Nothing could be further from the truth.

The fact is that there have always been and always will be mortgage options for borrowers that don’t have a large down payment.  Here are five loan options for those who have 5 percent or less for a down payment.

Check your eligibility to buy a house with less than 5% down. Start here (Sep 16th, 2024)

#1: Conventional loans with PMI

Conventional loans are mortgages approved using guidelines established by mortgage giants Fannie Mae and Freddie Mac. Historically, lenders required a down payment of 20 percent. Yet in 1957, private mortgage insurance, or PMI, was introduced.

Mortgage insurance is an insurance policy that repays the lender should the borrower default. The borrower pays for this insurance policy along with their monthly mortgage payment. This extra expense can be well worth it though.

Say a home is sold for $200,000. A 20% down payment is $40,000. That’s quite a lot for new home buyers. A 5 percent down is much more feasibly, at only $10,000. A PMI policy can be purchased at a cost of approximately $150 to $300 per month, depending on credit score. But this option helps bring down the barriers to homeownership significantly.

Check your home buying eligibility. Start here (Sep 16th, 2024)

#2: Federal Housing Administration (FHA) loans

In recent years, FHA has been the standard for first-time home buyers. Although that’s shifting because of increased offerings in conventional lending, they are still very popular.

FHA loans require as little as 3.5% down, a bit less than the conventional requirement. That means on a $200,000 loan, the minimum down payment is just $7,000.

An FHA loan has a monthly mortgage insurance requirement like a conventional loan, but it also has an “upfront mortgage insurance premium,” or MIP. The MIP is 1.75% of the loan amount, or in this example an additional $3,500. However, this upfront premium does not have to be paid out of pocket and can be rolled into the loan amount.

The monthly mortgage insurance premium for an FHA loan is typically 1.35% of the loan amount per year, divided into 12 equal installments and added to the monthly payment. For example, a $200,000 total loan amount would require $225 per month in mortgage insurance.

Although an FHA loan is more expensive than its conventional counterpart, it allows for a lower credit score and offers more lenient income requirements, making it the best program for some home buyers.

Check your eligibility for an FHA loan. Start here (Sep 16th, 2024)

#3: VA loans

This program is a special entitlement offered to active duty personnel and veterans of the U.S. armed forces. The VA loan requires no down payment whatsoever. In addition, there is no monthly mortgage insurance premium, just an upfront premium, usually 2.3% of the loan amount.

The minimal costs associated with this loan make it the clear choice for current and former members of the military.

Those who have served in one of the branches of the military including the National Guard or Reserves could be eligible.

For complete guidelines, see our VA home loan page or contact a VA-approved lender.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

#4: USDA loans

Sometimes referred to as the Rural Development Loan, the USDA program requires no down payment.  As the name implies, the program is designed to assist borrowers buy and finance a property in rural, less urban areas.

In order to qualify for a USDA loan, the property must first be located in an eligible area. These areas are mapped on the USDA website. This is the first place borrowers should visit to see if a prospective home is eligible. By entering the address on the website, the property’s eligibility will be determined.

Eligible areas are often rural in nature, but surprisingly, many eligible areas are suburbs of bigger metropolitan areas. Even if you don’t think the area in which you’re looking to buy a home is eligible, it’s worth taking a look at the USDA loan map.

You could discover that you’re able to buy a home with zero down payment.

Check your eligibility for a USDA loan. Start here (Sep 16th, 2024)

#5: Fannie Mae HomePath loans

Editor’s note: Fannie Mae ended their HomePath program on October 6, 2014. For more details, visit our Fannie Mae HomePath page.

Fannie Mae has a list of foreclosed properties that it offers for sale on the website HomePath.com. Buyers can look for homes in their area with a simple city or ZIP code search.

Home buyers can purchase these homes with only 5% down. What’s more, buyers receiving a gift from an eligible gift source only need $500 of their own money.

Unlike a standard conventional loan, Fannie Mae HomePath loans don’t require mortgage insurance or an appraisal. Some of the properties may be in need of repair, but they provide a great opportunity, especially for first-time home buyers who have little to put down on a home.

A 5% down payment is all you need

Lenders have realized that it’s unrealistic to require a 20% down payment considering today’s home prices. That’s why many programs are available, even to those with less-than-perfect credit and little money saved.

And current interest rates make it even more affordable to buy a home. Contact a reputable lender to find out which of these programs might work best for you.

Check your eligibility to buy a house with less than 5% down. Start here (Sep 16th, 2024)

The post 5 Ways to Buy a Home with 5% Down or Less first appeared on My Mortgage Insider.

One hundred percent financing home loans are mortgages that finance the entire purchase price of a home, eliminating the need for a down payment. New and repeat home buyers may be eligible for 100% financing through nationwide government-sponsored programs.

Check your eligibility for a zero-down mortgage now. Start here (Sep 16th, 2024)

Do 100% loans exist in 2024?

You bet they do. And many home buyers can qualify.

Never thought you could buy a home because of tough down payment requirements? Well, a number of mortgage options are available that allow you to finance 100% of the purchase price.

Many first-time home buyers assume 100% loans ceased to exist after the mortgage market downturn late last decade. But some zero-down home loans survived and are still available in 2024.

Check your eligibility for a zero-down mortgage now. Start here (Sep 16th, 2024)

In this article, you will learn about a few of these loan types. You’ll probably be surprised that you can still buy a home with little or no money out of your own pocket.

In this article:

• How to buy a home with no money down
• USDA home loans (0% down)
• VA home loans (0% down)
• FHA home loans (3.5% down)
• 100% financing loans and closing costs
• Our recommended lenders for new home loans

Can you buy a home with no money down?

A major misconception about home buying is that you need a 20% down payment before you can think about becoming a homeowner.

However, a number of government-backed loans offer buyers the opportunity to buy the home of their dreams without putting any money down. These include the zero-down VA loan and the zero-down USDA mortgage. Both options allow no money down, although you will still need to cover closing costs, likely out of pocket — and not everyone is eligible.

Check your eligibility for a zero-down mortgage now. Start here (Sep 16th, 2024)

Why lenders still offer 100% loans

Many new home buyers wonder why most types of loans require a down payment.

After many studies, banks and lending institutions have determined that the higher the down payment on a loan, the lower the chances of the borrower defaulting. In fact, the down payment amount is more important in determining risk than even credit score.

Check your mortgage eligibility. Start here (Sep 16th, 2024)

That’s why, years ago, the standard down payment amount became 20%. Anything less than that requires some kind of insurance, such as private mortgage insurance (PMI), so the lender would get their money back if the borrower failed to pay the loan back.

Fortunately, there are programs for which the government provides insurance to the lender, even though the down payment on the loan is zero. These government-backed loans offer a zero-down payment alternative to conventional mortgages.

How to buy a house with no money down

There are programs that make it possible to buy a home without a down payment, like USDA and VA loans.

Not sure which loan is right for you? It all depends on eligibility.

While FHA loans are available to just about everyone who meets the lending criteria, you need military service history to qualify for a VA loan and you need to be buying in a rural or suburban area for USDA.

Additionally, there are a few other ways to reduce — or eliminate — your upfront costs for a home purchase.

Six strategies to buy a house with no money down

If you want to buy a home with no money down, here are six strategies to consider:

Check your mortgage eligibility. Start here (Sep 16th, 2024)

• Apply for zero down loan: The USDA and VA loan programs offer zero-money down opportunities.
• Use a down payment assistance program: Many cities, states, and counties in the U.S. offer some type of down payment assistance. And there are nationwide programs, too. You just have to dig up what’s available in your area.
• Use gift funds: You can receive gift funds from a family member, non-profit, church, employer, down payment assistance program, or other approved source. Most loan types let you use gift funds to cover the down payment and/or closing costs.
• Ask for lender credits: Lender credits mean that the lender covers your closing costs in exchange for a higher interest rate
• Ask for seller concessions: In this case, the seller would pay your closing costs. Seller concessions can be negotiated as part of your purchase contract.
• Get a second mortgage: If your first mortgage doesn’t cover enough of the upfront funds needed, you may be able to get a second mortgage — like a home equity line of credit — and use that extra amount to cover closing costs.

Using one or more of these strategies, it’s possible that you could buy a home without putting anything down.

100% financing: The USDA home loan

The USDA mortgage loan has been around for years, but it has become more popular recently because it requires zero money down and has lenient credit requirements.

The USDA loan is a government-sponsored loan that exists to help develop rural communities by encouraging home ownership. That’s why this loan type is also known as the rural development loan.

Check your USDA loan eligibility. Start here (Sep 16th, 2024)

To qualify, you need enough income to support your house payment, but it must not exceed the limits established by the USDA.

You also must buy a home that is within USDA’s geographical boundaries. Although the program targets rural areas, many eligible areas are suburban. You might be surprised at how accessible major cities are from USDA-eligible areas. A qualified loan officer can help you determine whether you qualify.

The USDA mortgage even allows the seller to pay your closing costs. With the USDA loan, it could be cheaper to move into a home you buy than to rent the same house.

There is a 1% upfront fee that can be financed into your loan amount and doesn’t have to come out of your pocket. The USDA also charges $35 per month on every $100,000 borrowed as an ongoing fee to make the program viable for future home buyers.

Even with these added costs, USDA loans are a great opportunity to break into homeownership with little upfront costs, and fairly low monthly costs, considering the low interest rates available for this program.

100% financing: The VA home loan

Another mortgage loan that allows you to finance 100% of the home’s cost is the VA home loan. This loan is available to applicants typically with at least two years of former military experience, or 90 days if still serving.

Check your VA loan eligibility. Start here (Sep 16th, 2024)

VA loans have very low rates – usually even lower than conventional loans. And they don’t require a monthly mortgage insurance fee like USDA, FHA or conventional loans.

When compared to any other low down payment mortgage, VA home loans are typically the most affordable – in upfront as well as monthly costs.

You’ll need to pay an upfront VA funding fee but it will almost always be less than the cost of private mortgage insurance — or a down payment.

With a VA loan, you can buy a home with zero down and have the seller pay some or all of your closing costs, meaning you could own a home with no money out-of-pocket.

Lenders typically allow lower credit scores on VA loans as well. While most mortgage lenders require just a 640 score, some allow you to have a score as low as 620.

The VA home loan is the easiest 100% home financing option available.

See if you qualify for a zero-down VA loan here (Sep 16th, 2024)

An FHA home loan can be a zero-down mortgage

Federal Housing Administration (FHA) loans usually require a 3.5% down payment. That’s quite a bit less than 20 percent but can still be a lot of money. For example, on a $300,000 home purchase, 3.5% down is $10,500.

According to FHA guidelines, you can receive a gift for the entire down payment. The gift can be from a family member, non-profit organization, fiancé, or another eligible down payment gift source.

Check your FHA loan eligibility. Start here (Sep 16th, 2024)

So while the loan technically needs a down payment and is not a 100% loan, the effect is the same. If you have a gift source, you don’t have to come up with anything for the down payment (this is also true of conventional loans!).

First-time home buyers receive down payment gifts more often than you might think. There’s a chance that you know an eligible donor who could help you with all or part of the down payment.

Another niche offering from the Department of Housing and Urban Development (HUD) is the Good Neighbor Next Door loan. Teachers, police officers and some other public employees can buy a home with just $100 down. That’s not quite 100% financing, but very close to it.

Why do “no down payment mortgages” exist?

There are a number of options if you’re in the market for no down payment mortgages. The U.S. government wants people to buy homes.

The National Association of Home Builders estimates that homeownership drives between 15-18% of the country’s economy. That’s huge.

Check your mortgage eligibility. Start here (Sep 16th, 2024)

So, Uncle Sam has created ways to buy with zero down, and will even give you a fantastic rate on these loans. No down payment mortgages often come with lower rates than loans that require 20 percent down.

The USDA, FHA and VA loans all come from essentially the same place — government-run organizations that want to spur homeownership.

You might be a renter, but the government doesn’t want you to stay that way for long.

Its mission is to provide the average buyer with low- and no-down-payment loan options. And these government organizations don’t even require that you have a high credit score. Lenient lending lifts the homeownership rate and drives the U.S. economy forward, and is a win for everyone.

No down payment loans for the first time home buyer

As a first-time home buyer, you may not have much to put down on a home.

The key is to find the right loan program or combination of programs.

Check your mortgage eligibility. Start here (Sep 16th, 2024)

If you’re buying outside a major metro area, check into the USDA loan. It’s a no down payment program. You don’t have to be a first-time home buyer to get one, but this is who usually uses it.

If you have a military background, you could be eligible for a loan from the Department of Veterans Affairs. It requires nothing down and rates are typically lower than for FHA.

If you choose a loan program that requires a down payment, look around for secondary programs. Your city, state, or county may provide grants and down payment assistance to help first-time home buyers break into the housing market. Learn more about down payment assistance programs here.

What is the average down payment for a house?

Historically, average down payments for home mortgages have fluctuated in step with home prices, interest rates, and other factors. For decades, the national average for a down payment on a home hovered somewhere around 20%. But down payment averages have dropped over the past decade. As of 2021, the average down payment for first-time buyers is roughly 12%.

Remember that a borrower’s financial situation affects their down payment. For example, a first-time home buyer with little or no money in their bank account might choose a zero-down USDA loan. However, this loan option comes with upfront and monthly fees that drive up the monthly payment.
Another first-time buyer with adequate savings might choose to put 20% down or more, to keep monthly payments low.

In any case, buyers shouldn’t “follow the crowd” when it comes to down payments. They should look at their own situation and discover what’s best for them.

100 percent loans and closing costs

One point to consider when talking about zero-down loans is closing costs. Every time a mortgage loan is opened, there are costs associated with it, such as the appraisal, title, loan processing fees, mortgage points, and more. Someone has to pay these fees.

Check your mortgage eligibility. Start here (Sep 16th, 2024)

Typically, it’s the buyer’s responsibility to pay most of the closing costs. That could range anywhere from $2,000 to $5,000 or more. That’s why some first-time home buyers are surprised when they have to come up with a few thousand dollars, even when getting a 100% mortgage loan.

But there are ways to get around this expense. The most common way is to receive a closing cost credit from the seller.

In some cases, the seller will offer closing cost assistance as an incentive for buyers. It costs the seller money but increases the chances that the home will sell. Talk to your real estate agent about requesting closing cost assistance. It’s not always available, but when it is, it’s a great help to those buying with a 100% financing mortgage.

Zero down home loans are available in 2024

Zero-down financing is alive and well. If you know about the special programs available, you can buy a home with nothing down.

Get a pre-approval for your loan so you can start shopping for a home. In 30 to 60 days, you could be moving into the home you bought with little or no money out of your own pocket.

Check your zero-down mortgage eligibility. Start here (Sep 16th, 2024)

100% financing home loans FAQs

Can I get a mortgage with no money down?

In a word, yes. There types of mortgages are mortgages available where the required down payment is zero. These are often referred to as “100% loans” – loans in which the money lent comprises 100% of a particular home’s market value. Zero-down loans include the government-backed VA and USDA programs.

Should I put 20% down?

You can tap into a zero money down loan. But is it a good idea?

Traditionally, home buyers put down 20% on a home. With today’s home prices, saving up for that kind of down payment is unrealistic for many. But if you have the funds available, putting 20% down can help you avoid costly PMI. Plus, a lower loan amount with the same loan term leads to lower monthly payments.

What credit score do you need for 100 percent financing?

The credit score you’ll need for 100 percent financing varies based on the loan type. For a USDA loan, you’ll generally need a credit score of at least 640 for credit approval. But for a VA loan, some lenders will accept credit scores between 580 to 620.

What is the minimum down payment for a mortgage?

The minimum down payment for a mortgage varies based on the loan type.

With a VA or USDA loan, you might not be required to make a down payment. But for an FHA loan, you’ll need to put down at least 3.5%. And for a conventional loan, you may only have to put down 3%.

Are there zero-down payment mortgage loans?

Yes, there are zero-down payment mortgage loans. Depending on your situation, you may not have to make a down payment for a USDA or VA loan.

Can you get a 100 percent home loan?

Yes, you can get a 100 percent home loan. The two government-backed loan options that offer 100% financing to qualified borrowers include the VA loan and USDA loan.

What type of home loan is the easiest to qualify for?

In general, the FHA loan is considered one of the easiest to qualify for based on its relatively low credit score requirements. However, you’ll need to make a down payment of at least 3.5% to qualify for this loan type.

What is a 100% loan?

A 100% loan provides the entire cost of the home purchase upfront. With that, you won’t have to make a down payment to obtain the loan.

Do banks provide 100 percent mortgage financing?

Yes, many lenders, including banks, offer 100 percent financing for mortgages. Other lenders include credit unions and online lenders.

Is 100 percent financing a good idea?

Whether or not 100 percent financing is a good idea depends on your unique situation. If you want to maintain a cushion of savings in the bank, then 100% financing can allow you to complete your home purchase without depleting your nest egg. With those emergency savings on hand, you’ll be better prepared to handle unexpected expenses that come with homeownership.

But 100 percent financing will lead to larger loan payments. So, make sure that your mortgage payment fits comfortably in your budget before signing up.

How do I apply for down payment assistance?

The first step is to determine which down payment assistance program you are eligible for. For example, you might only find first-time homebuyer programs in your state. Once you find a program, the application should be readily available for you to fill out. Be prepared to provide extensive information about your income.

Do you have to repay down payment assistance loans?

The repayment requirements for down payment assistance loans vary. In some cases, you’ll have to repay the loan alongside your mortgage. In other cases, the debt will be forgiven if you meet certain requirements.

Will using down payment assistance hurt the chances of my offer being accepted?

When using a down payment assistance program, that shouldn’t impact the chances of your offer being accepted. Essentially, this is just a part of your financing contingency. Since most buyers use loans to purchase their homes, it’s not an uncommon thing for sellers to encounter.

How can I buy a house with no money down?

You can buy a house with no money down in two ways. The first is to tap into a zero-down VA or USDA mortgage — both of which are intended to help borrowers buy a single-family home to live in (they cannot be used to purchase investment property). If you don’t qualify for either of those loan types, you can pursue a no money down mortgage through a combination of a low down payment mortgage and a down payment assistance program.

Are there home buyer grants?

Yes, home buyer grants are available in every state. Although you’ll need to meet certain eligibility requirements, a home buyer grant could open the door to homeownership.

Can cash gifts be used as a down payment?

Yes, you can use a cash gift as a down payment on a home. However, you’ll need to provide documentation on the source of the gift and receive it as a check or wire transfer. The lender will require a gift letter from the benefactor that clearly states the money is not a loan. If the gift involves repayment, lenders generally won’t accept that as a down payment.

What are FHA loan requirements?

The Federal Housing Administration offers FHA loans with low down payment options. You’ll need to make a 3.5% minimum down payment with a credit score of 580 or higher.

Beyond the down payment, you’ll need documentation of a stable income and a mortgage amount within the FHA’s loan limits. Plus, you must intend to use the home as a primary residence.

What are the benefits of a bigger down payment?

When you make a bigger down payment, there are many benefits. The smaller loan amount will lead to smaller monthly payments. Plus, you can potentially avoid private mortgage insurance (PMI) that increases your monthly payments.

If I make a low down payment, will I have to pay mortgage insurance?

In general, you’ll have to pay mortgage insurance when you make a down payment of less than 20%. However, that’s not always the case. For example, when you use the VA loan, you won’t have to pay private mortgage insurance regardless of your down payment amount.

If I make a low down payment, what will my lender fees be?

When you make a low down payment, you’ll be taking on a larger loan. Since most lenders base their fees on the loan amount, you’ll pay more fees when you make a lower down payment.

How can I fund a down payment?

A down payment is a major expense. You can fund it by building up savings in a savings or checking account. If you are selling an existing home, you could use the proceeds from that sale as a down payment on your new place. Other options include down payment assistance programs, gifts from family, or borrowing from your retirement accounts.

How much home can I afford?

The amount of home you can afford is a complicated question. Although your lender will determine how much they are willing to lend you, that’s not necessarily how much your monthly budget can afford.
So, take some time to comb through your budget to determine what size mortgage payment you can comfortably afford. From there, use one of the many calculators to help you determine an ultimate purchase price based on the currently available annual percentage rate you expect.

Check your zero-down mortgage eligibility. Start here (Sep 16th, 2024)

The post 100% Financing Home Loans 2024 (USDA, VA, FHA) first appeared on My Mortgage Insider.

VA loan benefits have some amazing features as it is — no down payment, no private mortgage insurance, and low interest rates — that are available to eligible veterans, active-duty service members, and surviving spouses. But the potential of other benefits for those with a service-connected disability are also very valuable.

One of the best benefits includes a waiver of the upfront VA Funding Fee. The fee helps the U.S. Department of Veterans Affairs keep the loan guaranty program running.

What is the VA funding fee?

The VA funding fee is a percentage of the total loan amount that is paid to the U.S. Department of Veterans Affairs upon closing.

This fee was established to enable the VA home loan program to be financially self-sustaining.

How much is the VA funding fee?

The amount of the funding fee is typically between 2.3% and 3.6% of the total loan amount, but this is variable based on the size of the down payment, the type of loan (refinance or purchase), and the nature of the borrower’s military service.

For example, a veteran or active-duty service member putting no money down will pay 2.3% of the loan amount if they are a first-time user of a VA loan. That’s a savings of roughly $4,600 for a $200,000 loan. The money can be rolled into the loan. If this person already had a VA loan, the price would go up to 3.6 percent. Reservists or National Guard veterans also pay 2.3% percent for first-time use.

About one-third of VA loan borrowers are eligible for a funding fee exemption, which means they pay no funding fee toward the purchase of their new home. The funding fee represents a significant portion of the closing costs for a VA loan, which means the savings can be substantial.

The funding fee for a refinance loan is much smaller. Borrower can expect to pay a funding fee of 0.5% when refinancing, regardless of how many times they do it.

Though the funding fee is due at loan closing, a VA lender will allow you to finance it into the overall amount of the loan — which means you’ll pay off the funding fee as you make monthly payments toward your mortgage.

VA funding fee exemptions

While most borrowers will pay a funding fee, some borrowers are eligible for a funding fee exemption.

Talk to your lender about a funding fee waiver if you:

• Receive VA disability compensation
• Receive active duty or retirement pay even though you’re eligible for disability pay
• Are the surviving spouse of a veteran who died in the line of duty or from a service-related disability
• Are on active duty and have received the Purple Heart

A VA mortgage lender will be able to help you determine by status, including by requesting your Certificate of Eligibility (COE). A funding fee waiver can make becoming a homeowner easier.

What that means for VA borrowers

Veterans with a 10% to 100% disability rating don’t have to pay the VA funding fee, which can mean huge savings.

If a first-time homebuyer is buying a $300,000 home with a VA mortgage loan and qualifies for disability, the 2.3% funding fee is not charged. That saves the borrower $6,900.

Tax exemptions could save big money for disabled veterans

Once a disabled veteran buys a house, they can be eligible for property tax exemptions and credits that help them out even more financially. The Disabled Veterans Property Tax Exemption varies from state to state. Check out the VA eBenefits portal to find what you might be eligible for in your area.

Some states – for example Texas, Virginia, Florida, and Hawaii — offer a full property tax exemption for veterans who are 100% disabled as a result of service. Other states offer certain dollar amounts of property tax exemptions for veterans disabled from 10% and up.

Tennessee gets specific by saying that a disabled veteran may receive a property tax exemption of up to the first $100,000 of his or her primary residence if the veteran is 10% disabled, has lost the use of two or more limbs, or is blind in both eyes as a result of service.

Disabled veterans buying a house might get income tax help

With a VA loan, some participants might also get another benefit in the form of a Mortgage Credit Certificate (MCC). This certificate permits a qualifying applicant purchasing a home to claim a tax credit that may reduce the applicant’s federal income tax liability.

If they meet the qualifying income limits, veterans can get a 20% tax credit off the amount of annual mortgage interest paid. A tax credit is taken directly off of the actual amount of federal tax due, which is even more beneficial than a tax deduction that simply deducts mortgage interest paid from your taxable income.

After that, the veteran can still write off the remaining 80% of the mortgage interest paid each year as a tax deduction.

Disabled veterans: How to qualify

To qualify, disabled veterans must have a VA Disability Awards letter which states what their monthly benefit amount is and their disability rating.

Disabled veteran home loan FAQ

Can I buy a house with 100% VA disability?

A borrower’s disability status has no effect on their eligibility for a VA loan. However, veterans with a 100% disability rating may qualify for a funding fee exemption, which could see them money on the overall cost of their new home.

Does the VA offer 100% financing?

VA loans offer 100% financing, require no mortgage insurance, and feature more flexible qualifying requirements than some other loan programs.

What fees are waived with a VA loan disability?

If you receive VA compensation for a service-related disability then you may be eligible for a VA funding fee exemption.

Do disabled veterans get lower interest rates?

While disabled veterans don’t get access to lower interest rates than any other VA borrower, the VA guarantee means that VA loans are safer for lenders. Because of this government agency-backing, VA lenders are able to offer lower interest rates than on other types of loan.

What credit score do you need for a VA loan?

While the VA itself sets no minimum credit score, each lender will have their own qualifying standards, in order to be confident you can pay back the loan.

What is the maximum you can borrow with a VA loan?

There are no loan limits for VA loans. A VA lender can help you request your Certificate of Eligibility, which indicates your VA entitlement — or the amount of money the VA will guarantee toward your loan.

Is a VA loan better than an FHA loan?

Ultimately, the best loan for any borrower will depend on the specifics of their financial circumstances and goals. However, the VA loan program requires no down payment or mortgage insurance, which could represent significant savings compared to the FHA loan program, which requires both.

Bottom line: Disabled veterans could save

There are substantial VA home loan benefits available to qualifying military borrowers. These benefits – including zero down payment, no private mortgage insurance, and competitive interest rates — could put homeownership within reach of many vets and service members, and allow them to begin building home equity.

The post VA Loans for Disabled Veterans | 2024 first appeared on My Mortgage Insider.

Considering there are over 23 million veterans, according to a 2009 VA study, this program is available to a considerable portion of the U.S. population.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

What is a VA home loan?

The Veteran’s Administration does not make the loans, but rather backs these loans so that lenders can offer more lenient guidelines to veterans. Because of this backing, private lenders can make loans per VA guidelines, without some of the requirements of other loan programs.

Here are a few things that set VA home loans apart:

• No down payment required
• No monthly mortgage insurance
• Lower closing costs
• The seller can pay for all closing costs in most cases
• Lenient credit guidelines

So how does someone go about getting a VA home loan? First you have to prove you are eligible.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

VA home loan eligibility

Eligible veterans need to have served:

• 90 days or more in wartime
• 181 days or more in peacetime
• 24 months or the full period for which you were ordered, if now separated from service.
• 6 years, if in the National Guard or Reserves

In addition to these service time requirements, you must have been discharged under conditions other than dishonorable.

Unremarried spouses of veterans killed or missing in action may also be eligible. Veterans who were discharged due to a service-connected disability may also be eligible.

There are many other details having to do with VA home loan eligibility and a VA approved lender can request your COE and tell you if you are eligible.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

Applying for a VA home loan & necessary documents

The VA home loan is much like any other mortgage, in that you must supply income, asset, credit, and property information to the lender. There are a few extra items that VA loans require however:

DD-214: This is the report of separation from military service. It details the veteran’s military service. This form is often needed to obtain the Certificate of Eligibility. If you don’t have your DD-214, it’s a good idea to request one from the National Personnel Records Center (NPRC).

Certificate of Eligibility (COE): The lender can often pull the COE directly from VA within minutes. Contacting a va-approved lender is the best way to obtain a COE. If the COE is not available right away, the lender will send your DD-214 and any other requested documentation to VA to obtain it.

Form 26-1880: This is the request for your COE. You will most likely complete this form as part of the loan application. It details you military service as well as VA home loan history. Get a sample of this form here.

Commanding Officer Statement of Service: If you are on active duty, you will not yet have a DD-214. In lieu of this document, you will need a statement detailing your service and expected remaining time on active duty from your commanding officer.

Verification of Child Care Expenses: Unlike any other home loan program, VA home loans require proof of monthly expenditure for child care, if you declare that you have dependents on the loan application. You will need to get a statement signed by your child care provider, or signed statement that your child care of free due to a stay-at-home spouse or family member.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

VA home loan qualifying debt ratio

Typically the VA loan requires a debt-to-income ratio of 41% or less. This means that your proposed housing expense plus all monthly debt payments (credit cards, auto loans, student loans) equal 41% of your gross income.

So if your income were $5000 per month before taxes etc. are deducted, your debt payments plus mortgage payment, hoa dues if any, property taxes, and homeowners insurance should be less than $2050 per month.

That being said, applicants who make a down payment, have cash reserves, or have good credit may qualify with a higher debt ratio.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

VA funding fee & loan limits

The current VA funding fee is typically 2.3% of the loan amount. It is added to the loan principal, reducing the amount of cash needed. For example, a veteran who buys a $250,000 home with 0% down will have a final loan amount of $255,750.

The funding fee goes directly to the VA to support the costs of the program.

The current VA loan limit is set at $766,550 but can be higher in VA-designated high-cost areas.

For instance, a veteran buying a home in Los Angeles can get a zero-down loan up to $1,149,825.

Keep in mind that you can open a loan for more than the VA loan limit. However, you would have to pay a 25% down payment on the portion of the loan that’s over the limit.

For example, if a veteran opened a loan in an area with a $766,550 limit that was worth $100,000 more than the limit, he or she would make a $25,000 down payment ($100,000 x 25%).

Choosing a property

Once you know you are eligible and are approved for a VA loan, it’s time to choose the property. VA loans have slightly more strict guidelines when it comes to properties, so it’s good to educate yourself on VA’s minimum property requirements, or MPRs.

MPRs are simply VA’s way of protecting you, the veteran, from buying a real lemon, or a home that won’t suit your needs. Here are the basics of MPRs:

• The home must have adequate living, sleeping, cooking, dining areas, as well as sanitary facilities.
• The heating, water, and electricity systems must be in working order with good life expectancy left on them.
• The roof and crawl space must be in good condition
• The home must be free of lead-based paint
• The home must not be too close to gas pipelines or high-voltage electric lines.

There are other property requirements in addition to these, and often the VA lender needs to make the final call on an issue with the home. Speak to a licensed VA loan officer if you have a concern on a property you are considering.

VA home loan property types

You can buy several types of homes with a VA loan. These are:

• Single family (1 unit) homes
• 2-4 unit homes, as long as you live in one of the units
• Manufactured homes
• Condominiums and townhomes (must be VA approved. Contact a VA lender to see if a condo building is approved.)

Keep in mind that not all lenders will offer loans on all properties. For instance, fewer lenders will approve a manufactured home loan than a single family home. Check around at other lenders if you are told “no” to the property you are interested in.

If I’m eligible, should I choose a VA loan?

YES!

VA home loans offer veterans and current service members advantages over other homebuyers.

For instance, on a $250,000 purchase, the homebuyer would pay these down payments at a minimum*:

• VA: $0
• Conventional: $12,500
• FHA: $8,750

In addition, here’s what a home buyer would pay in monthly mortgage insurance*:

• VA: $0
• Conventional: $209**
• FHA: $125

A VA loan can save eligible home buyers hundreds per month.

I’m ready to apply for a VA home loan

If you are eligible for a VA loan, consider yourself a fortunate home buyer. You have access to better terms and rates than other buyers.

And you’ve earned it. You’ve sacrificed to serve your country and this is a small way your country says “thanks.” Take advantage of your VA home loan benefit.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

–

*Assumes property in WA, 700 credit score

**Per MGIC Ratefinder, 6/11/13

The post Buying a House with a Zero-Down VA Home Loan In 2024 first appeared on My Mortgage Insider.

In order for a Veteran or active-duty servicemembers to establish eligibility, a Certificate of Eligibility (COE) needs to be requested from the Veterans Administration. A lender can request this for you — often within minutes. Listed on the COE is an entitlement code, which specifies how or what era earned service.

VA entitlement codes for 2024

COE entitlement codes are between 1 and 11 and identify either the time period during which you earned your entitlement or qualifying criteria that make you eligible for a VA loan. Each code represents a different way in which the veteran is eligible and will appear on the top left-hand portion of the COE.

Service codes exist for every era — both wartime and peacetime — for every era beginning with World War II. For example, “entitlement code 10” is for the Persian Gulf era, while “entitlement code 11” is for Selected Reservists.

It’s worth noting that “entitlement code 5” applies if you used up your eligibility on a previous home purchase, but have since sold the home and repaid your loan in full. Your entitlement may also be restored if someone else with VA-loan eligibility agrees to assume the previous loan from you.

VA entitlement code worksheet

VA entitlement dates of minimum service

The VA is very specific — down to the day — on dates of minimum service for the period in which the service was completed (also known as eras).

*Veterans who were discharged prior to meeting the minimum service requirement may still be eligible if released due to a service-connected disability.

**For more explanation for service during the mid Post-Vietnam era (1980) see page 2-15 of the VA Handbook here.

Other ways you may be eligible for a VA home loan

There are a few other ways to qualify for a VA home loan, including Active Reservists and those in the National Guard and un-remarried surviving spouses.

Note: Minimum service requirements apply different for spouses. For example, an “un-remarried spouse of a Veteran who died while in service or from a service-connected disability” is eligible regardless of whether his or her late spouse’s time served.

Basic vs. bonus entitlement — how it works

If you’re an eligible veteran, your basic entitlement is $36,000.

It’s a common misconception this means you can only borrow $36,000. But in fact, this is the cash sum the VA will pay your mortgage lender should you default on your loan (either $36,000 or 25% of the total loan, whichever is less). Most VA-approved lenders will advance you $144,000 even on a basic entitlement — for a $36,000 entitlement that would be a $144,000 loan.

But if you want to buy a home in a state where home prices are much higher your bonus entitlement — sometimes referred to as second-tier entitlement — can help.

In fact, you may actually be able to borrow up to $766,550, which is the Federal Housing Finance Agency’s (FHFA’s) cap on conforming loans in 2024.

The VA determines your bonus entitlement based on this national conventional conforming loan limit. Since the VA typically covers 25% of your loan amount, you may be entitled to a bonus entitlement of 25% of $484,350, or $121,087 (less your basic entitlement of $36,000).

This leaves you with $85,087 in second-tier entitlement. As mentioned above, most lenders will allow you to borrow up to four times your entitlement which means a potential loan limit of $340,350 — in addition to the $144,000 loan limit from your basic entitlement — bringing you up to the national conforming loan limit of $484,350.

Check your VA home loan eligibility

Many current active-duty service members and Veterans are surprised to learn that they have the necessary minimum service requirements to apply for a VA home loan. According to the most recent statistics, only 11% of Veterans have used their VA home loan benefits.

One of the biggest advantages of a VA home loan is zero down payment required and low interest rates. If you think there’s a chance you could be eligible, then you should contact a VA lender to how much you qualify for.

The post VA Entitlement Codes & Eligibility for 2024 first appeared on My Mortgage Insider.

But there are more misconceptions about VA loans than any other type of mortgage.

So, without the right information, people make mistakes and bad decisions.

Here are some of the misunderstandings made by military home buyers that can mess up their chances of getting a home as easily as possible:

Thinking it is their forever home

Kim Novak has worked with many veterans and active military personnel helping them to find a home in the Layton, Utah, area, where the Hill Air Force Base is located.

“No one stays in a house forever,” Novak says. She talks with veterans and active military personnel about their exit strategy before they even decide on a house.

If they tell her that they will be staying in the house past 10 years, she tells them that things will likely change, whether it’s children, grandchildren, a new job, family issue or anything else.

“So, I help them figure out what all that means and help them find the right home,” she says.

Not working with a real estate agent that knows VA loans

Novak is certified as a Military Relocation Professional by the National Association of REALTORS. By working with a realtor who understands all the nuances of veterans’ benefits and the loan itself, the process will be much smoother.

Believing a VA appraisal is a substitute for an inspection

VA appraisals and inspections are two separate things, Novak says.

A VA appraisal is required for any VA mortgage, but people get confused because the Veteran’s Administration calls it the VA Appraisal Inspection.

“They need new terminology, because it’s confusing,” she says. The appraisal is for the protection of the lender, while the inspection is for the protection of the home buyer.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

Not understanding the VA funding fee

VA loans have some amazing features. Those with a VA mortgage don’t have to make a downpayment or pay mortgage insurance, and they get some of the lowest rates available.

But there are still costs associated with VA loans that some people don’t know about. A VA loan has an upfront funding fee which is usually rolled into the loan which increases monthly payments and the overall amount paid throughout the life of the loan.

The only time this fee is waived is if the veteran has a 10 percent or more disability rating.  The fee is somewhat like FHA mortgage insurance, Novak says. It helps the VA loan program continue on helping other veterans.

Not knowing you might pay closing costs

There seems to be a misconception that in these 100 percent VA loans, the seller pays the buyer’s closing costs. That is not a given anymore.

“The market is so competitive these days that when I talk with my VA buyers, I tell them about lender-paid closing costs that keeps them competitive with other offers. Their interest rate would be a little higher,” Novak says. Closing costs are usually 2 to 3 percent of the loan amount.

Not knowing that you can get more than one VA loan

Veterans have a certain amount of entitlement from their military profile. Many think they can only be eligible for one VA for life, but they can actually be eligible for the loan multiple times.

In fact, veterans and active military personnel can even have two VA loans at the same time.

Not realizing that seniors are eligible

Novak is a certified senior real estate specialist, and she has come across many veterans and their spouses who didn’t realize they are still eligible for VA loans.

Just because they served in the 1960s or 70s doesn’t mean they can no longer can take advantage of the loans. “It’s neat to see them finally realize they are still eligible,” she says.

Not comprehending that your home is an investment

When Novak sells a home to an active duty military person, she tries to emphasize to them that even if they are only going to be in their home three years before getting reassigned, they will still be building equity.
“As values are appreciating rapidly in many parts of the country and including Layton, new homeowners could build $10,000 to $20,000 in equity in two to three years,” she adds.

“But sometimes, they feel like that’s not a lot of money.” And many don’t understand that all the mortgage interest they have been paying is tax deductible, which also helps them with finances.

Check your VA home loan eligibility. Start here (Sep 16th, 2024)

The post 8 Biggest Mistakes Veteran & Active Military Home Buyers Make first appeared on My Mortgage Insider.

VA streamline: An easier approval process

The term “streamline” describes this loan product well. It requires much less documentation than a standard refinance. It’s the perfect way for current and former US military veterans to save money on their monthly mortgage payments without a lot of time and paperwork. A short list of VA streamline advantages are as follows.

• No income documentation is required
• No bank statements or other asset documentation is required
• No appraisal required
• Lenient credit score minimums
• You can roll all closing costs into the new loan, eliminating out-of-pocket expenses
• You can finance energy efficiency improvements into the new loan

As far as refinance programs, there is really no other loan product that is quite as easy as this one.

How can I use a VA streamline refinance?

When current mortgage interest rates are low, it’s often a good idea to refinance. A refinance is simply a new loan that pays off the existing loan. The new loan has a lower rate or otherwise improves the homeowner’s situation.

The Veteran’s Administration developed this refinance program in 1980 to help our nation’s veterans get a lower mortgage payment with reduced hassle, time, and expense.

A VA streamline refinance allows the borrower to:

• Lower their rate.
• Reduce their monthly payment.
• Convert an adjustable rate loan into a fixed rate.
• Finance energy-efficient repairs.
• Shorten or lengthen the loan term (e.g. 15 year to 25 year, or 30 year to 15 year)

The biggest advantage of a VA streamline over other refinance programs is that no income or asset documentation is required, nor is an appraisal. Underwater homes are eligible, because value of the home is not considered.

VA streamline rates

VA loan rates are typically much lower than even “standard” rates published by Fannie Mae and Freddie Mac. According to Ellie Mae’s Origination Report, VA rates averaged 0.3% lower than conventional Fannie/Freddie rates in March 2021.

That means VA loan holders have access to very low mortgage payments compared to those without a VA loan. Why are rates so low for VA? These loans are heavily backed by the federal government. Lenders view these loans as low risk, and pass the savings on to the borrower.

VA streamline requirements

VA to VA. The VA streamline program is available to refinance existing VA home loans. The borrower may not use the program if they have an existing FHA, USDA, or Fannie Mae/Freddie Mac loan. The VA streamline is strictly a VA-to-VA program. If your loan is not VA-backed, see check out the FHA Streamline Refinance and Conventional Refinance. If you have another loan type, but want a new VA loan, consider a VA cash-out loan. Click here to compare the VA streamline and VA cash-out loan programs.

Reduction in Payment.  To qualify for the VA streamline program, the monthly payment on the new VA streamline loan must be lower than the previous payment.

Waiting Period. The closing date of the new VA streamline must be at least 210 days after the first payment of your existing VA loan. In addition, you must make 6 full payments on your current loan before you are eligible for a VA streamline.

ARM to Fixed. There is an exception to the “reduction in payment” rule when refinancing from an adjustable or hybrid loan to a fixed rate. Going from an ARM to a fixed rate often increases the payment. However, this is allowed since the homeowner receives a more stable loan product.

Occupancy.  The borrower must certify that the property is either currently or previously occupied as a primary residence. In some cases, the veteran must move out of the home due to PCS orders or other circumstances. In these cases, a VA streamline may still be available.

VA Loan Payment History.  To qualify for the VA streamline loan, there can be no more than one payment in the previous twelve months that was more than 30 days past due. If you do have a 30-day late mortgage payment, you’ll have to wait until you have built a clean 12-month history.

No Cash Out.  The VA streamline loan does not allow the borrower to take out a bigger loan they currently owe in order to receive cash at closing. However, the VA cash-out refinance does allow it.

Cash Needed to Close a VA Streamline. In most cases, all closing costs can be rolled into the new loan, so there is little or no out-of-pocket expense. Ask your lender for a lender credit for all or part of the closing costs. This can reduce the amount of the new loan.

Appraisal. The VA does not require an appraisal, but some lenders will require one. If your home is underwater (i.e. you have negative equity), it’s best to find a lender that does not require an appraisal.

Minimum Credit Score for a VA Streamline. VA streamline refinance guidelines say no credit report is required. However, most or all lenders will require a credit report to prove you are in good standing on your VA mortgage and to prove sufficient credit history. While the VA does not set a minimum credit score, most lenders require between 600-620 to qualify.

Questions & answers about the VA streamline loan program

I have a 5/1 ARM loan, can I use the VA streamline loan program?

Yes. A 5/1 loan is a hybrid loan and is considered an adjustable-rate mortgage. Other hybrids include 3/1, 7/1, or even 10/1 where the interest rate is fixed for an initial period. Even though the payment is fixed for a time, the rate will eventually adjust. A VA streamline is a great way to refinance into a fixed-rate loan.

What credit score do I need?

Each lender sets its own minimum credit score for this program. Typically, that score is 640, but a few lenders allow a 620 or even lower.

My property is a rental. Can it qualify?

As long as you can prove the home was once your primary residence, the property should be eligible.

Will my lender need a new title report?

Yes, the new loan will need a new title insurance policy. The title report will provide evidence to the lender that there are no outstanding judgments or liens that will affect the new loan.

Can the lender use my old certificate of eligibility (COE)?

Yes, in fact, you don’t need a COE at all. Your current VA loan proves that you are eligible.

Do I have to use the same VA lender I used with my original VA loan?

No, you can use any lender that is authorized to underwrite and approve VA loans.

Can I skip two payments with a VA streamline loan?

It may seem like it but in reality, no payments are missed when using a VA streamline. At your closing, the old VA loan will be paid off entirely which includes accruing interest. In addition, some interest will be prepaid on the new loan.  If both interest payments were included in your new loan, the payments were made, just not out of your pocket.

My lender wants an appraisal, paystubs, bank statements and other things that are not required. What’s going on?

Even though the VA does not require these items, a VA lender may impose its own “overlays,” meaning additional rules.

If a particular lender overlay is keeping you from using the VA streamline refinance program, click here to find a lender who has different rules.

I’m ready to apply for my VA streamline refinance

VA streamline rates are very low and are helping thousands of current and former US military servicemembers lower their housing costs. Lenders are eager to help with these loans. There is so little documentation needed that mortgage companies can get applications through the system very quickly.

There are very few reasons a homeowner would not to apply for this payment-reducing program. It’s a great value and easy to qualify for.

The post VA Streamline (IRRRL) Refinance Loan: Easier Refinancing for Veterans first appeared on My Mortgage Insider.

Many home buyers believe they need a 20% downpayment to buy a home. This misconception could stop buyers before they start, and cost them years of building wealth and home equity through homeownership.

A recent survey by Wells Fargo found that 44 percent of U.S adults believed lenders require 20 percent down to buy a home.

Yet all major loan types available today allow for a downpayment of less than 5 percent.

Homebuyers are surprised to learn that these mortgage programs exist and that they are probably eligible for at least one of them.

These loans require little or no down payment

There are four major types of mortgages and none of them require 20% down or even close to it. Nearly all home buyers in today’s market opt for VA, USDA, FHA, or conventional financing. These are widely available programs available at virtually every lender.

If you are considering buying a home with little or no downpayment, you are not alone. The number of homeowners who purchased homes with low downpayment loans have been steadily increasing for the past five years according to the Wall Street Journal.

In 2019, according to Porch.com, over half of Millenial and Gen X home buyers made a down payment of less than 10% when buying their homes. Even 19% of boomers made down payments of less than 10%.

The uptick is due in large part to a reduction in the cost of mortgages offered by the Federal Housing Administration (FHA), which can approve loans to borrowers with less-than-perfect credit.

Mortgage rates are low and low- and no-downpayment mortgages are available from mortgage lenders in your city or town. Often, new homebuyers who contact a mortgage company to find out their options walk out with a pre-approval letter. They can then take this letter and make a serious offer on a home, years sooner than they first believed they could.

Today’s mortgage market offers an array of easy-to-access programs that are suited for home buyers from almost every background and economic standing.

FHA loan: 3.5% down payment

The FHA loan allows a downpayment of just 3.5 percent. The Federal Housing Administration (FHA) administers the program and insures lenders who issue the loans. This keeps FHA loan rates some of the lowest of any loan type.

FHA loans are common among first-time home buyers. The purpose of this loan since its creation in 1934 has been to facilitate homeownership for those who would not qualify for other loan programs. The FHA has a minimum credit score of 580, which means borrowers with lower credit scores can qualify. FHA mortgage approval standards are considered to be the most friendly toward first-time buyers.

Conventional 97 loan: 3% down payment

The Conventional 97 is a 3% downpayment program available to home buyers with higher credit scores than FHA requires. Conventional mortgages are ones that lenders can sell to Freddie Mac or Fannie Mae after closing.

The advantage with this program is the cancellable private mortgage insurance (PMI). FHA loans require mortgage insurance payments for the life of the loan in most cases.

Conventional loans, including the Conventional 97, allow you to remove the mortgage insurance when you reach 20% equity. This loan could work for home buyers who plan to pay down their principal balance quickly to eliminate the extra cost of PMI.

HomeReady loan: 3% down payment

The HomeReady™ mortgage is another type of conventional 3% downpayment program. HomeReady™ was designed to help multi-generational households get approved for mortgage financing. Backed by Fannie Mae and available from nearly every U.S. lender, the HomeReady™ mortgage offers below-market mortgage insurance costs and the most innovative underwriting idea in more than a decade.

Borrowers can use many non-traditional income types to help them qualify, including rental income from a mother-in-law unit, roommate income, and even income from a non-borrowing household member.

This program will open up homeownership possibilities to a wider array of families.

VA loan: 0% down payment

The U.S. Department of Veterans Affairs (VA) insures VA loans, allowing lenders to approve loans at zero down payment. The program is available to current and former members of the U.S. military and surviving spouses.

VA mortgage rates are the lowest of any low- and no-downpayment mortgage loans. For qualifying borrowers, it’s about the best mortgage product on the market. Eligible veterans never pay mortgage insurance, further improving the affordability of homeownership.

In general, active duty and honorably discharged service personnel are eligible for the VA program. In addition, home buyers who have spent at least 6 years in the Reserves or National Guard are eligible, as are spouses of servicemembers killed in the line of duty.

USDA loan: 0% down payment

USDA home loans offer zero down payment and low rates to buyers in less dense suburban and rural areas. These loans are backed by the U.S. Department of Agriculture.

The program was created to spur homeownership and economic activity outside of major urban areas. As such, homeowners must make less than 115% of the median income for the area. These income limits are quite generous. In some locales, upper-middle-class families will fall within acceptable limits.

USDA loans are one of the most affordable loan types. USDA interest rates are lower than those of conventional loans. Monthly payments are extremely affordable.

The USDA loan program was intended to make homeownership more accessible so it can only be used to purchase a primary residence.

This program is a powerful loan option for suburban renters hoping to break into the housing market.

Check your eligibility for a low-down payment loan

Mortgage rates are low, including those for low-down payment loan types. Making little or no downpayment on a home does not necessarily mean paying higher interest rates.

There’s no obligation once you check your eligibility for one of these programs. The lender will tell you if you qualify, and if you feel it’s not the right time to buy, you do not have to proceed.

The post Get A Mortgage With Less Than 20% Down first appeared on My Mortgage Insider.

“Entitlement is just a fancy way of saying insurance on the loan,” he says.

Vercellino is a mortgage originator specializing in VA loans with First Choice Loan Services in Scottsdale, Ariz., and a United States Marine Corps veteran. Another thing he explains to his veteran clients is that the Department of Veterans Affairs does not lend the money.

What is the VA guarantee?

“The VA is only insuring part of the loan in the event that the veteran forecloses for any reason. They cut the lender a check for 25 percent,” he says.

VA-guaranteed loans can be made by banks, savings and loan associations, credit unions or mortgage companies. The guaranty means the lender is protected against loss if the borrower or a later owner fails to repay the loan. That guaranty is where the whole entitlement thing comes in. The maximum basic entitlement is currently $36,000, Vercellino explains.

That means you could buy a house for $144,000 and a fourth of it — $36,000 – would be guaranteed in case you stop paying the mortgage for any reason. Well, $144,000 can buy a nice house in some areas of the country. In other parts, it wouldn’t buy you a garage.

So, the VA established a bonus entitlement of $77,275. When you add up both the basic and the bonus – you get $113,275. That is 25 percent of $766,550, which just happens to be the maximum VA loan amount in most counties that veterans can get without putting any money down.

And of course, there are exceptions to that rule, too. In some of the very high-cost areas to live such as northern California, New York City and Miami, the entitlements go up as the maximum loan amount goes up so veterans everywhere can have the chance to buy a home.

“But your overall loan limit will be determined based on the results of an assessment of your ability to repay the loan,” Vercellino says. “Your debt-to-income, as well as your loan-to-value, will be heavily weighted in assessing the amount you qualify for.”

Entitlement does not qualify a military person for a VA loan and having full entitlement won’t necessarily mean you will be able to get a loan up to the county loan limit.

If you already used your entitlement to buy a house, can you get your entitlement restored, and can you have two VA loans at once?

Yes and yes.

VA borrowers can use their entitlement multiple times as long as they go through the proper channels to get it restored. According to the VA, you can restore your entitlement by selling the property and paying the loan in full. Or your VA mortgage can be assumed by another VA borrower who substitutes his/her entitlement for yours.

In the case of having two or even three VA loans at once without paying any down payment, Vercellino explains in a scenario  –

A veteran bought a house at $120,000 a couple of years ago where the county loan limit was $417,000 (pre-2017 limit). He now wants to buy a bigger house.

Here’s the math that makes it possible —
$417,000 x 25 percent = $104,250 maximum guaranty and entitlement available
$120,000 x 25 percent = $30,000 (guaranty for the current loan)
$104,250 – $30,000 = $74,250 entitlement available
$74,250 x 4 = $297,000 maximum loan amount for second loan with 25 percent guaranty

“You can definitely get a second VA loan and possibly three depending on how much entitlement you have,” he says. “And with a down payment, there are a thousand different ways.”

He adds that VA jumbo loans are also available as long the veterans come with the additional down payment to give the lender that 25 percent guarantee.

Although VA loans are guaranteed by 25 percent if someone defaults on them, they are still the loans with the lowest foreclosure rate the past five years, according to the Mortgage Bankers Association’s National Delinquency Survey. The survey bases its sample on about 41 million mortgage loans. VA loans have a foreclosure rate of only 1.98 percent.

The post What is VA Loan Entitlement? first appeared on My Mortgage Insider.

Tell us a little about yourself and your role at Deutsche Bank.

I recently joined Deutsche Bank this year as a Director of Agency Mortgage Backed Securities (MBS) Research.  Here I spend a lot of time examining the government mortgage market and the securities backed by Fannie Mae, Freddie Mae and Ginnie Mae.  I propose trade ideas suitable for institutional accounts as well as opine on housing policy and provide up-do-date commentary.  Prior to joining Deutsche bank, I held similar roles at the Royal Bank of Scotland, where I lead the Agency MBS research team, as well as UBS Investment Bank.

What do you like about researching and reporting on government-backed mortgage securities? How did you get into this area of the finance industry?

I became fascinated in mortgages because of their embedded optionality, i.e. determining if and when a borrower will prepay his loan.  That decision leverages on a quantifiable incentive as well as borrower behavior.  The combination of numbers and behavior has always intrigued me.  I have a bachelor’s degree in Mathematics with a minor in psychology, which is a rather unique background but a perfect fit for my role.  Research allows me to really explore opportunities in housing finance that are of interest to me.  With the whole mortgage finance model currently under a microscope, there is no shortage of things to talk about!

Many mortgage consumers don’t fully understand the relationship between government-backed mortgages like Fannie Mae, FHA and VA, and investors. Can you explain this?

When a homeowner takes out a mortgage, that loan is typically made by a bank or mortgage lender, not the government.  However, Fannie Mae, Freddie Mac, FHA and VA are all government entities that make mortgage finance possible.  They set their own eligibility requirements and if mortgage loans fit their parameters, the entities will guarantee the loans against default for the investors.  These loans then get guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae (the securitization outlet for FHA and VA loans).  Now, the MBS investor is not taking on the credit risk of the individual homeowner, but instead the risk of the US Government.  The role the Agencies play is critical to broadening the investor base for MBS which ultimately helps facilitate mortgage lending to borrowers nationwide.

Why are private investors interested in buying mortgages?

Mortgage Backed Securities typically offer investors a higher yield than other fixed-income assets.  Additionally, Agency mortgages carry the backing of the US government, so there is no default risk.  A common comparison is between Agency Mortgages and US Treasuries, since both are government products.  At current levels, MBS returns are approximately 1% higher. The risk to MBS investors is really prepayment risk, if a borrower moves houses or refinances his loan, the principal is repaid in full but the loan matures quicker and the investor misses out on a future stream of interest.

Contrary to popular belief, the government does not control mortgage rates. How does investor demand affect rates?

Investor demand essentially sets the price and rate for MBS securities.  If demand is high, investors will be more willing to buy at lower rates.  If demand is low, as it was at the peak of the crisis, the only way to get investors back is to push rates of return higher.  Unfortunately, this means charging the borrowers a higher rate.

You recently researched VA mortgage trends. What were a few of your key findings? Did anything surprise you?

It has been surprising how fast the VA loan population has been growing and what is more fascinating is that the trend is set to continue.  The VA estimates that the volume of VA loans is likely to surge 36% over the next five years as more young veterans return home from the military.  This means Ginnie Mae MBS Issuance could rise by $10-20 billion per year.

From your research, how does a VA loan compare to an FHA or Fannie Mae loan as far as the consumer is concerned?

A VA loan is unique in that it is a benefit only offered to veterans.  The advantage of a VA loan is that it does not require a down payment.  FHA loans require a minimum 3.5% down payment, but are available to all homebuyers (not just veterans).  Only recently does Fannie Mae permit a 3% down payment.  The real difference between FHA and Fannie Mae loans as far as the borrower is concerned is pricing: borrowers with higher credit scores generally receive lower rates through Fannie Mae, whereas FHA does not differentiate by credit score.

According to Ellie Mae’s Origination Insight Report, VA loan rates are about a quarter percent lower than those of Fannie Mae or Freddie Mac loans. Do investors view VA loans as safer, hence the lower rates?

Rate incentive is absolutely part of it, so from that perspective lower rates imply less prepayment risk and are in one respect safer.  However, VA has a much more efficient streamline refinance program where no appraisal is required.  As a result, VA loans can prepay faster than conventional (Fannie Mae or Freddie Mac) loans, which poses a greater risk to the investor.  MBS investors are constantly weighing these trade offs when making decisions.

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