Taking Care of Those Who Take Care of Us – New Benefits of VA Home Loans

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One of the ways the US government takes care of its own military personnel, both active and retired or honorably discharged, is to provide VA home loans with significant benefits over traditional home loans.  This week there have been some new changes to the program that make it even better for our military service men and women to become homeowners.  First, here is some information about the program and eligibility. Then we will share the new benefit that was just announced October 1, 2011.

What Are the Benefits of a VA Home Loan?

The primary benefit of a VA home loan is that there is no required down payment. The loan can be financed up to 100%. Even better, there is no limit on the seller’s assist; therefore, it can cover the full closing costs. Another major advantage is that the VA guarantees the loan and does not require monthly mortgage insurance, an expense that can add up to $200 or more each month on top of the mortgage payment.

The primary difference from a traditional loan is that a VA requires a funding fee for the loan. (Disabled veterans are exempt from the funding fee if they receive disability benefits.) The good news is that this too can be financed into the loan and the factor for the funding fee has just recently reduced!

If you already have a VA loan, you can take advantage of the VA Interest Rate Reduction Refinancing Loan (IRRRL). You may use this program up to 90% LTV to lower your rate and term, take cash out of your home, or even refinance from an existing VA ARM loan to a fixed rate. An IRRRL may be done with little or no money out of pocket by including all costs in the new loan.


New Benefit Announced and Effective October 1, 2011

One of the requirements of the VA loan is that the homeowner must pay a funding fee that amounted to 2.15% of the loan amount.  This figure was drastically reduced on October 1, 2011.  The fee is now 1.40%, adding up to significant savings to the homebuyer.  Not only that, if a five to ten percent down payment is made the funding fee is reduced even more to 0.75% of the total loan amount. And if the borrower puts more than 10% down, the factor is only 0.50%.

Keep in mind that the funding fee can be financed into the loan, meaning almost no money out of pocket to be able to move into your home.
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To apply for the loan you will need a certificate of eligibility.  Specific requirements are available on the official US Department of Veterans Affairs website on the FAQ page.  This loan is a great way to give back to our veterans so if you are reading this and you know someone who is in the military or is retired military personnel be sure to share this with them.  When you factor in the low prices on homes these days plus the great interest rates that can be locked in for 5 – 10 – 30 years, this is an opportunity that you or they simply cannot afford to miss!

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Roll In Your Renovations or Rehab on a Home Right Into the Mortgage

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Many buyers these days are on the prowl and ready to seize the amazing opportunity out there to buy homes at astronomically low prices and at incredibly low interest rates.  Yet with the current inventory expected to drop as we approach the cooler months, how can they find the perfect home?

There is great news for those prospective buyers who come across the almost perfect home that requires just a few changes to make it the one.  What’s more, if you are already in a home that needs some major repairs, you can refinance the property AND get some work done on the home without having to pay for the repairs out-of-pocket.  Homeowners typically use this loan for major renovations or repairs like fixing a leaky roof, replacing a furnace, redoing bathrooms and more.

Put Little Money Down Then Fix The Property Up

People who choose to finance with FHA loans are already enjoying a host of benefits – and rolling in home renovations, repairs and rehab into their loan is one of the top advantages of financing with FHA.  Not only are they able to purchase a home with very little down – as low as 3.5%, but also they can avail the opportunity to transform the property into exactly what they want it to be.

Keep in mind that the borrowed amount of a 203(k) loan must be at least $5,000 in order to qualify but even a small bathroom shower stall installation costs starting at $2,000 so the bills can add up fairly quickly.

How the 203(k) Loan Works

A potential buyer finds a home valued on the market at $250,000 that would be perfect if only it had an updated kitchen and renovated bathroom. The homebuyer and their realtor would then conduct a marketability analysis to determine the extent of the improvements, rough cost estimate of the work, and expected market value of the property after completion of the rehabilitation. Once a sales contract has been signed with the provision for securing 203(k) financing, the buyer would then apply for the 203(k) loan, which is a loan federally insured by the US Department of Housing and Urban Development (HUD). The potential buyer and their mortgage consultant would discuss the property and the proposed improvements, the costs of the renovation, and any necessary contingency reserve to determine the total amount necessary for financing. Next, the buyer will consult a contractor to prepare a work write up and request an estimate for their proposed renovations and repairs.

For a standard 203(k), the buyer, HUD consultant, and appraiser will meet at the property to inspect and review the proposed changes, the contractor’s estimate and anything else that would impact the appraiser’s estimation.

One of the best features of the FHA loan is that a borrower is able to finance as much as 96.5% of the value after renovation. Where under normal circumstances, the home appraiser would determine the value on properties in the area and the sales figures from the previous 6-months for similar homes in that same area, with a 203(k) the appraiser determines the current value of the property and takes into account all of the renovations to determine an after-improvement valuation.

Where Do We Live During Renovations?

Homebuyers are legitimately concerned about where they will reside while construction takes place. As part of their purchase and rolling in the cost of renovating a property the 203(k) loan accommodates living expenses if the borrowers are unable to inhabit the home for the duration of renovations.  Up to six months of mortgage payments can be rolled into the loan which creates an opportunity for homeowners and buyers who cannot otherwise afford these changes to a home while carrying a mortgage payment.  At end of the construction period, their home will be worth much more AND they will have been able to afford the mortgage payments during that time.

A Closer Look At Our Example

On our example of the $250,000 home, let’s say that we need about $35,000 to renovate the kitchen, a bathroom plus have some exterior landscaping done.  When you roll in $35,000 to the current cost of the home $250,000, plus the six months of mortgage payments on that loan at about $16,000, the amount needing refinanced is $310,000. The appraiser determines the after-improvement value to be $310,000, and you have a home that you can finance for with a minimum down payment of only $13,495 (3.5%). When the loan is closed, the proceeds designated for the improvements and repairs are placed into a Rehabilitation Escrow Account by which the homeowners request draws to pay for the construction and improvements during the renovation process. You can purchase and finance the creation of your dream home for as little as 3.5% down – without having to shell out any additional funds up front for renovations!
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If you are looking for the perfect home and think you just may have found it, save a few changes – talk to your Realtor about the possibility of a FHA 203(k) loan.  You may be able to get everything you dreamed of  without breaking the bank!

For further information please click here! >>

Realtors please check out Gateway's 203K program here! >>

Loan Limits Have Been Reduced!!

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Just this week, FHA announced they will be lowering loans limits across the country! So, what does that mean...is that good or bad? Unfortunately, this is going to hurt the market place in these high cost living areas. If your going to be purchasing or refinancing using an FHA loan, the amount FHA is willing to cover is decreasing. For example, in some counties, if you needed a loan for $350,000, FHA will now only cover $323,000. To put it simply, you wouldn't be able to get that loan. The down side is that many people currently use FHA to finance their home purchase, and this will essentially remove FHA as an option. If you're a seller, and you have buyers looking at your home, they may no longer qualify through the FHA program, and will need to seek alternative financing options.

If you don't want to be subject to these new loan regulations, you need to have your loan in process and underwritten by a DE underwriter by September 30th...that's only 29 days away. Want to know if you are affected by this change? Check out HUD's FHA Mortgage Limits page and see where your county's new loan limits will be set.