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The VA LOAN Explained VA home loans allow veterans or active military members to buy a home with very little or even no money out of their pocket. Sellers are allowed to contribute up to 4% to pay for the VA buyers closing costs, so it is very possible to buy a home with almost no money of pocket. VA loans have no monthly mortgage insurance unlike FHA loans and conventional loans with less than 20% down. The VA loan is used to purchase a primary home, it can not be used to purchase an investment rental property. The maximum debt ratio you may have and still qualify for a VA home loan is up to 50%. This is only one factor used to determine eligibility; the others include your regular income including your BAH and credit history. The VA does not set a minimum credit score requirement to insure VA Loans. Most lending institutions require a 620 FICO score or better, however, the VA Loan underwriter will be generally looking for at least one year of good credit history. Past Bankruptcy may be OK, but all payments must have been on time for at least one year. If the Bankruptcy was a Chapter 7, the veteran must wait at least two years from the discharge date to apply for a VA Loan. A veteran whose previous residence or other real property was foreclosed on or given up through deed-in-lieu of foreclosure is generally not eligible for a VA insured mortgage for at least two years. VA requires that a termite inspection is done and that you get all section 1 and section 2 items on the termite report fixed to get a termite clearance from the termite inspection company before the lender will fund your VA loan. The VA appraiser may also note on the appraisal that minor repairs have to be completed before the lender will fund the VA loan. In many cases, you can get the seller to pay for both the required VA appraisal repairs and termite repairs, but in some cases you may not. In this case the VA borrower cannot pay for the termite inspection himself which usually runs around $75, but the VA borrower is allowed to pay for termite repairs and appraisal required repairs. Here is a list of some common items that come up in VA appraisals that need to be fixed prior to close:
With VA lending when you get a VA loan, the seller must pay the escrow fee and the lenders processing and underwriting fee if the lender charges a loan origination fee. Those are fees the VA borrower is not allowed to pay. However, there are still a significant amount of closing costs that remain that will have to be paid before closing on your house which are sometimes as much as 2-3% of the loan amount. A benefit to using a lender that doesn't charge the buyer a loan origination fee is that it allows you the buyer to pay all of your own closing costs. A loan origination fee is equal to 1% of the loan amount. When a loan origination fee is charged the seller has to pay non allowable closing cost for the buyer. These fees are Lender fees = $900 Underwriting fees, processing fees, document preparation fees, Tax service fees, Wire fees. Escrow fees = the buyers half of the escrow cost equal to $2/1000 of the home price plus $200. Title fees = sub-escrow fee = $125 An example of a $300,000 loan the lender charges a $3,000 loan origination fee. The seller will be required to pay buyer non-allowable of approximately $1,825. The buyers total closing cost, with a loan origination fee, is $9,477 minus the seller paid buyer non allowable of $1,825 the buyers out of pocket expense is $7,652. If the buyer used a lender that didn't charge a loan origination fee the buyers closing cost would have been $6,477 and the seller would not have had to pay buyer non-allowable costs. If the buyer used a VA NO NO, where the buyer asks the seller to pay all the closing cost. Which would be easier to get a seller to pay $9,400 or $6,400 towards buyer total closing cost ? Obviously the seller would be more willing to pay $6,400 so choose your lender wisely. The right lender will help in the success in getting your offer accepted. If you need a lender referral let me know. |