The latest numbers from Freddie Mac should greatly interest military borrowers: Fixed-rate mortgages hit their lowest level since such numbers have been tracked, just 3.84 percent for a 30-year loan.
This is a number that should cause VA loan borrowers to take a look at their current financing. What’s the rate you’re now paying? If you refinanced your current loan how much could you save per month?
There are two basic approaches to a VA refinance. There’s the VA Streamline program, which is designed to move current VA homeowners into fixed-rate loans with lower rates. It’s also intended to help borrowers move from adjustable-rate financing to fixed-rate loans. The other approach is a Cash-Out refinance, a new loan which allows you to get cash at closing.
With the Streamline program the VA has no requirement for a credit check or appraisal. However, while the VA provides mortgage insurance it doesn’t actually supply the cash used to make the loan. The money comes from private lenders the odds are that they will raise questions about credit and home values.
Under the Streamline program a qualified borrower can replace a current loan with new financing. The borrower cannot get cash at closing with a Streamline refinance, however you can add most settlement expenses to the loan amount, creating a refinance with little or no cash at closing.
Borrowers have to understand that the term “no cash” does not mean the same thing as “no-cost.” There will be costs, the question is whether they will be paid with a bigger mortgage that includes the old loan plus closing costs or will the borrower cover such expenses with cash from savings?
The other VA refinancing alternative is the Cash-Out refinance. With this program — if you have sufficient equity — you do get cash at closing and that cash can be used as you prefer, provided the lender agrees. Since a mortgage is low-cost debt – especially today – one of the best uses for the money obtained from a Cash-Out refinance is to pay off high-cost debt such as credit cards.
Paying off credit cards can significantly reduce monthly costs and thus produce a financial advantage. But the benefit of refinancing to accomplish this goal can be lost if the borrower once again runs up additional credit card charges. Refinancing and lowering monthly costs should be seen as a fresh budget-balancing opportunity, the chance to reinvigorate one’s finances by holding down debt, cutting costs and putting cash in a savings account. This is a great way for borrowers to increase credit scores and prepare themselves if a sudden need for cash arises.
Even though refinancing may result in a lower monthly mortgage payment VA borrowers should ask if the benefits of a refinance are sufficient to justify the loan.
The quick and easy way to test the value of a refinance is to compare monthly savings with closing costs. For instance, imagine that a new loan will save you $75 per month. Imagine also that the cost to refinance will be $4,000. In such a scenario it will take 54 months before the borrower begins to see real savings from the transaction. This may make sense if you’re
going to remain at the property, but not if you’re leaving in two years.
Talk with a Veterans United refinance specialist at 888-212-1958 to learn more about how a Streamline or Cash-Out loan can help you.
Under the just-announced $25 billion national mortgage settlement, members of the military are supposed to have additional protections to guard against wrongful foreclosures. It would seem that the new settlement would bolster the benefits already in place under the Servicemembers Civil Relief Act (SCRA) but that’s not entirely clear.
The issue is this: When must lenders halt foreclosures involving a member of the military who serves in a combat zone? Are copies of orders or a letter from your commanding officer to the loan servicer enough to demonstrate SCRA coverage?
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Cash is a wonderful thing. It may be true that it can’t buy love or happiness, but it sure is useful when it comes to groceries, gasoline and mortgage payments.
Real median household income, says the Census Bureau, reached $49,777 in 2009. That’s 5 percent less than households earned a decade earlier, in 1999, when they typically took in $52,388.
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The past few years have seen an enormous number of foreclosures. The common wisdom has been that a leading cause of default was payment shock, a swift and sizable increase in adjustable monthly payments.
Now, however, Paul S. Willen, a senior economist with the Federal Reserve Bank of Boston, says payment shock is little more than an urban myth.
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The federal government will receive $45 million from the JPMorgan Chase Bank to settle allegations in a lawsuit that it overcharged military borrowers.
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Improperly foreclosed vets will get a minimum of $116,785 under a settlement between the Justice Department and the nation’s largest banks.
The settlement provides compensation that’s more than 50 times greater than the $2,000 provided to those who lost their homes to robo-signing under the just-announced $25 billion deal between major banks and most states.
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The leading real estate story of the past few years has concerned foreclosures and delinquencies, but an untold story concerns the VA mortgage program and the fact that it has the lowest level of troubled loans.
VA loans have had the lowest rate of foreclosure for the past 14 months and the lowest rate of serious delinquency for the past 11 months, according to the Mortgage Banker Association. Serious delinquency refers to the percentage of loans 90 days or more past due. The rates exceed even those of prime loans.
These VA foreclosure results allow us to make several observations.
First, down payments are not the key to mortgage success. VA mortgages are almost always made with zero down versus 3.5 percent for FHA financing and 5 percent for conventional loans with private mortgage insurance.
Second, high interest rates for subprime loans are justified by steep foreclosure rates. Alternatively, some would argue that as a business decision lenders should not be making subprime loans given the woeful results such financing produces. The catch is that if lenders do not make subprime loans there will be fewer buyers in the marketplace, less demand, and less pressure to force up home prices — not a good strategy in today’s world.
Third, another argument in the finance field goes like this: The VA gets good results, the best results, because it uses leverage to hold lenders accountable for the loans they make.
How is that done?
Here’s an example: Imagine that a lender makes an FHA loan. The principal amount is 100 percent insured. If the loan goes bad the FHA insurance fund takes the hit.
Now imagine that a lender makes a VA mortgage. Nope, no 100 percent lender guarantee here. Instead, the VA promises to pay back only a portion of the debt. As the VA explains, lenders get “a 25% guaranty from VA, assuming the veteran has full entitlement.”
A 25 percent guarantee is substantial — before the foreclosure crisis it was hard to imagine a situation where a lender could make a VA loan and lose a quarter of the loan amount. In effect, VA mortgages represented almost no risk to lenders.
Today, however, a 25-percent loss is entirely possible. As an example, the Federal Housing Finance Agency reports that home values at the end of the second quarter were down 18.8 percent when compared with the peak in April 2007. You can bet that in the major foreclosure centers the typical price drop has been far greater.
To get the benefits of a VA mortgage you can expect lenders to check and verify every aspect of a loan application with a particular vigor. That’s fair, because with the VA program lenders really have skin in the game — their own.
The benefit to VA borrowers is that with fewer foreclosures there’s less justification to raise the up-front funding fee, and that’s fair, too.
Photo courtesy of respres
There’s no doubt that we live in rough economic times. It’s enough to make you want to stick money in a mattress — indeed, according to one survey that’s what 27 percent of us want to do.
The catch is that mattresses are a woeful investment option. Putting cash in a mattress earns no interest and if lost, stolen or destroyed is entirely uninsured.
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The past few years FHA loans have been enormously popular. This is largely a byproduct of the fact that FHA financing is a known quantity; these loans have been used by more than 37 million borrowers since the 1930s.
No less important, FHA financing is safe. Like VA loans, an FHA mortgage doesn’t have any “gotcha” clauses that create unfair costs or surprise foreclosures.
The popularity and safety of FHA financing raises a question: Instead of getting a VA mortgage would it make more sense to get an FHA loan now and save your VA entitlement for later?
The government has new mortgage information and guess what? It turns out that the use of VA mortgages has more than doubled since the financial crisis began — and that those who use VA loans have fewer foreclosures than any other group of borrowers.
This is a very big deal because the foreclosure crisis would be far worse had it not been for the use of FHA and VA mortgages. Now, for the first time, we can begin to see how government-insured home loans have prevented the fall of the housing market from being much worse.
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