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New Law Allows You to Get a Bigger VA Home Loan Without a Down Payment

New Law Allows You to Get a Bigger VA Home Loan Without a Down Payment

VA home loans are one of the best benefits available to veterans. The program allows honorably discharged veterans to buy a house without a down payment. But now the program is about to get even better.

A new law expanding VA disability benefits to more veterans who were exposed to the herbicide Agent Orange during the Vietnam War will change home loan limits for all veterans.

The bulk of Public Law 116-23, the Blue Water Navy Vietnam Veterans Act of 2019, which became law on June 27, 2019, addresses the expansion of VA disability benefits for Agent Orange exposure to those who served in ships off the coast of Vietnam during the war. Previously, only those who served in-country or on inland waters were eligible for disability benefits.

So what does that have to do with VA home loans?

To pay for the expanded disability benefits for the approximately 90,000 veterans who may now be eligible, the VA is removing limits on VA home loans.

Currently, VA limits the price of a home you can buy without a down payment to $484,350 for most of the country. This amount is based on limits set by the Federal Housing Administration (FHA), and it changes every year.

If you want to buy a house that costs more than the FHA limit, you can’t use a VA home loan without having to pay a down payment, and that down payment usually has to be enough to bring the purchase price down to the FHA limit. That means if you buy a $500,000 house you have to come up with a cash down payment of $15,650 ($500,000 – $484,350).

New VA Home Loan Limits Coming Jan. 1, 2020

Starting Jan. 1, 2020, when the new law takes effect, the VA will not cap the size of a loan a veteran can get, paving the way for veterans to buy higher-value homes. Of course, the lender may still issue a cap and deny a large loan. But the denial won’t be due to VA home loan rules.

A VA home loan is not the VA lending you money. Instead, the Department of Veterans Affairs “guarantees” to a lender that you, as a veteran, are a good credit risk. That guarantee allows you to get a home loan without having to make a down payment.

The other change that comes with the new law will affect fees for some veterans. VA charges most veterans a “funding fee” when a VA loan is issued. Veterans receiving any VA disability benefits are exempt from the funding fee. The funding fee for an active-duty veteran purchasing a home will increase from 2.15% of the purchase price to 2.35% of the price on Jan. 1, 2021. (There are different funding fees depending on the kind of loan and the situation of the borrower.)

The VA and Congress hope the increased money coming in from a combination of the increased funding fee and the eliminated loan limits will be enough to cover the disability benefits of the Vietnam veterans and their children who suffer long-term health problems due to Agent Orange exposure. That remains to be seen. However, for many veterans looking to get a new home loan, especially those in high-cost areas, the process has become easier.

Ready to buy a new home? Click here to apply.

The Most Lucrative Investment for Austin Residents

The Most Lucrative Investment for Austin Residents

Thought about investing lately? No, not your 401(k) or mutual fund. Real estate. You could become a real estate investor here in the Austin area, and it’s much easier than you might think. Rental properties are evaluated just like any other single family home, and all you need is at least a 15% down payment.

Why is real estate a good idea?

Home values in the Austin area continue to rise. According to the most recent information from the Austin Board of Realtors, the median price for single family homes is 10% higher compared to the same period last year. Can you name any other type of investment that provided such a return? Plus, your equity is secured by a first lien. Unlike other types of investments, your rental property value will never drop to zero!

Get It While the Interest Rates Are Low

Another motivating factor is the current state of interest rates. Interest rates for rental properties have been so low for so long that not only will the rental payment cover the mortgage, it can also cover your property taxes, insurance, and maintenance costs. Additionally, Austin rental rates are on the rise—meaning, not only will your tenants take care of your financing and maintenance costs, but you’re actually making money each month.

Here in Austin, there has been considerable interest in investment properties, and rightly so. The combination of low rates and higher rents make investment real estate a very attractive option. Also, if the property that you buy currently has tenants, the lender can use the rental income to help qualify for the new loan.

Another factor to consider—these low rates are fixed, not adjustable. Therefore, your cash flow, as well as your equity, will continue to grow well into the future.

If you’ve been thinking about investing in real estate here in the Austin area, it’s time to take a closer look. There may never be a better time to buy a rental property than right now.

Interested? Click here to apply today!

The Cost of Waiting

The Cost of Waiting

This spreadsheet breaks down the cost of waiting for the perfect interest rate, with 20% down on a $350,000 property. Essentially, when all the variables are added up, waiting one year will cost you $25,321, while waiting two years will cost you $52,111.

So what are you waiting for? If you’re waiting to save enough to put 20% down, I got news for you: you may not need 20% down. There are plenty of loans available where you can put anywhere from 5% to 1% down. Click here to apply today.

Mortgage Terms You Should Know

Mortgage Terms You Should Know

I know it seems like sometimes we mortgage specialists are speaking in a different language! I’m here to tell ya, I feel your pain (I wasn’t born a mortgage specialist). Here’s a list of frequently used terms that will hopefully narrow your learning curve when you’re looking for a new home and securing a mortgage.

Amortization

Amortization is the accounting of the pay-off of your mortgage over time though a fixed principal and interest payment.

Appraisal

Appraisals are written estimates of homes.  A qualified appraiser will visit the home and conduct the appraisal within certain uniform guidelines. The purpose is to show the bank how much the property is worth.

APR (Annual Percentage Rate)

APR is the true cost of borrowing money.  It calculates the interest paid over the life of the loan as well as the cost of securing the loan. Interest rate only shows the percentage of the principal a lender charges you. When comparing loan products, be sure to compare the APR (not just interest rate) as fees and closing costs can vary from lender to lender.

Clear to Close

A clear to close is when the underwriter has reviewed and signed off on the documentation required for you loan program.  Once the clear to close is issued, the fun part begins – processing to fund and close the loan. 

Closing Costs

Closing Costs for buyers include hard costs associated in securing a mortgage.  When you close on a loan, your closing costs will include the appraisal, origination points, and other fees. Closing costs are above and beyond your down payment and can run from 2-4% of the loan amount.

Closing Disclosure

The closing disclosure is a document covering the final details of your home mortgage.  It provides all of the accounting of your closing costs and your monthly payments. Federal law requires that your closing disclosure must be provided to you 3 days in advance of closing. This will give you time to compare it to your previous loan estimate and ask questions of your loan originator.

Debt to Income Ratio

Your debt to income ratio is one of the major qualifiers an underwriter uses to ascertain your eligibility for a loan program.  Simply, it is your gross income divided into your monthly consumer debt.  Consumer debt being your housing expense, car loans, student loans, minimum credit card payments etc….  Most loan programs will allow a 41-43$ debt to income ratio, but does vary quite a bit from loan program to loan program.  Your debt to income ratio is one of the largest qualifiers of how much home you can buy or get a mortgage for.

Equity

Equity is how much of the house you own vs the bank. As the market value of your house rises and you pay down the principal, your equity stake in your home rises. The amount of equity you have in your home will effect the loan programs that are available to you as well as your interest rate.

Escrows

Your lender, under most circumstances, are going to insist you fund and maintain an escrow account for your home insurance and property taxes.  Your lender will actually be responsible for making the payment—using your money, of course. Setting up an pre-funded escrow accounts and collecting a small amount every month for insurance and taxes ensure the bank the payments will be made in a timely manner. When you  pay off your mortgage, the money in the escrow account is yours.

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are government sponsored agencies created to provide affordable mortgages to low-middle income Americans.  They set the guidelines for the conforming loan to be easily bought and sold on the secondary market as well as guaranteeing the loans. Over 90% of the home loans in the US are backed by either Fannie Mae or Freddie Mac.

FICO Score

Your FICO score is your credit score used when securing a mortgage. Specifically your FICO score is a score designed by Fair Issacson Corporation and is a set of scores from the three major credit bureaus.  Your credit score impacts your interest rate more than any single criteria used in determining your eligibility for a loan.

Fixed Rate

A fixed rate mortgage is a mortgage rate that is fixed for the life of the loan, meaning your principal and interest payment never change over the life of the loan.  The most common mortgage product is the 30-year fixed mortgage rate.

Jumbo Loan

A jumbo loan or mortgage is a loan that is outside the lending limits of the Federal Housing Authority.  A jumbo mortgage is not eligible to be purchased, securitized or backed by FannieMae or FreddieMac. 

Loan Estimate

The loan estimate is a 3 page document that goes over the details of a loan.  It covers your loan amount, interest rate and closing costs. 

Loan Originator

The loan originator, loan officer or mortgage originator is your first point of contact in the home loan process.  They will facilitate your loan application and walk you to the closing table.  They are your point of customer service with your lender.

Loan to Value Ratio

Loan to value ratio is the amount of money you have put into the deal and how much you are financing.  If you are putting 20% that you have an 80% loan to value ratio.  Another big qualifying factor to fit you into a loan program.

Principal Payment

The amount of payment that is put towards the balance of the loan when you make a mortgage payment.  In the beginning your principal payment will be low and with each month that goes by a little more of your payment goes to principal.

Private Mortgage Insurance

Private Mortgage Insurance is an insurance premium you typically pay on loans that have less than a 20% down payment.  The private mortgage insurance covers any losses the bank should have if you default on your loan.

Processor

Once you meet with your loan officer and fill out the application and provide the necessary documentation, your loan will be turned over to a processor. The processors job is to package the loan and double check all necessary documentation is provided before it is submitted to underwriting.

Rate Lock

A rate lock is an agreement between you and your lender guaranteeing an interest rate on a specific loan product.  Interest rates on loans can fluctuate on a daily basis and until you lock your interest rate, your interest rate is whatever the market rate is for that day.

Title Insurance

Title insurance is an insurance policy that you purchase for your bank to cover any losses due to a title defect.  It is a one time up front fee when you secure a mortgage.

Variable Rate

Variable rate or adjustable rate mortgages are a mortgage product that is fixed for a certain period and than adjusts yearly based on a specific financial index.  Usually homeowners will go with an adjustable rate mortgage if the interest rate is lower than the 30-year fixed rate at that time.

Underwriting

Underwriting is one of the most critical pieces of the lending process.  An underwriter  assesses a borrower’s credit worthiness through reviewing credit, income, and assets. 

Should You Buy a House Now or Wait?

Should You Buy a House Now or Wait?

Have you been on the fence about buying a home? Are you still running the numbers in your head to discover exactly when the right time will be? Here are a few things to consider if you’re just not ready to start shopping.

Interest rates are holding steady, but all eyes have been on the Fed over the past few months. Many analysts think an interest rate hike of 0.25% at the December FOMC meetings is likely. Mortgage rates overall have been in a relatively tight range so far this year, and the last time the Fed raised rates it was in December of last year.

Let’s look at a $350,000 purchase price with a 20% down payment and a loan amount of $280,000. An increase of just 0.25% on a 30 year loan would mean nearly $475 in higher interest charges in just the first year alone and $2,375 over five. No one is certain what the Fed will do in December, but we do know the impact of an interest rate hike of just 0.25%.

Okay, let’s say the Feds stay put. But what about property values? According to the Austin Board of Realtors, the median home price of homes in the greater Austin area rose by 7.5% just over the past year. That $350,000 home would then be closer to $376,000, or $26,000 more. The most recent data also shows the inventory of homes is at 2.7 months—still very much a seller’s market.

Now let’s look at what would happen by combining both a rate increase and a $376,000 price for the very same home. First, you would need $5,000 more for your 20% down payment. Second, the loan amount is $300,000 and the monthly payment for the next year is $1,549 more and around $7,750 over the next five years. The cost of waiting? It’s the higher down payment and higher monthly payments.

If you did buy that $350,000 home and financed today, not only would your payments be lower compared to an interest rate increase of 0.25%, but you also enjoy the increase in homeowner equity over the first year of $26,000.

We know these numbers are not set in stone, but based upon current data and industry expectations.

If you’d like to have us run some numbers for you, shoot us a message and we’ll put together a custom plan for you.

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