VA Home Loans Folsom, CA
No Down Payment Options, No Mortgage Insurance, and Lower Interest Rates, these loans are guaranteed by Veteran’s Affairs.
What is a VA Loan?
A VA Loan is a home loan provided to Veterans and Active Duty Service Members for the purpose of purchasing or refinancing their primary residence. The loan is provided by banks who are backed by the US Department of Veteran’s Affairs, which allows them to provide lower than market rates along with eased guidelines for service members.
Highlights of the VA Loan:
- Available to Active Military Service Members or Veterans
- Zero Down-Payment Required
- No Ongoing Mortgage Insurance
- Lower Rates
- Can be Used for Purchase or Refinance
- Up Front Funding Fee (Added to the Loan Principal)
How Does a VA Loan Work?
The loan is provided by originating banks who follow the guidelines set forth by VA, who then insure the loan against default for the bank. This allows the originating bank to provide relaxed guidelines and lower rates to the service member who is using the loan. It is considered a benefit to the service member.
Who Can Be On the Loan?
VA has determined that the following can be on the loan:
- Veteran or Active Duty Service Person that meets the eligibility guidelines
- Veteran or Active Duty Servicer Person and a Spouse
- Veteran or Active Duty Service Person and another Veteran or Active Duty Service Person.
A civilian who is not a spouse may not be on the loan with the Veteran or Active Duty Service Person
Loan Purposes: A VA Loan may be used for either purchase or refinance
- Purchase: A veteran may purchase an eligible property that the veteran intends to occupy as their residence
- Refinance: This is for the refinance of an existing home:
- The veteran may take cash out or just reduce the rate or terms of an existing loan
- Streamline or IRRRL – This is when a veteran has an existing VA Loan and wishes to reduce the rate or improve the terms. See IRRRL information below
VA does not set a cap on the loan amount that a veteran can borrow, however, there are limits on the amount of liability that they will insure. This will typically affect the loan amount that a veteran can take on and subsequently the sales price if they choose not provide a down payment. The basic entitlement available to each veteran is $36,000. As long as the veteran has their full entitlement, lenders may provide 100% financing up to the VA set County Limit for each area.
If the veteran chooses to purchase a home over the County Limit, they will be required to bring in 25% of the difference as a down payment. In addition, if the VA Funding Fee takes the loan over the County Limit, then it will be necessary to bring in the difference over the County Limit.
Standard Loan Limits: $417,000
High Balance Loan Limits: Over $417,000 up to County High Balance Loan Limit
Jumbo Loan Limits: Over High Balance Loan Limit
List of Area Limits is Subject to Change by the VA
Example Jumbo Loan Scenario: In Sacramento, the 2015 County Limit is $474,950. If a veteran chooses to purchase a home for $520,000, they will need to come in with $22,200.36 plus any closing costs and prepaid items at closing:
- Down Payment = $11,626.50 = ($520,000 sales price – $474,950 loan limit $45,050) * 0.25%
- The Loan Amount will be $$508,737.50 ($520,000 sales price – $11,626.50 down payment)
- Funding Fee = $10,937.86 (2.15% funding fee * $508,737.50 loan amount). They have to pay the funding fee up front because it is over the maximum County Loan Limit
**Note: High Balance and Jumbo VA Loans may have stricter guidelines including: 1) Additional credit requirements 2) Additional Funds Required in the borrower’s account at closing – Reserves 3) Down-Payment restrictions and 4) Tighter rules regarding gifts.
A Partial List of 2015 County High Balance Loan Limits are as follows for California:
- Central Valley (Fresno, San Joaquin, Stanislaus) – $417,000
- Los Angeles (LA, Orange) – $625,500
- Marin – $625,500
- Sacramento (El Dorado, Placer, Yolo) – $474,950
- San Diego – $562,350
- San Francisco Bay Area (Alameda, Contra Costa, San Mateo, Santa Clara) – $625,500
- Santa Barbara – $625,500
- Santa Cruz – $625,500
- Ventura – $603,750
Click Here for a Full List of 2015 High Balance County Loan Limits for California
VA Loans are available both as Fixed Rate and Adjustable Rate Mortgages. The most common for VA is Fixed Rate, where the rate is the same over the life of the loan. On Adjustable Rate Mortgages, the rate can vary based upon the index plus a set margin. A Hybrid Adjustable is when the rate is fixed for a set period of time then can increase based upon the current index plus margin. The most common types of ARMs provided by VA is the 3-Year, 5-Year, and 7-Year Adjustable Hybrid ARMs.
Here’s the Way the Hybrid Adjustable Rate Mortgage Works:
Let’s take the Hybrid 5-Year ARM as an example. The first part of making up the rate is the index. There are several different indices that can be used, but the primary is LIBOR, or London Interbank Offering Rate. In addition to the index there is a margin that is added to make up the rate. With a margin of 2.25% added to an index of say 0.5%, the base rate may be 2.75%. The rate may have a starting rate of 3.25% and then will revert to the base rate when the initial 5-year period is over. In the 6th year, when the rate adjusts the base rate is used. If the index is still 0.5%, the overall rate will go down to 2.75%; however, if the index is higher at 2% at the anniversary date, the rate would go up to 4.25%. The index changes monthly and during the anniversary period annually the overall rate can be adjusted up or down dependent on what the index is doing.
So how high can a Hybrid ARM rate go on a VA Loan at the adjustment anniversary? To protect VA borrowers, there is a capping feature in place. The rate can go up a maximum of 1% per year to a maximum of 5% over the starting interest rate. So if rates were higher, and the borrower started with a rate of 3.25% in the first year, on year 6 the rate may increase to 4.75% and cap out at 8.75% in year 10. At that point, the rate is capped and cannot increase any more over the life of the loan.
Fixed Rates Terms:
- 10-Year Fixed
- 15-Year Fixed
- 20-Year Fixed
- 30-Year Fixed
Hybrid Adjustable Rate Terms:
- 3-Year ARM
- 5-Year ARM
- 7-Year ARM
Loan to Value Rules (LTV):
Loan to Value is a percentage of the loan amount divided by the value of the home. Purchases go to 100% LTV, standard refinances go to 90% LTV, and Streamline Refinances, IRRRLs, go to 100% LTV.
Duty Requirements for Eligibility:
VA Loans are available to Veterans who have served on active military duty in any of the following branches: Navy, Marines, Air Force, Army or Coast Guard. Except in cases where the service member is still on active duty, they must have been discharged with anything other than a dishonorable discharge. Below are further requirements regarding eligibility:
- Minimum Service Required for Wartime Periods – 90 days
- Minimum Service Required for Peacetime Periods – 181 days of continuous active duty
- Acceptable Discharge Reasons – Anything other than a Dishonorable Discharge is acceptable
- Discharge due to Service Related Disability – Veterans who served less than the minimum required period may still be eligible if it is due to a service-connected disability
- Reserves or National Guard – Members of the Reserves or National Guard who are not eligible for loan guaranty benefits are eligible upon completion of 6 years of select service
- Reserves or National Guard with Service Connected Disability – Service Members discharged from the Reserves or National Guard with less than 6 years are eligible if it’s a service-connected disability
- Un-Remarried Surviving Spouses – The surviving unmarried spouse of an eligible service member who dies in service-connected activity may be eligible for a VA Loan.
Acceptable Property Types – Acceptable property types for VA Loans include:
- Single Family Residences (1-4 units)
- PUDS (attached and detached)
- VA-Approved Condominiums. VA has a list of approved condos, and if the property is not on the list, the VA will not insure the transaction. To determine if the subject condo is on the list, go to https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch.
- Manufactured Homes
- Modular Homes
Unacceptable Property Types – The following property types are considered ineligible by the VA:
- Condominiums with less than 400 feet
- Marijuana Production Homes – If marijuana is produced on the property, it is ineligible
- VA REOs – VA funded properties that have been foreclosed upon
- Properties not likely to meet Minimum Property Requirements
- Properties with Chinese Drywall
- Location Related Problems – Special Flood Areas, Airport Noise Zone 3, Unapproved Condo Complex, etc.
Qualifications for Eligibility
Most banks require a credit scores of at least 620 for standard balance VA Loans. There are some lenders that will go down below 580, but compensating factors may need to be present including: a larger down payment, ample reserves, low debt to income, and they may require additional underwriting requirements.
Adverse Credit Events:
- Bankruptcy, Foreclosure, Short Sales – 2-Year Waiting Period: Two years seasoning is required for adverse events including Bankruptcy, Foreclosure and Short-Sales. If the foreclosure was on a VA Loan, then the veteran may not have full entitlement restored for the new loan. The credit report must show that all mortgage liens have $0 balances.
- Collections: It is up to Veteran’s Affairs to determine whether collections must be paid or not.
- Judgments or Tax Liens – Must be paid in full prior to funding the loan or a repayment plan must be in place with a history of on-time payments.
As with most loans a borrower using the VA Loan must prove that they have consistent income and the ability to make timely payments. While it is standard for the qualifying debt ratio not to exceed 41% of income, the VA Loan often is approved over 50% of income as long as other compensating factors are present. The total Debt Ratio is calculated by taking total monthly debt (including housing payments, credit cards, car payments, alimony, tax liens and any other debt) and dividing it by monthly total income. If the credit ratio is determined to be too high, debt may be paid off in order to qualify for the loan. In addition, by paying off debt, it should increase the veteran’s credit scores.
The veteran must have sufficient funds to pay for closing costs and points. In addition, if the appraisal comes in lower than the purchase price, and the veteran decides to pay more than the appraisal, they must pay for the difference with their own funds:
VA Loans do not require the veteran to have reserves left after the purchase of the home unless they are purchasing a multi-family residence, such as a duplex, and using rent to qualify. Reserves are defined as a certain number of months of principal, interest, taxes and insurance. The following reserves must be met:
- 1-Unit – No Reserves Required
- 2-4 Units – No Reserves Required when rental is not being used to qualify
- 2-4 Units – 6 months PITI must be in the bank when rent is being used to qualify
Advantage # 1 – 100% Financing:
One of the notable advantages of the VA Loan is that it provides 100% financing for the service member. In order to help veterans easily get into housing, the VA has determined that their service members are not required to provide a down payment. There is an exception, Jumbo VA Loans (over the standard local loan limit), typically require the borrower to come in with a down payment.
Advantage #2 – Relaxed Underwriting Guidelines:
It takes time to develop a credit history and often veterans have not had the time to establish their credit as they have been out of country for sustained periods of time. In addition, there are extenuating reasons that credit may be tarnished. The VA permits limited credit history and shorter waiting periods after late payments, bankruptcies and foreclosure.
Advantage #3 – No Mortgage Insurance:
Unlike FHA loans or conventional loans of more than 80 percent loan-to-value, mortgage insurance is not required on VA loans. This keeps the payment lower for borrowers, and can result in several thousand dollars over the life of the loan. There is an up-front funding fee required on VA Loans unless the borrower has 10% service-connected disability, and then it may be waived entirely.
Advantage #4 – Lower Interest Rates:
Rates on VA loans are often as much as ½ percent lower than conventional loan rates. Due to the protection of the Federal Government against default, banks are able to offer lower rates to veterans. This often results in lower payments.
- Fill out an Online Application or contact a mortgage consultant in person to apply by phone
- Begin pulling together items required from the Needs List – some of the basic items for a W2 Employee are included below. For a full list Click Here:
- DD214 in order to acquire your Certificate of Eligibility
- Paystubs – Most recent full month
- W2s – Most recent 2 years
- Tax Returns – Most recent 2 years’ Federal Returns – all schedules
- Bank Statements – Most recent 2 months’ including all pages even blanks
- Investment Statements – Most recent Quarter if Quarterly or most recent 2 months if monthly
- Once all paperwork is submitted, a loan consultant will determine your eligibility for a VA Loan and let you know what the rates, fees, and terms might be so that you can get started in purchasing your home.
Appraisal ~ NOV (Notice of Value)
An appraisal, known as a Notice of Value for a VA Loan, is required to ensure that any property that will become security for a VA Guaranteed loan will: 1) Meet the Loan to Value parameters required for a VA Loan as well ensure that it is in acceptable condition. The appraisal is completed on Form 1004 and must include the following:
- Photographs of the Interior of the Property: At a minimum, they must show the main living area, kitchen, and all bathrooms. If present, it must include examples of physical deterioration and recent updates including renovation, restoration and remodeling.
- Other Views of Subject: Clear and illustrative photographs must be original showing the front, rear view, side views, and a street scene of the subject property.
- Comparable Sales: A photograph of the front of each comparable sale used must be included.
- Improvements, Site Features, and Views: Must be included in the appraisal.
- Carbon Monoxide Detectors: Are required in the state of California. If the detectors are not present on the appraisal and re-inspection may be required to prove that they have been added.
- Appraisal Under Contract Price: If an appraisal comes in lower than the contracted price, the price can be re-negotiated by Veteran and seller, or the Veteran may pay the difference. If they choose to pay the difference, a Letter of Explanation must be included to confirm that there was a reason they chose to pay more for the property.
The Square footage for Unpermitted Additions may be used to determine value on a VA Loan as long as the appraiser determines that the work was completed in a workmanlike manner. A home inspection may be required to show that the work was done properly.
Carbon Monoxide Detectors:
Carbon Monoxide Detectors are required within the State of California. If the property is absent of monoxide detectors during the original appraiser site visit, they must be installed. The appraiser must re-inspect the property, take pictures of the detectors, and submit them to the lender prior to funding the loan. This can slow the process, so it is best to make sure that they are present prior to the original site visit.
Timeframe for Appraisal:
Veteran’s Affairs commits to having appraisals complete and back within 10 business days, two full weeks. While appraisals can come back sooner, it is best to expect a 2 week turnaround. The lender has no control over when the appraisal comes back and is strictly at the will of the VA Appraiser.
Pest inspections are required on VA Loans. While the veteran can pay for work to be completed on the property to meet the pest inspection requirements, they are not allowed to pay for the inspection. The Pest Inspection Report is broken down into Section 1 Repairs and Section 2 Repairs. It is mandatory that Section 1 Repairs be completed, but on a VA Loan, it’s best to expect Section 2 will need to be completed as well prior to the lender funding the loan.
- Section 1 Repairs – These contain visible evidence of active infestation of termites, beetles or other damage causing insects or infection of wood decaying fungi found.
- Section 2 Repairs – Items where a current condition exists that is “deemed likely” to lead to infestation or infection.
Interested Party Contributions – Seller Contribution to Closing Costs:
Seller Contributions also known as a Seller Concessions is the seller’s ability to bring additional value to the transaction and expedite the deal by assisting the veteran with their cash to close or improving the overall transaction. The seller may pay up to 4% of the sales price toward the veteran’s closing costs and prepaid items. Closing costs are the one-time fees that the veteran incurs in purchasing the home including escrow fee, title fees, lender fees, underwriting, processing, credit report, and other one-time fees. Pre-paid Items include up-front interest, hazard insurance, and funds required to fund the impound account. The seller may also pay the up-front loan funding fee. One additional item of note is that the seller may also pay off debt for the veteran…this is the only loan that permits this.
Converting a Primary Residence to a Rental:
It is becoming more common for owners to retain their existing primary residence as a rental and purchasing another home as their primary residence. When converting a primary residence, the following rules apply:
- Reserve requirements, months of principal, interest, taxes and insurance, are determined by Veteran’s Affairs
- Rental income may be used to offset the payment of the departure property when the following is present:
- 12 Month Lease Agreement is required
- Security Deposit must be documented
- Cannot use rent as income, only may offset payment with rent
Refinance of a Recently Listed Property:
The refinance of a property that was recently listed for sale is not permitted. The property must have been off the market for the previous 6 months or else it is subject to a 70% loan to value.
Power of Attorney (POA):
There are occasions where one of the borrowers on a VA Loan is not able to sign loan documents in person due to travel or other various other reasons. In this case a Power of Attorney may be used where one borrower signs for the other. It is important to clear this with bank management in advance and the following must be met:
- It must be a Limited, Specific or Durable Power of Attorney
- A copy of the POA is required for Title/ Escrow
- A POA may not be used when signing the initial application. The Veteran must sign the initial application and sales contract
- Signatures and typed names must match exactly
Credit and Debt in Cases where Spouse is not on the Loan:
In community property states such as California, VA requires the lender to consider the non-borrowing spouse’s credit information. Judgments, liens, or other delinquent credit that might compromise the lender must be paid off. In addition, normal debt payments of the spouse must be added to the monthly debt burden whether their income is being used or not.
Impound accounts are required on VA Loans. An impound account is when the borrower pays a monthly portion of taxes and insurance directly to the lender, who then collects the funds until they are due. When taxes and insurance are due, twice per year for taxes and once per year for insurance, the lender pays the amount due directly to the county tax assessor and the insurance company.
- It is the lender’s job to make sure that there is always enough money in the impound account, so they normally do an impound account audit once or twice per year. It is not uncommon that the lender gets ahead and refunds money to the borrower or gets behind and collects more from the borrower to adjust the account.
- The borrower may use any insurance company they want and simply need to let the lender know if changes are made.
- Impound accounts protect the lender in the case of a default.
VA Funding Fee:
One of the great benefits of a VA Loan is the absence of ongoing mortgage insurance. There is, however, a funding fee that is required. This funding fee is part of the VA Loan and is a different percentage based upon various factors.
- The VA Funding Fee is typically financed into the loan amount and is not required to be paid up front at closing.
- If the combined amount of the loan and the funding fee exceeds the county limit, the portion of the funding fee that exceeds the county loan limit must be paid at closing.
- The borrower must either finance the funding fee into the loan or pay up front. VA does not permit the borrower to do a combination of the two.
Funding Fee Table:
Use the table below to determine the Up-Front Funding Fee required on a VA Loan. To determine the dollar amount to be financed on the loan, take the % required and multiply it times the loan amount. For example, if you are a first time use regular military with 0% down, then multiply 2.15% times the loan amount. For a loan amount of $250,000, this would be $5,375.
Streamline Refinancing (IRRRL):
One of the great benefits of a VA Loan is the ability to perform a Streamline Refinance or Interest Rate Reduction Refinance Loan when rates improve. This is a reduced documentation loan available only to current holders of a VA Loan. Income documentation is not required nor is asset documentation. A mortgage only credit report is required and must have a credit score of 640 or higher.
- Appraisal for IRRRL: Appraisal may or may not be required
- Credit Score for IRRRL: Sufficient credit score is required based upon lender requirements
- Income Documentation Required: None unless payment increases by more than 20%
- Asset Documentation Required: None unless assets needed for cash to close
- Funding Fee:5%
- Loan to Value: 100%
- Recoupment Policy / Net Tangible Benefit: It must be shown that the borrower recoupment period for all fees and charges for the refinance are under 36 months. If this cannot be proven, then it must be shown that a direct benefit is there for the borrower, including but not limited to a reduction in term or a more stable loan product.
- Subordinate Financing: The IRRRL must replace the existing first. If there is 2nd in place, then the 2nd must agree to subordinate behind the new VA Loan.
- Recently Listed Properties: Are allowed as long as long as the listing was cancelled at least one day before the loan refinance application date.
- Term of the New Loan:
- Must not be more than 10 years longer than the original loan
- Interest rate must be lower than the loan it is replacing unless refinancing from an ARM to a Fixed Rate Loan.
- Payment must go down unless they are moving from an ARM to a Fixed Rate Loan.