This is a re-post of a Dean Hartman blog from last month which we thought was appropriate this holiday weekend. - The KCM Crew
Thank God For Those Who Have Served!
We all owe a debt of gratitude to the men and women who have served this country in times of peace and times of conflict. They preserve the freedoms the rest of us too often take for granted. As a nation, there are too few times we properly say “thank you” to our veterans, but, as it relates to housing, we do stand up and offer considerable assistance. Today, I want to address two such instances.
First Time & Repeat Homebuyer Tax Credit Extension
First, did you know that the First Time Homebuyer (of up to $8000) and the Repeat Homebuyer (of up to $6500) Tax Credits are still available for Veterans who have served overseas in the last 12 months? Most people are unaware that qualified vets can still get the credit, if they get into contract by April 30, 2011 and close by June 30, 2011. That’s an additional year to keep looking for a home! A solid “Thank You” for veterans! (As an aside, some Federal Government employees who were stationed overseas also have an extended opportunity.)
The Traditional VA Mortgage
The second benefit afforded those who have served is the traditional VA Mortgage. Some of the highlights that make the VA loan an attractive one are as follows:
- 100% financing! That’s right…..100%! You can buy a home with no down payment.
- The Seller can pay your closing costs as an incentive to induce you to buy their home. That means you don’t need to come up with that money either.
- No Reserve Requirements means you don’t need to have any real savings at all to buy a home with a VA loan. (Now, that doesn’t mean you shouldn’t have money in the bank before you buy a home, but it does mean you don’t have to.)
- More liberal understanding of credit challenges from VA Underwriters make getting approved easier.
- There are circumstances where the VA Funding Fee (their version of mortgage insurance) can be waived….ask your LO.
Two of the major hurdles for homebuyers today are accumulating sufficient liquid assets and credit scoring imperfections. The VA Mortgage lowers both hurdles considerably.
At the same time, the VA protects its constituency in two main ways. First, they control and strictly review the appraisal. They are devoted to both proper valuation (making sure the veteran isn’t getting ripped off by overpaying) and the condition of the property. Second, underwriting for affordability is a little different (and more logical) on a VA loan.
When calculating ratios (the percent of your expenses compared to your income), the VA only considers a total debt ratio….while traditional mortgage underwriting has two ratios (“housing expense to income” and “total debt to income”). VA Guidelines allow loans to be approved if a borrower’s monthly debts remain below 41% of their monthly income. At times, even higher ratios are considered if there are compensating factors (like strong credit and assets).
But the uniqueness extends beyond the ratios. The VA does an additional calculation called “Residual Income”. Basically, it does a real world budget for the Veteran, taking into all their expenses (like heat and electricity, food, clothing, income taxes and so on). There are adjustments based on how many children you have because it is more expensive to feed six kids than two. While other mortgage products ignore the difference between an applicant who purchases a home in a state without state income taxes, the VA loan doesn’t ignore it. As long as a customer has $1 in “Residual Income”, the VA underwriter can approve the loan!
Talk to your loan officer about other factors in eligibility, but anyone who is qualified should consider a VA mortgage.