Here’s a transcript of the VA Loan Live Hangout from Sept. 26, 2013.
Chris: Hello. It’s Chris Birk here from Veteran United Home Loans. Welcome to the latest edition of VA Loan Live, our weekly VA Loan chat. As always, I’m joined by our senior home buying and mortgage writer Sam Reeves (NMLS #: 957799). Sam, thanks for joining us.
Sam: Yes. Thank you.
Chris: And back in the Loan Officer hot seat is Craig Brumfield (NMLS#857001). We are so happy to have you back, Craig. Thanks for coming.
Craig: Thanks for the invitation. Glad to be here.
Chris: You can watch us every Thursday, live at veteransunited.com/valoanlive, that’s where we live stream Thursdays at 12 Central. Any other time, day or night, you can visit that page to leave us a question. If we don’t get to yours each Thursday, Sam or I will send you an e-mail with a detailed response, making sure you get the information you need.
Thank you so much as always for the questions that have poured in over the last week. We’re going to jump right in.
Craig, Kim is … and this is such a great question for a loan officer. Kim wants to know how we begin this process.
Craig: Kim, I would encourage you to pick up the phone and call me at 1-800-814-1103. I’m at extension 3189. The first part of the process is to do an application over the phone. Going to take about 5 to 10 minutes out of your time. One of the first things that we will do is verify your credit scores and your current debts and obligations by doing a credit report. So we always do want to make sure that everybody knows that we are going to need your social security number and your date of birth and so that is the first step in the process. Hopefully we will get you prequalified, send a packet out to you and hopefully once we get that information back from you, we can get you preapproved, get you out with your VUR or Veterans United Realty Realtor, looking at some homes and hopefully get you under contract. It can be as quick as 30 days.
Chris: Anything about the process you think is important to add when we’re first starting out?
Sam: Yes. I think it’s important to know that you don’t have to have perfect credits. What we’re looking for is a middle credit score of 620 or higher. With FHA conventional those scores are often a lot higher, minimums that they’re looking for. And so give Craig a call and see what we can do to help you and if your score isn’t quite there yet, we can get you in touch with our Lighthouse department and they’re a really great resource for you. They can help you fix your credit scores and prove it and just of clear out that whole credit report.
Chris: You are a master of segues, because we’ve got a ton of questions about credit. Some of them we can [‘lum’ 00:02:28] together, but I think others are worth really addressing in detail. So Sam talked in general about Craig’s or benchmark that we’re looking for. Decent credit, great credit, where does the 620 fit in? Do we have a sense of where … is this a really high benchmark that I need to meet? Can I get a conventional loan with 620 credit score?
Craig: The conventional, I would go back to your question about conventional loans, they do require a much higher median score. I think right now it’s in the 720 range. So 620 is a very serviceable number. It’s a number that a large percentage of the population should be able to obtain.
Chris: And Sam, John Hernandez, Michael Kemp, both having credit scores that aren’t good, both looks like below 600, Michael’s is higher than 530. Is there any leeway with this? I mean if it not quite a 620 but I’m in the neighborhood or is it going to be hard and fast?
Sam: You generally have 3 credit scores, from the 81 of each of the 3 credit reporting agencies and that middle score has to be at 620 or higher, obviously. But if it’s lower, there could be some quick fixes that could cause that score to jump very quickly or it could be a long term plan to get you into a house, but you do need that fixed one.
Craig: Just to jump in real quick. I was working with a couple and just by adding her husband on to her credit card, his credit score jumped by 125 points.
Craig: So he … they were not eligible at all for the loan and then within a 30 to 60 day range they were able to improve his credit scores by 125 points.
Sam: That’s great.
Chris: And that’s another reason why it’s worth your time to spot the call or to e-mail to Craig is that the credit score that you pay to see from Fico or if you’re using credit card or some of the site like that, that may not reflect in anyway the credit score that Craig sees when he pulls it. Because mortgage lenders see different scores than consumers do. They’re weighted for mortgage related factors that we look at in a much different light than a department store or a gas station. So you might think you have a 620 and you might unfortunately have a 580 or a 590. So it’s worth that call, because even if you’re not quite ready to qualify today, Craig might be able to tell you how something you can do or he’ll send you to the credit specialist at Lighthouse who can help you get on the right foot. And it’s actually piggyback’s perfectly on Rob’s question. He sent us this yesterday. He’s looking to purchase in Wisconsin and his wife has really good credit in the mid-600s to 700s.
If I have sub-620 credit Sam, but my wife has an 800 score on the Veteran, can I just sail through since my wife has great credit?
Sam: Unfortunately, no. Anyone who’s going to be on the loan has to have that minimum credit score. If it were the opposite where the wife was a Veteran and the husband wasn’t, then the wife could just have the loan in her name or a husband that has good credit and wife doesn’t, the husband could just have it in his name. But the Veteran has to be on the loan and anyone else who’s on the loan with them which is generally a spouse or another Veteran living in the home and all of those parties have to have that minimum credit score requirement.
Chris: That’s perfect.
Bobby asked, actually [inaudible] my community on Facebook dedicated to everything you wanted to know about VA Loans. It’s a little more exciting than it sounds, I promise. But Bobby asked about Veterans with bad credit trying not to lose their homes. And so I just wanted to very specifically address this. If you are in jeopardy of default, if you’re behind on payment, if you’re worried about not being able to stay in your home, contact your lender, your servicer as quickly as you can, that is the first step, always. The second step, whether it’s a VA mortgage or not, but especially if you currently have a VA back loan, contact the VA, they have more than 150 specialist there who worked solely on foreclosure prevention. VA Loans, despite the fact that 9 and 10 people purchase a home with no money down, they have the lowest foreclosure rate for almost all the last 5 years and a big reason why it’s because the VA is committed to helping keep Veterans in their homes. So if you have any sort of question about whether you might be in default or headed toward default, please contact your servicer and the VA, absolutely as soon as possible.
Craig, in terms of qualifying Karen, she’s looking for a way to see, get a sense of her purchasing power. She wants to know about closing cost, private mortgage insurance you use, these differences about traditional conventional financing versus VA loan. So I guess, first can you talk a little bit about how soon can I get a sense and what do you need for me to give me a sense of how much I can qualify for and then some of the costs that might be involved.
Craig: Sure. Good question. The way that we get to your loan amount that you qualify for is by first of running that credit report and verifying your current debts and obligations. I mean we obviously get the credit scores from the credit report, but the current debts and obligations is very important and then we compare that to your stated income that we get from you over the phone and then we kind of back in to a debt, the income ratio of anywhere right around 40 to 45 percent, again depending upon your credit scores and some other factors like assets, cash on hand. So again, over the course about that 10 to 15 minute conversation with myself, we would be able to work into that number to tell you exactly how much you do qualify for, your reference private mortgage insurance or PMI on the VA Loan, that’s never an option, it’s not included, you’ll never have to pay PMI which is a huge savings and then closing cost. Depending on the state that you’re in, your closing cost can range anywhere from like 3 to 5 or 6 percent of the sale price. Some states are definitely more expensive to purchase real estate, in New York, Texas, Pennsylvania, all have a lot of real estate taxes. So, but the majority of the state is right around 3 to 4 percent
Chris: And the VA, unlike other loans actually limits what veterans can pay in closing cost which is another … a big time benefit of this program.
Sam, in terms of comparing loan types, can you just give a couple bullet points as far as conventional FHA and TA?
Sam: Yes. Absolutely. So with conventional loans, you have to pay private mortgage insurance unless you’re able to put [inaudible 00:08:55] down. That private mortgage insurance, also called PMI is basically ensuring the mortgage provider in case you were to default. With FHA, you do also have to pay some … upfront PMI and some monthly PMI but smaller and you also have to put down 3.5 percent with FHA. With VA, you don’t have to put anything down on those mortgages unless you’re above the county loan limit which in a lot of reasons 417,000, higher in high cost counties and with the VA you also don’t have to pay that private mortgage insurance. So you have 0 down and no additional monthly payment that you need.
Chris: Excellent. Thank you Sam.
Genevieve who also took this on to visit VA Loans Insider on Facebook. So thank you Genevieve. Also stuck in a place with tough credit, but she’s also widowed to a marine as she puts it. We are incredibly sorry for your loss. And she’s looking to buy a home and wants to know if we’d be able to help her.
Craig, surviving spouses, is this something that might be eligible?
Craig: Definitely an option, definitely an option. But again, depending on your circumstances and again sorry for your loss. Again, the best thing to do would be to call one of our loan officers and we could again have a short, short conversation and figure out if you are eligible for that benefit because you very well make it to be eligible.
Chris: And there are 3 really like ballpark things that the VA looks for and it’s really related to the nature of the service members that and whether it’s service connected and if that’s not much in question, absolutely give us a call. We’re still going to have to work with you on the credit piece. But again, I think that’s something that we see sub-620 borrowers turned into home owners every month thought our Lighthouse program, it’s absolutely worth your time to give us a call.
Craig, this question came in yesterday as well. A borrower who is looking at new construction, they currently have a construction loan and they’re thinking about what to do with it, once the home is built. Conventional VA, is this an option?
Craig: Absolutely, yes, yes, absolutely. We … The VA doesn’t do construction loans nor do we. So we can’t help you during the construction process, but once that home is complete we can absolutely convert that construction loan into permanent financing. I’m actually closing on 3 construction loans this month actually.
Chris: Oh wow.
Craig: Actually it did okay. I have a loan closing later on this afternoon actually. So do a lot of those and so if you can’t find the home that you fall in love with, absolutely go out and fine a builder that’s a VA approved builder and have them build the dream of your homes and we could provide the permanent financing, absolutely.
Chris: And it sounds like he had the construction loan already in place. Does that matter or is it a little bit better in terms of the process? If somebody comes to you first before we’re even looking or talking about builders?
Craig: Sure. I mean you obviously always want to get pre-approved and see what dollar amount is, because you don’t want to get under contract, draw plans and then find out that the home of your dreams is outside of your dreams. So you definitely want to contact us and then we can point you in the right direction, make sure that you are working with a VA approved builder and if that builder is not, very easy steps to get them on the approved list. I had to do that with 2 of the 3 construction loans that I’m working on right now. So definitely start the process with us. We can talk about some of the pitfalls, some of the things that do occur during the construction process and why we don’t do construction loans.
Chris: And congratulations to Craig’s borrower today.
Craig: Yes, yes. Yes.
Chris: Sam, income question from Orlando. He’s currently unemployed, he is going to school and he wants to know if he can qualify based solely on his disability income.
Sam: That’s a really good question. We can definitely look at your disability income, but the answer is going to be it depends. It’s going to depend on what your overall debt to income ratio is. And so if you have say 100 percent disability and you’re getting $2,500 a month, we’re going to have to look at the debts also and see how those balance out to determine what your debt to income ratio is and how much home you could afford. So it’s definitely not going to prevent you from being able to get into a home, you just … because you’re not employed. We can use that VA disability income, we just have to then balance it and be able to figure out what that does to income ratio is and make sure you’re within acceptable range there.
Chris: And this is a common question too, we say it all the time on Facebook, it’s also a common frustration I think for a lot of you out there. Education income.
Craig: Yes. It’s a great benefit, one that you’ve earned, one that you deserve and by all means use it, it’s a great way for you to further your education and make your life better. Unfortunately, it’s temporary income, so we cannot use it for qualifying purposes.
Chris: And that’s not just Veterans United, that’s just not the VA, this is conventional FHA, USDA, VA and any other mortgage type that hasn’t been invented yet. They will not use education income as stable, reliable income.
Craig: Kind of 3 years is kind of the benchmark for income like for child support income or any sort of annuitant or life insurance benefit that you might be receiving. We have to verify that you’re going to be receiving that for 3 years.
Chris: First time home buyer Craig, his name is Brandon. We love first time home buyers. He is looking at a range and wants to know about 250,000 to $500,000 worth of VA loan. What sort of considerations there might be there?
Craig: Sure. Being a first time home buyer does not limit you by how much you can qualify. What’s going to limit you is what we talked about earlier, your income, your current debts and obligations and your current credit score. So again, pick up the phone, call me at 1-800-814-1103 extension 3198 and again within a 5 to 10 minute conversation, I’ll be able to tell you exactly how much you do qualify for.
Chris: Sam, I think there’s one more piece that’s probably worth touching on and that is depending on where you are Brandon, where you want to purchase. When we start talking about loan announced above 417,000. Can you talk briefly about that? I know it confuses a lot of people.
Sam: Yes. Absolutely. So there’s what’s called the VA county loan limits and if you do just a quick Google search then you should be able to find the 2013 listings. But it’s going to change every year and depending on the county, if it’s what’s considered a high cost county then the county loan in it could be higher. We’ve seen county loan limits in the $600,000 range. So 417 is the basic county loan limit, but if you’re in a high cost county it could be much higher than that. So why that matters is because the VA will guarantee up to a county loan limit. If you choose a home and to try and go for a mortgage above that county loan limit, you’ll have to put down 25 percent down payment for the difference between the county loan limit and the cost of the mortgage. So it’s not 25 percent of the whole loan, it’s just 25 percent of that difference. So that’s kind of where that comes into play.
Chris: That’s a number as I find incredibly frightening. So one more reason to call Craig, he can go over this with you in detail. The biggest segue I think with this is that there is not a maximum loan amount on a VA loan. When you hear maximum loan amount or loan limits, what we’re really talking about is how much you can borrow without having to put money down. So Brandon, if you can afford a $500,000 home and Craig can help you make it work with the numbers then more power to you and congratulations at the outside of this journey.
Craig, foreclosure question and we get a lot of them about how bankruptcy foreclosure affects a Veteran’s ability to qualify. This borrower who is a Vietnam Veteran who lives in Florida had a foreclosure 3 years ago. Would he be eligible to pursue just based on that time frame into … he’s got sizable amount of money, $30,000 in collections and that we need a little more information about the type of collections and a few other things, but can we talk at least generally about foreclosure, bankruptcy, seasoning periods and collections?
Craig: Sure. Foreclosures, bankruptcies, 2 years. If we’re outside of that 2 year period we will be able to move forward with the application and with the highest degree of probability, I mean we can close a loan for you. There’s obviously situations within that 2 year period that may or may not allow us to move forward, but are hard numbers, the 2 year period. We still need the credit scores to be above 620. Short sales are little bit differently because we’ve actually changed some guidelines where we might be able to close a lone for you inside of that 2 year window, depending upon your unique situation. So again, it’s best to call us and find our exactly what that situation is because we might be able to do something with a short sale inside of 2 years. Collections, we normally like to have those at a $5,000 level or less. If it gets above $5,000 we do definitely need to pull your credit in and dig into that report a little bit deeper and see exactly what the types of collection items are and see if there’s a resolution.
Chris: Thank you.
Craig: Yes. You’re welcome.
Chris: That’s a lot to cover in a very short time, dude, great deal huh?
Chris: We talked about myths and misconceptions and some of the things that I know you and I both see on Facebook a lot is maybe the most pernicious myth about VA Loans and that is reusability.
Chris: So Harland brought this up and I wanted to address and head on with both of them and anyone else who’s asked the question or who has wondered. He says that he used his benefit in 1978, paid it off 8 years later, which that’s amazing, congratulations [inaudible 00:19:00]. But this is it, that it’s a 1 time shot and you can’t use it again.
Sam: That is a common misconception, that is completely untrue. With the CA loan, there’s no limit on the number of times you can use it. The only time that you might run into an issue is if you had a foreclosure or a short sale on a VA loan. And then we would just have to look at your entitlement remaining and determine if you would have to pay any dollar amount to get that full entitlement restored. I mean there’s even people that have 2 VA loan all at the same time. So it’s definitely a misconception. We see a lot on all of our social media [inaudible 00:19:37] a lot of borrowers, but it’s not just a 1 and done, you could use it multiple times.
Chris: And Craig mentioned foreclosure earlier and it’s another, a source subject and a source of myth and misconception is even if you had a foreclosure on in VA [that 00:19:52] mortgage, that does that automatically disqualify you from using this benefit again. We see borrowers month and month that who had experience something catastrophic like this and they’d become boomerang buyers, is what you’ll hear that’s, it’s [‘firmly’ 00:20:06] used in the mortgage industry. So this is not in anyway mean this program, this benefit is out of reach for you if something like this has happened. So foreclosure bankruptcy, any catastrophic financial like that call Craig whether it happened a week ago or a year and a half ago. The earlier that we start working on your credit and looking at your options and where you want to be, the better.
Pre-approval question. I love pre-approval, love [inaudible 00:20:34] questions and this is a really great question from Jesus. He was pre-approved for a loan earlier this year, he’s still looking for a house, wants to make it work. Months have passed, does he have to start over again? The time frames with pre-approval, pre-approval dates and letters and I know it confuses a lot of people.
Craig: Yes. When we get you pre-qualified, we send out an initial packet of information. We ask you to sign some documentation and get that back to us. That initial documentation is good for 1 year, 12 [inaudible 00:21:05] every month. So if you’re within that 12 month period, all we have to do in that period of time is just update your income, your assets, if anything changes within your file we’ll just update your file but you will still be pre-qualified and then hopefully maintain that pre-approval status. If we get outside of the 12 months, there are some documentation, that packet we would have to send back out to you, but as long as it stays in touch with his loan officer and updates his file we’re good.
Chris: Sam, Ricky asked about refinance. He’s asking explicitly what are some ways I can lower my interest rate? We do a brief overview of the VA refinance available to Veterans.
Sam: Yes. Absolutely. So there’s 2 types of refinances. There’s a VA streamline and then there’s was called the cash out refinance. If you currently have a VA loan and you’re just looking to reduce your interest rate then the streamline is going to be, probably the right choice for you. If you have a conventional load, FHA loan or a VA loan and you want to take cash out, then the cash out refinance which is what we do and that allows you to take out certain dollar amount for remodeling or debt consolidation or several other, for multiple uses. So 2 different options there. Both of them can possibly reduce your interest rate, that’s just going to depend on what your interest rate is currently at and you know what rates we have available for you today. So definitely give Craig a call. He can talk with you and run an analysis to see if it’s a good option for you right now.
Chris: And Jaime also asked about refi. Jaime, I shot you a quick message on Facebook before I had to come down for the Hangout, but just in case you didn’t see it, I want to address it quickly. Jaime asked about refinance options when the Veteran isn’t currently living in he house anymore, the Veteran’s actually renting it out. This might be an option for a VA borrower in particular.
Sam: It is an option with the cash out … I’m sorry. Not the cash out refi, but the streamline refi. And so if you’re going to just reduce the interest rate, you’re not taking any cash out and it’s currently a VA loan, then that’s a possibility that you have available.
Chris: And that essentially means you’ll hear occupancy and occupancy requirements talk about a lot with VA. On the VA streamline which is what Sam just mentioned, prior occupancy is the key [inaudible 00:23:27] in that property as your permanent place of residence. That’s an incredible benefit. The ability to rent out properties or to buy up to a 4-plex which is another benefit of the VA loan program in terms of types of housing. Some incredible options that are out there, it’s not a program that’s geared toward investment properties or second homes, in fact they’re explicitly barred, but there are doors that open to Veterans who qualify a little bit down the road after living in these properties for some time.
We got a couple of questions that we’re going to be able to get to you before we have to close up the shop today and one is, it’s a long one. I know we’ve all had a chance to look at it. It came in from Elizabeth earlier today and we’re not going to get into the whole situation, but we did want to address it, not just you Elizabeth but to anyone else who is looking at a situation where their loved one is overseas, either at duty deployed or a contractor, some of those situation and looking to close on a loan. She was asking explicitly about the alive and well statement which is something that is going to be necessary in situations like that and she’s worried that her borrower, her Veteran, her husband’s going to have to be called, get him on the phone while he’s in Afghanistan, serving our country and that sounds like a really tough order and a really tough thing and they’re worried about this process falling apart because of it.
Craig: The day of closing, there are a lot of moving parts, a lot of things that have to happen and we do have to verify that both borrowers are alive and well. But there are more than 1 way of doing. Obviously if the satellite technology allows us to get on the phone and to have the borrower call our closing department or the closer on this specific file, that’s our best option. We can even us an e-mail from a secured e-mail address or if the individual is a defense contractor like in this situation, from their employer, an employer email dated the day of closing, that will suffice the requirement for the alive and well statement as well. So there’s more than 1 option.
Sam: Yes and I think even you can get a letter from your commanding officer if you’re not available and have them fax, e-mail.
Craig: As long as it’s dated the day of closing.
Sam: That’s right. Yes.
Chris: So listen, I’m not sure who you’re working with on this, it doesn’t matter to us, all that matters is that you get into a home. If you have any other questions or you want to make sure that the one who you’re working with is up to speed on all of this, shoot me an e-mail, it’s email@example.com. I’ll do whatever I can to help you guys to close that loan.
Heather asked, and it’s great question and what I think advice for a first time home buyers. They’re looking to build in particular, but I think you can expand it in general to both new construction and existing what sort of advise you have same for first time buyers.
Sam: Absolutely. I think the first thing that you want to do is make sure that everything with your credit report and finances are in shape. So the first call you want to make is talk with a VA mortgage specialist, a loan officer who can run through your income, assets, debts, look at your debt to income ratio and also take a look at your credit report to see first, if there’s anything that we need to work on get fixed and then from there you also want to have that information so that you know how much you qualify for and how much of the house you could build, in her situation or how much of the home you would be eligible to purchase if you’re out looking at the real estate market. Because I think that’s your number 1 step, is to talk with a loan officer, get prequalified then get preapproved.
Craig: I wanted to say major misconception is that there is absolutely no out of pocket expenses ever for a VA loan and that could be the case but you very well maybe obligated to pay some of the closing cost or all of the closing cost and especially with new construction, you very well may have some out of pocket expenses if nothing else, the cost of the appraisal. So try to save as much money as you can during this process, tighten up your budget, stay home, don’t eat out, don’t go to the movies, try to hoard as much cash as you possibly can because having money in the bank is never going to hurt you during the VA home loan process.
Chris: And we have a mountain of resources. Both Sam and I focused and love spending time educating, especially first time buyers, encourage you to check out Veterans United Network, it’s a comprehensive series of blogs and communities we have online with tons of great resources and we also have some really in depth resource guides on our website those are at veteransunited.com/education/.
Do you have any specific questions about your situation, your goals and where you hope to be? Reach out to Craig, send him an e-mail, give him a call, let him know your hopes and dreams and I know he will do whatever he can to get you there and if it’s not tomorrow, it’s not next week, he’s in it with you for the absolute long [inaudible 00:28:20].
Craig, thanks so much again for joining us.
Craig: Thanks Chris.
Chris: Sam, as always.
Sam: Thank you.
Chris: And thank you for all of your questions and your time and we appreciate them. Please keep them coming until a week from now, veteransunited.com/valoanlive, we’ll still be there answering your questions via e-mail and we’ll see you again next Thursday at noon.
I’m Chris Birk for Veterans United Home Loans. Have a great week.