insurance.

Down payment assistance programs

Many states have down payment assistance programs. In Colorado, we have a program called CHFA. The program helps buyers get into owner-occupied homes with very little money down. CHFA actually uses an FHA loan but allows for less than a 3.5 percent down payment. Check with lenders on your state to see if you have any programs that help with down payment assistance.

Conventional mortgages

Even conventional mortgages have low down payment loans available for owner-occupants. For owner-occupants, conventional loans have down payments as low as 3 percent. You will most certainly have to pay mortgage insurance with any conventional loan that has less than 20 percent down. Unlike some of the other loan options available, you can have as many conventional mortgages in your name as you want as an owner occupant.

FHA 203K Rehab loan

An FHA 203K rehab loan allows the borrower to finance the house they are buying and repairs they would like to complete after closing. This is a great loan for homes that need work, but the buyer has limited funds to repair a home. There are more costs associated with this loan upfront because two appraisals are needed and lenders have higher fees for 203K loans.

NACA Loans

NACA is a non-profit program with:

  • No down payment
  • No closing costs
  • No points or fees
  • No credit score consideration
  • Below market 30-year and 15-year fixed-rate loans

This sounds like it is too good to be true, and it is a great program. However, you do not simply apply for the loan and hope the lender approves you. You must take classes, and even host classes when in the loan program.

More details are on the NACA site.

What loan costs does a buyer need to consider besides the down payment?

On almost any loan you will have more costs than just the down payment. The lender will charge an origination fee, appraisal fee, prepaid interest, prepaid insurance and possibly prepaid mortgage insurance. Plus you may have more costs the title company charges like a closing fee, recording fees, and possibly title insurance. In most cases, the seller pays for title insurance, but with HUD and VA foreclosures the buyer has to pay for title insurance. These costs can add up to another 3.5 percent of the mortgage amount or sometimes more. When you talk to a lender they can give you an estimate of exactly how much these costs will be before you get your loan.

Can you ask the seller to pay closing costs?

Even though the lenders and title company will charge you more fees than just the down payment, that does not mean you have to pay that upfront. You can ask the seller to pay closing costs for you. If you can get the seller to pay your closing costs for you, loans like VA and USDA may be obtained with no out-of-pocket cash. You may still have to put down an earnest money deposit, but that can be refunded at closing in some cases. When you ask the seller to pay closing costs, it reduces the amount of money they are getting from the sale so you might actually be paying more for the home than if you didn’t ask for closing costs. But in my mind paying a little more for the house and financing those costs to save cash is better than paying more money out-of-pocket for a little cheaper home.

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House Hacking

House hacking is when you buy as an owner-occupant but you buy a multifamily property instead of a house. By purchasing a multifamily property you can live in one unit while you rent out the other units. This strategy allows you to rent the property faster, which may mean the bank will be more willing to give you a new loan as soon as you are ready to move out. You will also have help from the other tenants to pay your mortgage. In some cases, you may be able to live for free while you own the house because the other rent covers your costs.

Virtual real estate

Yes, you can now buy virtual real estate! This is land in the metaverse that only exists digitally. Some pieces of virtual real estate have sold for millions of dollars and others can be bought for almost nothing. Here is some more information on getting started!

BRRRR Method

BRRRR stands for buy, repair, rent, refinance, and repeat. It is a great way to get into rentals with less money down. You will need to get an awesome deal to make this strategy work, but you may be able to get all of your money back. You buy a house that is an amazing deal, fix it up, rent the property, and then refinance it. Once the refinance is done you repeat over and over! The key to making this strategy work is getting an awesome deal with plenty of equity. You also need to be prepared if things do not go perfectly. Appraisals can come in low, the banks may not want to finance you, you may not get the property rented or repaired as fast as hoped, etc.

Hard money loans

Using hard money can save you a ton of cash in the short-term, but it is more expensive in the end. Fannie Mae lending guidelines, allow you to refinance a home with no seasoning period, which means you do not have to wait six months or a year after you purchase a home, to refinance at a higher value than what you bought it for. Fannie Mae guidelines base the refinance amount on a new appraisal, and they will allow a 75 percent loan-to-value ratio. Fannie Mae guidelines do not allow a cash-out refinance, but they do allow the refinance to pay off any existing loans. Many hard money lenders will allow a buyer to borrow up to 100 percent of the purchase price and to finance repairs as well.

Since Fannie Mae guidelines allow a 75 percent loan-to-value refinance, theoretically an investor could buy a home for $100,000 and get a loan with a hard money lender for $100,000 plus $30,000 in repairs for a total loan amount of $130,000. The investor could refinance the home for as much as 75 percent of a new appraisal. If the appraisal came in at $180,000, then 75 percent loan-to-value would allow a refinance of $135,000. Fannie will not allow a cash-out refinance, but the investor could refinance the full $130,000 loan amount. This strategy can be costly due to hard money fees, but it allows the investor to refinance the entire purchase price and repairs!

This strategy can also be very risky because you are depending on a high appraisal to get your money out. Most hard money loans are only one year and you must pay off the loan after that year. Refinance appraisals are not always as high as we would like them to be. Make sure you have an exit strategy if the appraisal comes in lower than you expect.

Private money loans

One legitimate way to buy real estate with no money down is to use private money. Private money is from a private investor, friend, or family member. The private investor will give you money at a certain interest rate to buy a flip or rental property. Private money rates can vary from very cheap to very expensive depending on the relationship, investment, and terms of the loan. I use private money from my sister for my fix and flips. She charges me six percent interest. It is a great way to reduce the amount of cash I have into the properties.

I have used private money to buy commercial rentals and then refinance into a long-term loan with a local bank.

Can being a real estate agent help?

There are many advantages to having your real estate license, but the biggest benefit is you can keep your commission on almost every house you buy. On a $100,000 house, your commission could be $3,000 dollars or more. Here is an article that details why it is an advantage to become a real estate agent if you are an investor. Being a real estate agent also gives me an advantage in finding and purchasing great deals. I detail how hard it is to get your real estate license here. I saved more than $270,000 a year on commissions by being a real estate agent. That does not include the money I made on deals that I got because I was an agent.

Turnkey rentals

A new trend in the US is buying turnkey rental properties that are purchased, repaired, rented, and managed by a turnkey provider. Turnkey properties are a great opportunity for investors to buy rental properties out-of-state when homes are too expensive in their area. There are turnkey providers who offer as little as 5 percent down for investors, but they tend to have very high-interest rates. Here is a great article about turnkey providers or send me a request here for turnkey providers I know of. I bought a turnkey rental in Cleveland a few years ago.

Line of credit

I have had many lines of credit in my career. I have had lines of credit against my personal house (the house I live in) and my investment properties. It is much easier to get a line of credit against your personal house and some banks will not even offer lines of credit on investment properties. A line of credit is basically a loan against a home, but you do not have to use the money all the time. If you do not need the money you can pay it back to the bank and not be charged interest on it. When you need the money again, you can borrow it very quickly as long as the line is open.

Off-market properties

Off-market properties are purchased through direct marketing or by word of mouth. Buying off-market usually means less expensive properties and in some cases, owners with flexible terms such as owner financing. Many investors wholesale off-market properties, which you can purchase with no down payment. Wholesaling is a process of buying and selling properties very quickly. The properties must be very good deals and are usually found by direct marketing for properties. Many investors make a great living by only wholesaling properties to other investors.

Seller financing

Some sellers may be willing to finance the house they are selling or finance a second loan on a home that allows a buyer to put less than 20 percent down. If your bank is willing to offer 80 percent loan-to-value, the seller may offer to loan the other 20 percent, which would amount to no money down for the buyer. The seller may also offer a number of other loan-to-value percentages to help a buyer get into a home for less than 20 percent down.

Finding seller-financed properties is the tricky part. Most sellers are not looking to finance a loan when they sell. To find seller financed listings, look for homes that have no loans against them or an MLS listing description that say seller financing is available. The seller’s terms can vary greatly depending on how desperate they are to sell and what exactly they are looking to get out of the deal. Do not expect to pay four percent interest on a seller-financed loan; they will want a premium on any money they lend. It is also harder to find great deals with seller financing, which is key to my strategy.

There are many new restrictions on financing thanks to the recent Dodd-Frank Act.

Refinance

In most areas of the country, home values are rising and interest rates are at record lows. You may be able to refinance your home and get enough money to buy an investment property. Once you are able to buy an investment property, you can refinance it in one year (sometimes less with the right bank). With rates as low as they are, if you bought the home below market value, you should be able to take out as much as you put into the house and still cash flow. I use this refinance technique all the time. Getting lenders to do a refinance is tricky when you own multiple investment properties. I use a portfolio lender who has allowed me to use a cash-out refinance on as many properties as I want.

Below is a property I refinanced:

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Move in ready Houses

A move-in ready property means all the repairs are completed and it is ready to rent as soon as you buy the home. There can be many advantages to buying a nice home. The biggest advantage is you do not have to pay for repairs. You also do not have to spend time waiting for repairs to be done, which saves money on mortgage payments, utilities, and other carrying costs. The downside of a move-in ready property is that it is usually more expensive and provides less cash flow than a home that needs work.

Credit cards

A few other ways to get quick cash can be very expensive and are usually reserved for people looking to do a quick flip. If you have a killer deal you cannot pass up, you may want to consider these options, but I do not recommend using them unless it is necessary. The easiest way to get quick cash is with credit cards. You can get a cash advance or pay for repairs using your credit card. If you use a credit card to finance your down payment or repairs and cannot pay it off right away, do not pay the 17 percent interest rate. Do your best to get another card that will allow a balance transfer. Many times, you can transfer all of your balance and pay little to no interest for up to a year. That may give you enough time to pay off the card and not to be stuck with a high-interest rate eating all of your profits. I also suggest using a rewards card for repairs on your investment properties. If you pay the balance off every month, this is a great way to make a little extra money.

Self-directed IRA

If you have money invested in an IRA, you are not limited to investing in stocks or mutual funds. There are special self-directed IRAs that you can use to purchase an investment property. You can use your IRA for down payments and repairs and then collect rent in the IRA.

401K

Some 401ks allow an investor to take out a loan against them. You usually have to pay back the loan relatively quickly and pay interest on the loan. You have to be very careful when borrowing from a 401k because the money you borrow is no longer earning interest or growing in your retirement fund. If you lose your job, you also may be required to pay back the loan within 60 days or pay a 10 percent penalty and income tax on the loan.

Subject to loans

With a subject to loan, you buy a house without paying off the previous owner’s mortgage. This is another tricky situation; investors must be very careful with it. Most bank mortgages are not assumable; when the homeowner sells the house, they have to pay the loan in full. The bank most likely will have a due-on-sale clause that says the loans must be paid in full, once the property transfers ownership. With subject to loans the new investor buys a house subject to an old mortgage and does not pay off the loan. There is a chance that the bank will require the loan to be paid off if they find out that the home has been sold.

Investors buy homes subject to a mortgage so that they do not have to get a new loan. It may be hard for the investor to qualify for a mortgage or they may be maxed out on being able to get new loans. If you buy a home for $80,000 that has a $75,000 mortgage in place, the investor would only need $5,000 to buy the house instead of the normal 20 percent or more.

Fannie Mae Homepath program

The Fannie Mae Homepath program on their REO properties allows investors to put only 10 percent down and allows up to 20 financed loans in one person’s name, which is also a huge bonus. It is very difficult for many investors to get loans on more than four properties.

This program has been discontinued. 

Conclusion

Rental properties can be expensive, but there are ways to purchase them with less than 20 percent down. If you are short on cash, buying properties with little money down can accelerate the purchasing schedule and increase your returns. However, you will most likely make less money on each property, because borrowing that last 20 percent can be much more expensive than the first 80 percent.

My book Build a Rental Property Empire, goes over how to buy investment properties with little money down. It also covers how to find deals, finance rentals, manage them, and much more! It is available as a paperback and ebook on Amazon or as an audiobook on Audible.

Build a Rental Property Empire

Categories Rental Properties

Source: investfourmore.com

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Last Updated on March 29, 2023 by Mark Ferguson

Rental properties are great way to invest your money, but qualifying for a loan on an investment property is not always easy. Loans for financing investment properties are much more difficult to get than a loan on an owner-occupied home, and it will cost you more money as well.

Many banks consider investor loans riskier than owner-occupied loans. The down payments are higher, the credit scores needed are higher, and the income requirements are greater for investor loans. This article will go over the different loans available on investment properties and how to qualify for them.

What is considered an investment property?

An investment property could be a rental property, a house flip, or a piece of vacant land. Banks are very specific regarding what they consider investment properties, and they base their loans on these classifications. Most banks lend on owner-occupied houses and investor-owned houses. Almost every bank has different loan options depending on what type of property you own.

Each bank can have a different definition, but for the most part, an owner-occupied home is a house that someone lives in for more than 6 months of the year. It is not a house that someone buys and stays in for a week on vacation. It is not a house that someone buys, leaving one room vacant in case they decide to crash there one night. One or more people on the Deed must live in the home more than half the time for at least one year (sometimes more). All other houses are considered investment properties, and the banks have much different loan programs for them than for owner occupants.

If you buy a house as an owner occupant with the intention of using it as an investment, it could be considered loan fraud. If you pretend to be an owner-occupant on a HUD home, it could even be a felony with potential prison time!

Owner-occupant loans

Owner occupants can typically qualify for FHA, VA, Conventional, USDA, or other loan options that have low down payments. The down payment for FHA can be as low as 3.5%. VA has a $0 down payment as does USDA. Conventional loans also have down payments as low as 3 percent for some buyers and 5 percent for most buyers. It is fairly easy for most buyers to qualify for an owner-occupied home if they have decent credit (over 620), make decent money, and have reasonable debts.

If you want to get into investment properties cheaper, one option is to buy as an owner occupant, live in the property 1 year (in most cases), and then rent the property out. You can also do this with a house flip, and if you live there for two years, the profit becomes tax-free in most cases!

Rental-property loans are much different. An investment loan requires at least 20 percent down in almost all cases, requires higher credit scores and better debt-to-income ratios, and there are limits to how many loans you can get with big banks. Most big banks will only let an investor have 4 loans in their name. Some smaller banks will allow an investor to have 10 loans in their name, but all the requirements get even stricter.

There are other options for investors that we will get into in this article, so do not lose hope if you don’t have the down payment, or have too many mortgages.

Why is it harder for an investor to get a loan?

Banks consider real estate investing riskier than normal home ownership. Banks figure that, if things go bad, someone will work harder to keep the house they live in than they will an investment property. The government also encourages homeownership with programs like FHA, USDA, VA, and local down payment assistance programs. Because the government helps with or runs these programs, the banks are more willing to offer low down payments to owner occupants.

How to qualify for loans for financing investment properties

When qualifying for a home mortgage, most banks look at multiple factors. One of the biggest issues investors run into is that they have to qualify for two houses if they have a loan on their personal residence. It is very important for people not to buy the most expensive house they can because of this. You must have a low debt-to-income ratio to qualify for a new loan, whether as an owner occupant or as an investor. If you max out your qualification on your personal home, it will be very difficult to qualify for a loan on an investment property.

Here is what banks look at on investor loans:

Debt-to-income ratios

You debt-to-income ratio is how much money you make each month compared to what your debt payments are each month. The percentages a bank will be okay with depends on the loan. Debt-to-income ratio does not take into account how much the balances are on your mortgages, only what the monthly payments are. Lower debt payments make it easier to qualify for a loan, and that is one reason I prefer a 30-year loan to a 15-year loan (30-year loans have lower monthly payments).

Time at a job

Most banks want to see a borrower at the same job for two years before they will give them a loan. If a borrower switches jobs but stays in the same field, banks will usually still lend, but you have to be careful when switching jobs. The bank will want to verify income to make sure you are working full time and actually have the job you say you have.

Credit score

Some loan programs allow credit scores under 600, but the lower your score, the more fees and costs you will pay. Almost all low-credit-score loan programs are for owner occupants. Investors usually need a credit score over 680 and sometimes over 720 if they are trying to get multiple mortgages in their names. You will get the best rates and terms the higher your credit score is.

Tax returns

Banks will verify your income with tax returns. If you claim very little income, it can be hard to get a loan. Many people who are self employed or who own businesses have a hard time qualifying for loans because they write off so many expenses. If you have little income, your debt-to-income ratio may be too high for you to qualify for a loan. One option is to claim fewer expenses and show a higher income on your taxes.

Foreclosures/short sales/bankruptcies

Banks do not like to lend to people who defaulted on past debts. If you had a foreclosure, it does not mean you can never get a loan again, but it makes it much tougher. Many banks will want to see a solid credit history up to 7 years after a foreclosure before they will lend to a buyer again. Other banks have shorter time frames. Short sales and bankruptcies also affect your ability to get a loan but usually have a shorter time frame than foreclosures.

What are the costs for an investment loan?

It is important to know that, when you get a loan on investment property, you need more than just the down payment. You need money for closing costs, loan costs, and reserves.

Closing costs

The closing costs on a loan consist of the origination fee, appraisal, recording fees, doc fees, and closing company fees. These costs can be up to or more than 3 percent of the loan amount. It is possible to ask the seller to pay these closing costs for you when buying a house, but it makes your offer weaker than one that is not asking the seller to pay closing costs.

Reserves

Lenders do not want an investor spending every penny they have on a house. They want to see some money left over to handle carrying costs or other issues that may come up. You need to have reserves left over after paying the closing costs and the down payment. Most banks require an investor to have at least 6 months of reserves. Reserves usually include the cost of any mortgages you have, including the property you are buying.

Interest rate

Interest rates on investor loans can also be higher than on owner-occupied loans. If the going rate on an owner-occupied 30-year loan is 5%, an investor may pay 5.5% or 6% depending on the bank. They may even pay higher rates if they have shaky credit or other issues.

What are the alternatives to bank loans?

Up to this point, we have talked about how investors can get a loan from a bank. You must be in a good financial position to get a loan from a bank. Some people do not have that luxury. So what are their options if they want to invest in real estate? There are many ways to get financing other than from big banks:

Local banks/portfolio lenders

Big banks have very strict lending guidelines because almost all of them sell their loans to other investors. Those investors set the guidelines that the banks must adhere to. Some local banks do not sell their loans and can be much more flexible when lending to investors. They are often called portfolio loans or portfolio lenders. I have gotten almost all of the loans on my rental properties from local banks.

Some local banks will also lend on house flips. They have much lower rates than hard-money lenders but require more down payment. Usually, a bank will finance 75% of the purchase price on a flip, and some banks will also finance the repairs.

Hard money

Hard-money lenders specialize in financing house flips, but they can finance rentals as well. A hard-money lender will have much higher rates than banks and will charge more fees, but most investors will have a much easier time qualifying with them than a bank. Hard-money loans have short terms (usually one year) and cannot be used on owner-occupant properties.

Hard-money loans are typically used for house flips, but you also may be able to use a hard-money loan to buy a rental and then refinance it into a long-term bank loan. I have seen hard-money rates as low as 8% recently, which is much lower than they used to be. A hard-money lender will often lend up to 90% of the purchase price and 100% of the repairs. Some hard-money lenders will finance the entire deal, but they are much more expensive, with rates above 12%.

Private money

Many hard-money lenders call themselves private-money lenders, but I think of private-money lenders as individuals. They are people you know: a family member, friend, co-worker, or another investor. I use a lot of private money on my house flips and on my rentals. Private money is easy for me because I literally send a text message or email, and the lender lets me know that day if they have money or not. Getting private money is all about relationships. I get most of my private funds from other investors.

The rates and terms for private money can vary greatly! I have some loans at 6% and others at 12%. The rate I pay depends on the lender, the deal, the time I need the money, and other factors. I am able to borrow 100% of the purchase price with most of my hard-money lenders, and one lends me 100% of the purchase price and 100% of the repairs upfront!

National rental property lenders

In the last few years, national lenders who specialize in lending to real estate investors have popped up. They are not banks but rather funds or companies that specialize in investor loans only. They have higher rates than most banks but do not worry as much about debt-to-income ratios or credit scores. They are more concerned about the property being a good rental and making money.

I have seen rates on rental properties as low as 5% with some of the bigger lenders. I have even seen 30 year fixed rate loans being offered. I am in the process of refinancing one of my properties to a 30 year fixed rate loan with one of these lenders. They will usually lend from 70% to 80% of the purchase price or value.

I have a list of hard money and rental property lenders here.

What is the best type of loan for an investor?

There are pros and cons to each loan. There is no best option because everyone has different goals, levels of experience, cash available, and different types of deals. I use different loans on my properties as well. I use bank money, hard money, and private money depending on the situation. The video below goes over the exact costs of these loans on my house flips:

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This article goes into the details of financing house flips as well.

Rental property owners will usually want a different type of financing since they hold the property for longer than a flip.

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This article goes into the details on getting loans for rental properties.

What is the first thing to do?

If you want to be a real estate investor but do not know where to start, I have a simple answer for you:

Talk to a lender or bank.

Even if you think there is no way they will give you a loan, go talk to them. They can tell you if you can get a loan, how much you qualify for, and what the loan will cost you. The meeting is free, and there is no reason not to do it. If the lender says you cannot get a loan, they should be able to tell you exactly why and help you fix any problems. They do all of this for free as well. Even if you want to wholesale, use hard money, use private money, or aren’t ready to invest for years, talk to a bank!

How to lower your debt-to-income ratio

One of the most common problems people have when qualifying for an investment property is a high debt-to-income (DTI) ratio. Most lenders will want to see a DTI  ratio of 45 percent or lower. If your DTI ratio is higher than this, it will be very hard to qualify for a loan. I have investors emailing me all the time and asking how to get around high DTI ratios. Even my portfolio lender, who is very lenient with lending requirements, will not lend to people with high DTI ratios. However, some of the national rental property lenders and hard-money lenders mentioned prior do not care about DTI ratios.

DTI ratio is calculated by taking your monthly debt payments and dividing them by your gross income before taxes. If you have $2,000 of monthly debt and $5,000 of gross income, you would have a DTI ratio of 40 percent ($2,000/$5,000 = 40 percent). That is a very simple equation, but it is not always simple coming up with the monthly debt and income, especially if you own rental properties.

You must count the property mortgage payment against your DTI ratio. Even though your DTI ratio may be 35 percent right now, a new mortgage payment may push that number to 45 percent, and you may not qualify for the mortgage. The DTI ratio will generally be the deciding factor on how large of a loan you can qualify for. The most payments you can qualify for on a new mortgage would be the payment that pushes you to the maximum DTI ratio a lender will allow. If a lender will allow a 40 percent DTI ratio and a $1,000 house payment pushes you to 40 percent, that would be the highest payment you could qualify for.

It is your monthly income and monthly debt payments that the banks pay attention to, not total balances. If you have a $2,000 credit card balance, it may not seem that it would affect your ability to qualify for a loan. But if your payments are $200 a month, that would have a huge impact on how high of a mortgage you can get. A $200 dollar a month difference in mortgage payments can reduce the amount you qualify for by as much as $40,000!

What expenses and income are included in DTI ratios?

If you are applying for a loan, everyone who will be on the loan will have to include these figures in debt:

  • Minimum credit card payments
  • Auto loans
  • Student loans
  • Consumer loans
  • Other financial obligations including child support and alimony
  • Your current housing payments do not count if you are going to sell the house before you buy the new house. If you are keeping the house, you will have to count the payments as debt.
  • Your estimated future housing expense, which includes principal, interest, taxes, insurance, and any HOA fees.

To calculate your income, you use:

  • Your gross monthly salary before taxes, plus overtime and bonuses. Include any alimony or child support received that you choose to have considered for repayment of the loan.
  • Any additional income like rental property profits. This is tricky because some lenders will not count any rental income until it shows up on your taxes. Other lenders will count 75 percent of your rental income if you are an experienced investor or have the house leased.

Usually, it is a little tricky calculating the DTI ratio because different banks calculate things differently. It is best to let the lender you are using calculate the DTI for you. If the bank comes up with a DTI that seems very high, double-check how they calculated it to see if they are doing something strange or put a wrong number in somewhere. Some banks will count depreciation of investment properties against you, even though that depreciation is not a monthly expense.

Why do different banks use different debt-to-income ratios?

Different banks use different DTI ratios, and different loan programs use different DTI ratios. VA and FHA typically limit borrowers to a 52 percent DTI ratios but in some circumstances may increase that percentage slightly. Fannie Mae allows up to a 45 percent DTI ratio on some loans, but you must have great credit. With credit scores under 700, you typically would have to have your DTI ratio under 36 percent.

As you can see, this can all get very confusing trying to figure out yourself. Here is a link to the Fannie Mae lending matrix which is even more confusing. The best thing to do is to talk to a lender, and if your DTI ratio is high, work on lowering it.

How can you lower your debt-to-income ratio?

The easiest way to lower your DTI ratio is to make more money. The more gross income you make, the higher your DTI ratio will be, but that is not the only thing lenders look at. It is not easy to simply start making more money, but many investors and self-employed individuals or business owners claim very little income on their taxes. Claiming little income is great if you don’t want to pay much in taxes. If you want to qualify for a loan, claiming little income can make it nearly impossible to buy a house. You may think you are making $10,000 a month, but if your taxes show you making $2,000 a month, your DTI ratio could be much higher than you think. Claiming more income on your taxes will mean you have to pay the IRS more, but it may be worth it if it allows you to get a loan.

Reducing debt is another way to improve your debt-to-income ratio. DTI ratios take into consideration all monthly debts that show up on your credit report. Usually, the shortest debts hurt you the most because they have the highest payments. Even though you think you are doing the smart thing by getting a 15-year loan instead of a 30-year loan on your primary house, it actually will hurt your DTI ratios. A three-year loan on a car will make your DTI ratio higher than a six-year loan. I am not saying you should always get the longest term possible on debt, but the lower your minimum payments are, the lower your DTI ratio will be. You can always make extra payments if you want to pay off your loans quicker.

What else affects the DTI ratio?

  • Minimum credit card payments: credit cards typically have very high interest and very high monthly payments. If you can pay off credit cards, it will greatly improve your DTI ratio, but you must pay off the entire balance.
  • Auto loans: car loans can destroy a DTI ratio! A $600 car payment is equivalent to a $120,000 mortgage and will reduce your ability to qualify for a mortgage by $600 a month.
  • Student loans: student loans may have low interest and low payments, but they still hurt DTI ratios. I think it is usually better to pay off other debt first depending on what the rates are.
  • Consumer loans: do you have a loan for a TV, furniture, home equity line of credit, or any other monthly payments that show up on your credit? Even a home equity line of credit that you are not using can count against your DTI ratio.

If you don’t have the money to pay off your debt, you may be able to consolidate it with a larger loan against your home that would have a lower interest rate and monthly payment.

Refinancing investment properties

A fantastic strategy to make your money go further when investing in real estate is to refinance properties. A refinance is when you get a new loan on a property that you already own. A cash-out refinance is when you get a new loan a property you already own, and the new loan pays off all other debts plus gives you back money. If you owe $80,000 on a house but refinance the property with a $100,000 loan, you would get $20,000 in cash back minus any closing costs for the new loan.

The BRRRR strategy is a great way to buy rentals with less money because you get most, if not all, of your investment back after the refinance. It stands for:

  • Buy: you have to get an awesome deal (can use financing or cash).
  • Repair: most houses that are awesome deals need some work.
  • Rent: with most income properties the banks want a home rented out before they lend on it.
  • Refinance: get a new loan that pays off any old loans, pays off the repairs, and any down payments.

Conclusion

Financing is one of the most important aspects of investing in real estate. You can make more money with loans than by paying cash. You can also multiply your money quickly using refinances, and there are many options for investors, even when you have bad credit or low income. It can be confusing figuring out what the best option is, but talking to a bank or lender is the first step.

Build a Rental Property Empire

Categories Money

Source: investfourmore.com

Apache is functioning normally

A few years back, home prices were on the decline, big time. The bubble had finally burst and the housing crisis was in full swing.

To put it mildly, prices just moved too high too quickly, and had to fall back down to earth.

Meanwhile, distressed sales, such as foreclosures and short sales, put even more downward pressure on prices.

All in all, this made it difficult for appraisers to please their borrowers. And by please, I mean manage to get properties to come in at value so they could be financed.

Fast forward to today, and home prices are shooting higher and higher every month, so much so that there are talks of another bubble. Or at least a bubble within a bust…whatever the heck that means.

In California, home prices increased 8.3% in March from February, and were up a staggering 24.7% from a year earlier, per the latest report from DataQuick.

This is pushing many homeowners above water, thereby eliminating the need for a short sale, and also allowing others to tap into their home equity. Even the cash-out refinance is back. Hooray!

While this is all great news for existing homeowners, the quick increase in prices may present new issues to appraisers and prospective buyers.

Homes Selling Above Value

These days, one could reasonably argue that some (most?) properties are selling above their fair market value.

After all, many headlines nowadays focus on “bidding wars” and a lack of inventory, which has surely led to higher prices.

But is it getting out of hand? Are today’s buyers overpaying for the homes they so desperately think they need to buy right this instant?

Assuming they are, appraisers may be under even more pressure to “find that right value,” even if it’s stretching things a whole lot.

This is especially tricky today because appraisal standards have tightened since the crisis, just like lending standards.

Additionally, comparable sales include foreclosures and short sales, many of which took months to close.

For example, a short sale could have been in contract for close to a year before selling and being included as a recent comp.

As a result, the property may not appraise for the hefty final price agreed upon after 20 offers came streaming through the door.

Why Cash Investors Win

Now this may not be an issue for those paying with cash, seeing that they’re willing to forego appraisal and loan contingencies.

They also seem prepared to throw competitive offers at sellers, even when paying with all cash.

This makes it extremely difficult to compete if you can’t pay for a property out of your own pocket.

To play, you’ll either need to come up with a sizable down payment and higher offer, or waive contingencies.

In all those instances, there is a decent amount of risk. You’re essentially banking on appreciation down the road, and accepting to pay a higher price than the bank/lender values the property.

But for those who need to finance the property, there’s not much way around it. Just be sure to cover all your bases.

Dealing with a Low Appraisal

If the appraisal happens to come in lower than the purchase price, the bank will only lend based on the appraised value.

As noted earlier, this is how they “value” the property. They don’t care that you are willing to pay more.

For example, if the agreed upon sales price is $400,000, and the property appraises for $375,000, your loan will be based on the lower amount.

If you want to stay at say 80% loan-to-value (LTV), the loan amount would need to drop to $300,000, as opposed to $320,000.

This means your down payment would rise from $80,000 to $100,000, which could put the deal in jeopardy if you don’t have the cash.

If you’re putting a lot more down, say 30-40%, it may be easier to change the loan terms without coming out of pocket, though your mortgage rate may rise.

Of course, you may be able to renegotiate the purchase price if the appraised value comes in low, but the seller must be willing to budge.

These days, there’s a good chance they won’t want to lower their sales price, even if the property doesn’t appraise.

So if you are competing with all-cash buyers, showing the seller you have extra funds in the case of a low appraisal may be helpful.

Unfortunately, you may not even get a chance to take a crack at it if the seller doesn’t believe your high offer will come close to appraising.

They may just want to take a slightly lower cash offer and avoid any unwelcome surprises.

In other words, it’s a bad time to buy a house in many areas of the country, as I mentioned a week or so ago. Bad because EVERYONE wants to buy at the same time.

A good time to buy a house is when no one else is.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Posted on: May 25, 2022

VA loans present an incredible opportunity to eligible active duty service members, veterans, reservists and qualifying surviving spouses. But if you live in an expensive area or need a bigger loan, a regular VA loan might not be enough. Luckily, a VA jumbo loan is an option. 

Here’s what you need to know about this mortgage type.

See if you’re eligible for a VA home loan (Apr 27th, 2023)

What is a VA jumbo loan?

A VA loan is considered a jumbo loan if it exceeds the conforming loan limits for your county. Technically, there is no maximum VA loan amount. But the loan cannot exceed the appraised value of the home. 

What is VA Entitlement?

Essentially, VA entitlement is the amount that the Department of Veterans Affairs will guarantee for a lender. So, if you default on the loan, your VA entitlement is the maximum amount that the VA would repay your lender. 

You will have a full entitlement if this is your first time using a VA loan. Another way to get full entitlement is to pay off a previous VA loan in full and sell the property. If you have a full entitlement, the VA will guarantee up to 25% of the loan amount. Importantly, you can only have your full entitlement restored once. 

But if you previously purchased a house with the VA loan and haven’t paid off the loan, you may only have a partial entitlement left. With a partial entitlement, otherwise known as an impacted entitlement, you may still qualify for a jumbo loan. But you’ll have to make a down payment if you exceed your entitlement.

See if you’re eligible for a VA home loan (Apr 27th, 2023)

VA loan limits & VA jumbo loan limits

As a homebuyer, knowing the limits of a loan type are important. 

When it comes to government-backed VA loans, most homebuyers don’t have a limit. As of 2020, the Department of Veterans Affairs announced changes to the loan program. These changes included that it would guarantee the same percentage of the loan amount for lenders without regard to the loan amount. 

Of course, this generous guarantee is only available if your full entitlement is intact. 

If you have a partial entitlement, the numbers change a bit. You’ll run into a loan maximum that is impacted based on your down payment. Essentially, you’ll multiply your remaining entitlement by 4 to arrive at your maximum loan amount. But if you are making a down payment, you can add that to your remaining entitlement and multiple it by 4 to arrive at your maximum guarantee available through the VA. 

What qualifies as a VA jumbo loan?

A VA mortgage loan is considered a jumbo loan when the amount exceeds the conforming loan limits. Although these limits vary by county, the range is from $647,200 to $970,800 for single-family homes. You can find the conforming loan limits through this convenient map provided by the Federal Housing Finance Agency. 

But just because the VA is offering to guarantee this amount, it doesn’t mean that you’ll find a lender willing to approve you for a jumbo loan. With this in mind, you won’t run into a loan ceiling set by the VA. But you will run into a loan limit based on your qualifications. 

VA jumbo loan requirements

A VA jumbo loan might be an option for you. The requirements to qualify for this large loan will vary based on the lender.

Is a down payment required for a VA jumbo loan?

For those with full entitlement, the loan can exceed the conforming loan limit for your county. With that, you would have access to a VA jumbo loan. You may not even need to make a down payment. 

If you have a partial entitlement, you could still qualify for a jumbo loan. But you may need to make a bigger down payment because you’ll likely exceed your entitlement. 

Ultimately, the lender will determine whether or not you need to make a down payment on a VA jumbo loan. For example, a lender may offer a loan of $1.5 million without a down payment to a borrower with a high credit score. But the same lender may require a down payment of 10% on a $2 million loan. 

When considering a VA jumbo loan, it is critical to shop around. The right lender will be able to provide the ideal loan for your situation. 

Requirements to qualify

The requirements for a jumbo VA loan vary based on the lender. 

In general, you can expect more stringent requirements than you would find with a regular VA loan. 

Most lenders will want borrowers to have a credit score of at least 620. Plus, you may need to have some cash reserves on hand to qualify for this loan. 

VA jumbo loan rates

Typically, VA jumbo loan rates are similar to regular VA mortgage rates. The exact fixed rate you see will vary based on the lender and your loan qualifications. 

The good news is your VA jumbo loan rates should be lower than they would be for a traditional jumbo loan. Low rates are just one of the many VA loan benefits available for those with the appropriate military service. 

VA jumbo loan funding fees

As with all VA loans, you’ll have to pay a funding fee for the jumbo option.

The VA loan funding fee ranges from 0.50% to 3.6% of the purchase price in 2022. The exact fee will vary based on your loan purpose, which can include purchase, refinance (IRRRL), or cash-out refinance. Additionally, any previous usage of the VA loan can impact your fee. 

Although there is a funding fee, you won’t have to pay PMI. With that, your monthly mortgage payment won’t have that added cost. 

Pros & cons of a VA jumbo loan

Every mortgage product has advantages and disadvantages. Here’s what to keep in mind about the VA jumbo loan. 

Pros of a VA jumbo loan

  • Lower interest rates: You’ll likely find lower interest rates with a VA jumbo loan than with a traditional jumbo loan. 
  • Possibility of no down payment: Depending on your situation, you might not have to make a down payment. 

Cons of a VA jumbo loan

  • Funding fee: You’ll have to pay a funding fee of 0.5% to 3.6%.
  • More extensive property requirements: The property will need to pass a VA home inspection. 

VA jumbo loans vs. traditional jumbo loans

Like VA jumbo loans, traditional jumbo loans offer amounts over the conforming loan limit. And with that, traditional jumbo loans cannot be sold through the secondary mortgage market based on the guidelines set by Fannie Mae and Freddie Mac. 

The limitations on resale of traditional jumbo mortgages make it challenging for borrowers to find these types of home loans. If you are seeking a traditional jumbo loan, you’ll likely need to make a 20% down payment. That’s on top of having great credit and significant cash reserves. 

But VA jumbo loans can be securitized through Ginnie Mae, which makes lenders more willing to provide the loan. Plus, the guarantee by the VA makes a VA jumbo loan easier to obtain than a traditional jumbo loan. 

VA jumbo loan FAQ

What is a VA jumbo loan?

A VA jumbo loan offers loan amounts over the conforming loan limits for your county. 

This loan type is available through VA lenders that work with eligible borrowers. You’ll need to be an active-duty service member, veteran, or surviving spouse seeking a primary residence. If you are eligible for a standard VA loan, you may be eligible for a VA jumbo loan. 

Does the VA allow jumbo loans?

Yes, the VA allows jumbo loans as part of its home loan benefit program. 

If you have a full entitlement, you won’t encounter a loan limit from the VA. 

How does a VA jumbo loan work?

A VA jumbo loan works by allowing eligible borrowers to obtain loans larger than the conforming loan limits. If you are eligible for a VA loan, a lender may be willing to provide a VA jumbo loan. 

What is considered a VA jumbo loan?

A VA jumbo loan is considered any VA loan with an amount larger than the conforming loan limits for a particular county. 

When making a home purchase in a high-cost area, the conforming loan limit can be higher. But it might not be enough if home prices are too high. That’s when a VA jumbo loan can come in handy because the loan amount can exceed the limits. 

How much do you have to put down on a VA jumbo loan?

The required down payment for a VA jumbo loan varies. In some cases, you won’t have to make a down payment. But some lenders will require a down payment. 

In either case, you’ll need to cover a VA funding fee of 0.50% to 3.6%. That’s a substantial fee that will add to your closing costs. 

Can I get a VA loan for $1,000,000?

It’s possible to get a VA loan for $1,000,000 but you’ll need to meet the unique borrower requirements of a lender. You’ll likely need a great credit score and substantial cash reserves to qualify for a VA loan of this size.

See if you’re eligible for a VA home loan (Apr 27th, 2023)

Source: militaryvaloan.com

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Posted on: February 2, 2022

A VA loan is a mortgage loan that’s backed by the U.S. Department of Veterans Affairs. These loans are reserved for military service members, veterans, and their spouses. The VA home loan program is one of the lowest-cost, most valuable mortgage loan options currently available.

See if you’re eligible for a VA home loan. Start here. (Apr 26th, 2023)

Benefits of a VA loan

VA loans come with a number of significant benefits to home buyers, particularly when compared with other types of mortgage programs.

Just a few VA loan advantages include:

  • No down payment required: Most other loan programs require at least 3% down ($9,000 on a $300,000 house).
  • Competitively low interest rates: Rates on VA loans are some of the lowest you’ll find. This saves you both monthly and in the long run.
  • Closing costs are limited: You can’t be charged an origination fee of more than 1%, and sellers can contribute a large portion of your closing costs.
  • No prepayment penalty: This means you can pay off the loan or refinance quickly without an added fee.
  • No private mortgage insurance (PMI) is required: The majority of other loan products require mortgage insurance, which adds upfront and monthly fees.

VA loans are also assumable, which means if you eventually sell the house, the buyer can take over your loan, too — a huge perk, given the low rates and other benefits VA loans come with.

VA mortgage rates 2023

When compared to other loan types — conventional loans and FHA loans, for example — VA home loans offer consistently lower rates than loans for the average consumer.

VA Conventional FHA
December 2021 2.99% 3.38% 3.39%
November 2021 2.95% 3.32% 3.32%
October 2021 2.88% 3.22% 3.22%
September 2021 2.85% 3.17% 3.20%
August 2021 2.88% 3.19% 3.23%
July 2021 2.94% 3.27% 3.27%

Source: Ellie Mae Origination Insight Report, June 2021

*These rates are only averages. Your VA loan rate could be higher or lower than average depending on factors like your credit score and down payment size. Check with a lender to find out what rate you qualify for.

Click here to request a VA home loan quote. (Apr 26th, 2023)

Types of VA loans

There are several types of VA loans to choose from. The right one depends on your goals as a borrower, as well as how you’ll be using the funds.

The four main types of VA loans include:

  • VA purchase loan: These are VA loans designed for purchasing a property. You can buy a single-family home, a multifamily home with up to four units, a manufactured or mobile home, an approved condo unit, or a new construction home.
  • VA Streamline Refinance: The VA’s Streamline Refinance — also known as a VA Interest Rate Reduction Refinance Loan (IRRRL) — is for existing homeowners looking to refinance their mortgage and reduce their interest rate.
  • VA cash-out refinance: With a VA cash-out refinance, you take cash out of your home. It replaces your existing mortgage with a newer, larger one, giving you the difference in cash.
  • VA energy efficient mortgage: Also called EEMs, these are VA loans that can help you finance energy improvements on your home.

The VA also offers NADL loans, which are mortgages reserved strictly for Native American veterans buying on federal land.

VA loan eligibility requirements

VA loans are only for qualified veterans, active-duty service members, and, in many cases, their surviving spouses. To qualify, you’ll need to meet specific service requirements.

These service requirements vary slightly based on when you served, but generally speaking, you will need to have at least one of the following:

  • 90 consecutive days of active service during wartime
  • 181 days of active service during peacetime
  • 6 years of service in the National Guard or Reserves
  • A veteran/service member spouse who died in the line of duty or due to a service-related disability or injury

To prove you have the above service record, you’ll need to submit a Certificate of Eligibility (COE) to your lender. This is a document that details your service record, the nature of your release from the military, and your VA loan entitlement.

You can get your COE through the VA eBenefits portal online. Or, when you apply for a VA loan, the lender can request a COE on your behalf. This usually takes only a few minutes.

Qualifying for a VA loan

Beyond service eligibility requirements, the VA doesn’t set specific financial standards for these mortgages. The individual private lenders that issue VA loans, however, often do. While these vary from one lender to the next, you can typically expect to need a 620 credit score and a 41% debt-to-income ratio or lower.

The good news is, there’s no down payment required for a VA loan. So eligible borrowers can qualify for a VA home loan with very little cash upfront.

VA property requirements

The VA home loan program is designed to help military service members and their families purchase a primary residence, which means you cannot use your VA home loan benefits to purchase a second home, vacation home, or investment property.

Additionally, the home must meet certain standards set by the VA to ensure the home is safe and livable.

How does a VA loan work?

The VA loan process is fairly similar to that of other mortgage programs, just with a few added steps along the way.

Are you considering a VA loan for your home purchase or refinance? Just follow these steps:

#1. Verify eligibility and request your Certificate of Eligibility (COE)

The first step is to make sure you meet the VA’s service requirements (you can see the full list here). If you do, you’ll need to request your Certificate of Eligibility, which proves you’re eligible for the program. You can get your COE in your eBenefits portal, request it by mail, or ask your lender to pull it on your behalf.

#2. Get prequalified

The next step is to get prequalified for your loan. To do this, you’ll give a lender some basic information about your finances. They’ll then determine if you’re a good candidate for a VA loan and how much home you can likely afford.

#3. Get pre-approved

Next, you’ll apply for a full pre-approval. This requires filling out an application and submitting to a credit check, both of which your lender will consider in detail. Once they’ve analyzed it all, you’ll get a pre-approval letter stating how much you can borrow and at what interest rate. You can use this to guide your home search.

#4. Put in an offer

After you’re pre-approved, you can start shopping for a house. When you’ve found that perfect property, submit an offer, and include your pre-approval letter. If the seller accepts, it’s time to move through the rest of the VA loan process.

#5. Go through the VA appraisal and underwriting

You’ll need to fill out your lender’s full loan application next, and your lender will order an appraisal of the property you intend to buy. They’ll also begin underwriting your loan, which essentially means verifying all your information to ensure you can meet the obligations and pay your mortgage.

#6. Close on your new home

When your loan is fully underwritten, you’ll be scheduled for a closing appointment, which is when you’ll pay your closing costs, sign your paperwork, and get your keys.

What is the VA funding fee?

The VA funding fee is a one-time fee you’ll pay at closing. It varies from 0.5% to 3.6% of your loan amount and is used to help sustain the VA mortgage program.

The amount of the VA funding fee you’ll pay depends on the nature of your military service, the size of your down payment, the type of loan you want and the number of times you’ve previously used your VA home loan benefit.

First-time use purchase VA funding fee

Down Payment Veteran/Active Duty Reservist/National Guard
Less than 5% 2.3% 2.3%
5% to 9.99% 1.65% 1.65%
10% or more 1.4% 1.4%

How does VA loan assumption work?

With a VA loan assumption, the VA loan transfers with the house. The buyer assumes the seller’s VA loan, including its same rate, terms, and balance, and resumes making payments as initially planned through the original loan. Though the buyer doesn’t need to be a veteran or military member to assume a VA loan, they do need to meet all the financial requirements of the loan program (and the lender) to be eligible.

Ready to get started? Request a VA home loan quote here. (Apr 26th, 2023)

VA Home Loan FAQ

What is a VA loan?

A VA loan is a mortgage backed by the Department of Veterans Affairs. Only active duty military members, veterans, and their spouses are eligible.

What are the benefits of a VA home loan?

There are many benefits to a VA loan. They require no down payment, have low interest rates, and do not require mortgage insurance. They also come with limited closing costs and are assumable.

How does a VA loan work?

VA loans are guaranteed by the Department of Veterans Affairs, meaning it will pay back the lender if a borrower defaults on the loan. This reduces the risk that lenders take on and allows them to offer loans with no down payments, no mortgage insurance, and lower credit score minimums.

What’s the difference between a VA loan and a regular loan?

VA loans are only for military members and veterans, so that’s the biggest difference. They also require no down payment, which is rare when it comes to mortgage loans. Most other loan programs require 3% to 3.5% down payments minimum.

What is the interest rate on a VA home loan?

Your interest rate will vary depending on your credit score, debt-to-income ratio, loan amount, down payment, and other details. Generally speaking, VA loan rates are lower or comparable to rates on other loan programs.

What credit score is needed for a VA home loan?

The VA doesn’t have a set credit score minimum for its loans, though individual lenders often do. This is typically between 620 and 640, depending on your mortgage company.

What is the minimum income for a VA loan?

There is no minimum income to be eligible for a VA loan. Your lender will, however, consider your debt-to-income ratio to be sure you can comfortably make your monthly payments.

What are VA loan limits?

There are no limits on VA loans. You can borrow as much as you can financially qualify for, given your credit history, debt-to-income ratio, and other financial details.

What is the VA funding fee?

The VA funding fee is a one-time fee all VA borrowers pay at closing. It goes toward supporting and sustaining the VA loan program. Funding fees vary between 0.5% and 3.6% of the loan amount depending on your down payment size, type of loan, and the number of times you’ve used your VA loan benefit.

What is needed for a VA home loan?

For a VA loan, you (or your spouse) will need to meet the military service requirements set out by the Department of Veterans Affairs. You will also need to submit a Certificate of Eligibility, as well as various forms of financial documentation, including tax returns, W-2s, and more.

What is needed to get a VA home loan?

To get a VA loan, you’ll need to work with a VA-approved mortgage lender, submit your COE, and meet the remaining eligibility and documentation requirements of your lender.

How does a VA assumable loan work?

VA loans are assumable, meaning when a VA-financed home is sold, the buyer may be able to assume the VA loan attached to it, too. The buyer does not need to be a military member for this to happen, though they will need to meet other financial requirements set out by the VA and the lender.

What are the pros and cons of a VA loan?

The pros of a VA loan are many. There’s no down payment or mortgage insurance, and rates are competitively low. On the downside, they come with strict appraisals and can sometimes take a bit longer to process than loans through other programs.

Is a VA loan really worth it?

If you can qualify, VA loans are most often worth it. With zero down payment and no mortgage insurance requirement, they can make buying a house much more affordable than an FHA or conventional mortgage. They also have no hard-and-fast credit score minimum.

Do you pay back a VA loan?

You repay a VA loan just as you would any other type of mortgage or loan product. VA loans come with either a 15- or 30-year loan term, which means your monthly mortgage payments are spread out over either 15 years or 30.

If I’ve previously used a VA loan, can I use it again?

Your VA loan benefit never expires. After you pay off your existing VA loan, you can continue to use the VA loan again and again. In some cases, you may be able to have two VA loans simultaneously.

Are VA loans a good deal?

When compared to other mortgage loans, VA loans are absolutely a good deal. Thanks to the VA guarantee, your mortgage lender can afford to pass significant benefits along to borrowers. VA home loans have fewer upfront costs, low interest rates, and no mortgage insurance, making them one of the best mortgage loan products on the market.

See if you’re eligible for a VA home loan. Start here. (Apr 26th, 2023)

Source: militaryvaloan.com

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In addition to providing your current financial information and checking your VA eligibility, you’ll need to prove that you have a decent enough credit score to qualify for a VA […]

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