VA Loan

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VA loans are not hard to find but finding the lowest rate and best terms of a VA loan can be tough if you are not educated on the current market standard.  In addition, having a good and knowledgeable VA loan broker can be the difference in closing your purchase on time or even having your offer accepted all together.

The VA loan is the best loan for those who qualify but it can be difficult to get your offer accepted by the seller when competing with conventional financing or cash buyers.

Valor Lending Group is licensed in Arizona, California and Florida and we work with the top funding sources to help you receive the most competitive pricing available. We have been able to get VA loan offers accepted even when competing against cash buyers.

A. What is a VA Loan?

The VA home loan, backed by the Department of Veteran Affairs, was first created in 1944. This loan assisted service members with purchasing or refinancing a home after returning from war without requiring a great credit score or down payment. Later, some lenders, increased their loan limits to above the county loan limits to assist current service members and veterans with larger purchases in areas where the conforming and high balance loan limits were much lower than the average house in the area. VA loans are up to 100% financing, limited closing costs and low interest rates for all who qualify whether it is a purchase or refinance including a cash out refinance and no mortgage insurance.

VA Loan Limits: Arizona VA Loan Limits, California VA Loan Limits and Florida VA Loan Limits

B. Why Use a VA Loan?

VA loans are the right of any service member who serves or has served in the armed forces and received an honorable discharge. It is structured in a way, to include the lowest interest rate, highest amount of leverage, being backed by the VA, to provide our service members and veterans a fantastic VA benefit because of the sacrifice that they or their spouses have made to protect and defend our amazing country. Thank you for serving! This is one of the most valuable benefits for serving.

The qualifying income is viewed in conjunction with all debts, and a debt-to-income (“DTI”) ratio is calculated. Traditional mortgage lenders would be required to have a DTI of no more that 50% even with a lower credit score and 100% financing.

C. What Does A VA Loan Look Like?

1) Self-Employed Requirement

VA loan lenders will typically require a borrower to be self-employed for a minimum of two years. This is verified either through appropriate professional licenses, business licenses, or sometimes a letter from a tax preparer. Additionally, 2 years business income tax returns are required for business owners to verify no decline of business income year over year.

VA Jumbo lenders may also consider the W2 earnings of a spouse or coborrower in terms of qualifying income.

2) Employment Requirement

VA loan lenders review 2 years most recent consecutive tax returns, W2’s, 1099’s and paystubs to determine qualifying income. Additional types of income include social security, pensions, retirement monthly distributions, and annuities etc.

VA lenders, as typical with all full document loans will look to obtain your most recent 30 days paystubs and a certified employment offer letter stating the gross salary, start date and benefits (for those who are starting a new job in the same industry).

(a) Qualifying Hourly employee income
For hourly W2 employees, the lender will use your hourly rate of pay, averaged with your most recent 2 years tax return income while also taking into consideration your year-to-date income on the year. Additionally, the lender will qualify a two-year average of your commission, bonus, vacation pay and sick pay etc. (if applicable).

(b) Qualifying Salary employee income
The lender will always count 100% of your current salary and does not use a two-year average as your pay is guaranteed year to year per your employment contract. To the contrary the lender will qualify a two-year average of your commission, bonus, vacation pay and sick pay etc. (if applicable).

(c) Military income and documentation
Current service members will get their income documentation from the MyPay DFAS online account. If no longer serving, the lender will also require your DD214 to confirm time in service and status of discharge from the service or a surviving spouse. Also required will be your VA award letter and any disability or retirement income information. This income is tax free, and lenders will allow for a gross up of 25% of that income.

Example: disability income = $1,000.00/mo. Grossed up 25% makes the qualifying income $1,250.00 as qualifying income.



3) Income, Debts & Credit

After determining total qualifying income, the next step is to total up all debts, including the new mortgage payment, property tax, insurance and homeowner’s association (HOA). All monthly debts are viewed in conjunction with total monthly qualifying income, and most lenders will allow up to 50% debt-to-income (“DTI”) ratio when qualifying borrowers for a VA Loan.

Most VA Loan lenders require a minimum 580 credit score, although each has its own guideline overlays that may or may not allow for a higher or lower score. Credit requirements for VA loans are not as stringent as the traditional conforming loans or jumbo loans.

4) Down Payment, Rates & Costs

VA loans allow for 100% financing or more to cover the funding fee, if it is not exempt. These loans will have a noticeably lower interest rates due to the VA guaranteeing the loan and providing a 25% gratuity with all VA loans. Additionally, the VA loan does not require excellent credit and low debt to income ratio (DTI). It really is a great benefit to our servicemen and women.

Gift funds from close relatives are allowed, to be applied towards the down payment or closing costs.

Rates for VA loans are typically always lower than traditional conforming loans (based on a lesser perceived risk to conventional or jumbo loans), but all other typical loans fees are similar, such as possible origination points, broker and lender fees, appraisals, title, and escrow, etc. with the addition of the VA funding fee.

The VA funding fee is currently 2.3% of the loan amount for first time use borrowers. If a borrower has already used their VA loan, the funding fee is increased to 3.6%. This fee can be reduced by putting at least 5% as down payment. The funding fee is also exempt for servicemen or women who have 10% or more VA disability benefits or is a surviving spouse of a veteran who had died on duty as well as purple heart recipients.

5) One Unit VS 2-4 Unit Property

(a) One Unit Property
Owner occupied is the ONLY way to use VA loans, not to include a second home, offer higher leverage up to 100% loan to value (LTV) as well as the lowest interest rates, and lower credit score requirement. This loan can used by any honorably discharged serviceman or woman.

(b) 2–4-Unit Property
VA home loans cannot be utilized for non-owner-occupied properties UNLESS it is a 2–4-unit property. VA loans for 2-4 units allow for VA home loans borrowers to utilize their VA benefits to not only buy an income producing property but also allow for it to be 100% financed. The only catch on using VA loans to purchase a 2-4-unit property is the borrower is required to occupy one of the units as a primary residence.

6) VA Jumbo Loans

It is also possible to get “VA jumbo” loans. These are simply VA loans above a certain dollar amount, which is higher or lower depending on the county. For example, California VA Jumbo Loans start above minimum loan amounts ranging from $548,250 (Riverside County), to $822,375 (Los Angeles County) for single unit properties. (These amounts are higher for 2, 3, and 4-Unit properties). (Arizona VA Loan Limits) (California VA Loan Limits) (Florida VA Loan Limits)

(7) VA IRRRL Loans

The VA IRRRL “Interest Rate Reduction Refinance Loan” is a loan product that requires nearly no documentation. It is the simplest loan the VA provides to qualified borrowers. They do not require underwriting for credit, income, or an appraisal. It is a refinance loan available only to service members that currently have a VA loan. A borrower can not use this program to refinance out of a conventional loan. Additional requirements are the new rate must be lower than the current rate and the cost of the new loan has to be made back on the difference in payment in a specific amount of time, 36 months or less.

(8) VA One-Time-Close Construction loan

See Construction loans – Link

D. What VA Loans Are NOT

1) A VA Loan is NOT a “Conventional Loan”

VA loans require that you are active duty, honorably discharged or the surviving spouse of a service member who dies while in service, passed away due to a service -related injury or their spouse was MIA or a POW for at least 90 days. In addition, the surviving spouse may not be remarried. In short, a borrower must have had a connection to the military to qualify.

2) A VA Loan is NOT “more difficult than traditional mortgages”

A VA loan is said to be more difficult than a conventional or traditional mortgage. This is a big misconception that needs to be debunked. The VA home loan is specialized for the qualified buyer. This means there is a few additional documents needed to confirm qualification for this loan. Those Items are a DD214, VA award letter, VA disability letter and or retirement letter if applicable. Other than these additional documents, everything else required is the same as for conventional financing. Does that sound a lot more difficult?

E. Finding The Best VA Lenders

Many VA lenders and banks do have a retail channel, but not all VA lenders and banks can provide funding above the conforming high balance county limits. Those lenders typically do not have a retail channel but instead require the use of a broker. The best VA brokers will make sure to find the best VA lenders with the most favorable terms regardless of the borrower’s financial situation. It is in the broker’s best interest to find the lowest rate and most favorable terms available to best serve their VA loan clients.

If you are considering purchasing or refinancing a property using a VA loan, it is best to make sure you maintain your Service documents i.e., Certificate of Eligibility, DD214, VA Award letter and VA disability and/or retirement benefit information. As well as, tax records, W2’s, 1099’s and paystubs. Additionally, keep organized bank statements, retirement account statements and savings for a down payment. Be prepared by speaking with a broker to obtain a preapproval letter.

Valor Lending Group is a veteran and service member supporter and we donate 5% of our commission on every VA loan to a veterans charity of the borrower’s choosing and will reimburse for appraisals with loan amounts over $300,000.

F. Advantages And Disadvantages of VA Loans

1) Pros of a VA Loan

  • 100% financing is available
  • Typically, lowest interest rates of any loan program
  • Higher Loan Amounts
  • Luxury Homes purchase (better schools, lower crime rates, larger homes)
  • No Mortgage Insurance

2) Cons of a VA Loan

  • VA Funding Fee
  • Limit to two VA loans at a time
  • Can only be used for owner occupied properties

G. The Bottom Line

VA loans provide our current and former service members as well as their surviving spouses and dependents with the home financing they earned by serving our country with honor because freedom doesn’t come free. A VA home loan provides them the opportunity to borrow up to 100% of their purchase price to acquire much higher value, larger homes in the most desirable communities throughout the country. Additionally, borrowers using the VA loan will not have to come in with the difference in cash above the conforming loan limits. When seeking higher end luxury homes. Not every lender offers jumbo VA loans, it is best to identify and partner with a VA loan specialist such as Valor Lending Group. We are licensed in Arizona, California and Florida and look forward to helping you with all of your VA Loan needs.

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