How Can I Use My VA loan?

June 7, 2022 by Cindy Steelman

One of the benefits available to veterans and active duty members of the military is the VA loan, providing a way to buy a home without the traditional requirements. If you are considering using a VA loan to purchase your home, there are a few things you need to know about which type of home you can purchase with it.

What is a VA loan?

A VA loan is a $0 down mortgage option that is guaranteed by the Department of Veterans Affairs (VA). Active duty or retired members of the military can use a VA loan to buy a home without waiting to save up a down payment. Because the loan is insured by the VA (meaning the VA will repay the loan if the borrower defaults on it), lenders are able to offer the loan in spite of the higher risk represented by taking no down payment.

There are other benefits included in the VA loan as well, including a lower credit score requirement, no private mortgage insurance (PMI), and generally offer a lower mortgage interest rate than other loans.

Who is eligible for a VA loan?

To be eligible for a VA loan, you or your spouse must meet at least one of the following criteria:

You have served at least 181 days of active service during peacetime.
You have served at least 90 consecutive days of active service during wartime.
You have served more than 6 years of service with the National Guard or Reserves or 90 days under Title 32 with at least 30 of those days being consecutive.

Beyond these criteria, lenders can set their own requirements for credit scores, but they do tend to be more lenient than with other mortgage products.

What kind of home can I buy with my VA loan?

After determining that you are eligible for a VA loan, the next step is of course to look for a home. It is important to note that there are some limitations to how the VA loan can be used. The property you purchase with your VA loan needs to meet certain criteria, a system that ensures the VA is taking on a reasonable risk when guaranteeing the loan.

Condos

The VA loan can be used for the purchase of a condo, but only when the entire condominium complex has received VA approval. Check with the current list of approved VA condo complexes, and if the condo you are considering is not on the list you can have your lender request approval of the complex. It may take some time for the complex to be approved, as the VA will review the organizational documents, title, parking availability, and homeowner’s association policies before determining approval status.

Manufactured Homes

In some cases, you will be able to use your VA loan to purchase a manufactured home. If so, the home will need to meet the following criteria:

Be properly affixed to a permanent foundation
Single wide homes must be at least 400 square feet, and double wide must be at least 700 square feet
Must have permanent eating, cooking, sleeping and sanitary facilities

More: 10 Things to Know About a VA Loan

Modular Homes

Modular homes are defined as homes that are built in sections at a factory and reassembled on-site by a contractor. These tend to appreciate more quickly than manufactured homes, putting them in a different category of real estate. As long as the modular home is attached to a permanent foundation and has been built according to HUD qualifications, it will be eligible for the VA loan.

Custom New Construction

Building a custom new construction home with a VA loan is extremely challenging, as the builder must provide a complete one year warranty on the home and in many cases the builder will have to agree to begin based on pre-approval status on the contingency that the home passes three different inspections. In most cases, building a new construction home is not a good fit for a VA loan.

Vacant Land

Vacant land is not eligible for a VA loan. The loan is designed to support military members and their families buying a home, so the land must have a livable dwelling on it to qualify.

Detached Single Family Homes

As you may have gathered, the easiest way to use your VA loan is on a detached single family home. So long as the home passes basic inspection and appraisals, you shouldn’t have any issues.

To find out more about qualifying for a VA mortgage, talk to me today!

IF you enjoyed this post, these might be helpful as well:

5 Common Mortgage Mistakes to Avoid

The Most Important Steps Toward Buying Your First Home

Steps to Determining Your Mortgage Budget

5 Benefits of Buying a House with Good Credit

What’s the Difference Between Pre-Approval and Pre-Qualification?

10 Days to Know About a VA Loan

7 Signs You’re Ready to Buy a House

How to Build Credit to Buy a House

May 24, 2022 by Cindy Steelman

One of the top factors that will make or break your mortgage approval is your credit score. To find out why your credit score matters, what kind of score you need, and how to build your credit to qualify for a mortgage, keep reading.

What is a credit score?

Your credit score is a three digit number between 300 and 850 that reflects how well you handle debt. There are three credit reporting agencies in the US: Equifax, TransUnion, and Experian. When you apply for a new credit account, the potential lender will contact at least one of these agencies to find out how much credit you are using and how often you are making payments, reflected in your credit score.

The calculation models that determine your credit score take into account factors like these:

The number of credit accounts you have open
The type of credit you have
Your utilization rate (the balance you carry as a percentage of your maximum, e.g. a 25% utilization rate if you carry a $250 balance on a card with a $1000 maximum)
How long you have had credit
You payment history

Why do lenders care about your credit score?

Lenders use your credit score to find out how responsible and capable you are when it comes to handling finances. All mortgages represent risk for the lender, and it is the job of a loan officer and mortgage underwriters to determine whether an applicant is a “good risk.” One of the ways to determine this is by looking at the applicant’s credit score.

A high credit score gives the lender confidence that you as the applicant are likely to manage your debt payments responsibly because you have a track record that shows you take on a reasonable amount of debt and make sure to pay what you owe on time. On the other hand, a low credit score presents the impression that you are a risky applicant, even if you are sure that isn’t the case.

What counts as good credit?

In general, we recommend applying for a mortgage if you have a credit score of 620 or above. Credit scores are divided into tiers, so it’s more significant to know which tier you fall under than the exact number of your credit score. In general, credit scores under 579 are poor, 580-669 are fair, 670-739 are good, 740-799 are very good, and 800-850 are excellent.

Aim for good, very good, or excellent credit before applying for a mortgage. Your mortgage rates and terms will be more favorable the higher your credit score.

How can you build your credit?

If your credit score is not exactly where you want it to be in order to apply for a loan, don’t worry. There are plenty of ways to raise your credit score, and you can do this in a relatively short amount of time with the right strategy. What you need is an understanding of what types of financial decisions and actions impact your credit score so you can personalize a plan that will best fit your situation.

Some of the ways you can raise your credit score include:

Lowering utilization rates on credit cards: If any of your cards are over a 50% utilization rate, focus on those first. Aim to bring your balance under a 50%, or better yet 25%, utilization rate. You may also be able to ask for a higher credit limit, which will immediately change your utilization rate.
Make on time payments: If you struggle to make payments on time, consider setting up an autopay on your debts.
Add a new type of account: Lenders want to see a variety of types of credit accounts and how you manage them. If you only have credit cards, consider opening a credit-builder loan and managing it impeccably.

To find out more about qualifying for a mortgage, talk to one of our loan officers today!

IF you enjoyed this post, these might be helpful as well:

5 Common Mortgage Mistakes to Avoid

The Most Important Steps Toward Buying Your First Home

Steps to Determining Your Mortgage Budget

5 Benefits of Buying a House with Good Credit

What’s the Difference Between Pre-Approval and Pre-Qualification?

10 Days to Know About a VA Loan

7 Signs You’re Ready to Buy a House

What is a Closing Disclosure?

May 18, 2022 by Cindy Steelman

One of the final steps in buying a home with a conventional loan is reviewing and signing the closing disclosure (sometimes also called CD). First time home buyers in particular may feel overwhelmed at the volume of documents that require approval and signature, so to help make the process less overwhelming we are breaking down everything you need to know about a closing disclosure below.

What is a Closing Disclosure?

A closing disclosure is a five-page form that is designed to outline all of the terms of your loan. It will be issued to you (usually via encrypted digital copy) a few days before closing, after the majority of the escrow process has been completed. This will take place after your home appraisal, home inspection, any agreed upon repairs, all negotiations, and underwriting has given final approval.

The details outlined in your closing disclosure will give you all the information about your loan in one place, including:

Loan amount (also called the principal)
Mortgage insurance (also called PMI or private mortgage insurance)
Property taxes
Interest rate (also called APR or annual percentage rate)
Fees, closing costs, origination charges
Purchase points, if applicable
Prepayment penalty, if applicable
Escrow account information
Monthly payment amount
Total sum of financing charge over the life of the loan (total interest paid at the end of the 15 or 30 years)

The first page of the document will give you an overview of the information you need, acting as a sort of cheat sheet if you need something to reference. The document as a whole will include every relevant item, and is required to be issued to you in advance to give you time to be sure you understand the documents you will be signing at closing.

The Three Day Rule

In 2015, the Three Day Rule was put into place to protect borrowers from tying themselves to a loan without understanding the terms. This law stipulates that a lender must issue a closing disclosure to the borrower at least three business days before closing, allowing the borrower to carefully review all the terms of the mortgage.

Before this rule was put in place, many lenders gave borrowers the closing disclosure at closing, resulting in a rushed process that was to the detriment of both lender and borrower in many cases. While you are legally allowed to waive your Three Day Rule rights, be cautious about doing so. This rule is in place to protect and benefit you, and your right should only be forfeited in emergency circumstances where you are fully confident about your understanding of the loan terms.

What to Do with your Closing Disclosure

When you receive your closing disclosure, pull it up with your initial loan estimate and compare each item. Read through the entire closing disclosure to make sure everything looks right. Now is the time to contact your loan officer if you have questions about any of these terms.

Even if you aren’t sure there is anything wrong, it is always wise to check in with your loan officer if you don’t fully understand the disclosure. Don’t worry about looking like you don’t know what you’re talking about. Your loan officer is there to help, and all high quality mortgage professionals are trained to educate borrowers on the complex process of home buying. Remember, your loan officer is there to help!

Why You Should Carefully Review Your Closing Disclosure

Buying a house is one of the most influential financial decisions you will make. The details of your loan disclosure outline one of the most significant factors in your financial health for the time you own this home, so it is in your best interest to be sure you understand all of the rates, fees, and terms.

Before tying yourself legally and financially to the home through the mortgage, take your time in the comfort of your own home to familiarize yourself with the details. While you can still ask questions at closing, you risk delaying the sale of the home. Take advantage of the closing disclosure by reviewing it in detail, for your own benefit and for a more efficient process.

To find out more about the home buying process, contact us any time! I handle all types of loans and mortgages in Roseville CA and surrounding areas.