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VA Loans: Who Gets Them And Road Blocks That Veterans Encounter

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va-loan-basicsAmericans who have actively served their country in all branches of the military and having left the service with anything other than a dishonorable discharge have access to a wide range of benefits from the Department of Veterans Affairs.  Under the Veterans Administration (VA) this includes assistance in purchasing a home.

Great Terms On Home Loans For Veterans

The VA does not lend money for home purchase but instead provides a loan guaranty to qualifying veterans to buy homes on very affordable terms. The VA loan guaranty program was instituted as the end of WWII approached, and the agency was very aware of the coming waves of men and women returning to civilian life.  The concept was to enable returning veterans to settle and have a home and a part in the American Dream, in recognition of the fact that they had risked sacrificing their lives on behalf of the nation.

What has evolved over the years is an excellent program that allows qualifying vets to buy homes without down payments. This program is a generous benefit but in practice, it suffers from a touch of bureaucracy and being poorly understood by some real estate professionals.

VA Loans Sometimes Cause Confusion

Lenders and realtors sometimes shy away from VA because they do not have enough information or experience with it in practice. In unsubsidized conventional lending, the borrower contributes a down payment of twenty percent or more. The VA entitlement subsidizes insurance on the portion the financing that would be covered by the down payment; this can be confusing to inexperienced lenders and agents.

The VA Loan Guaranty program sets no limit on lending, but it caps the deposit liability. VA Loans do not have a conforming loan limit per se, but for a no-down-payment VA loan the de facto lending limit is the same as Fannie Mae and Freddie Mac limits by county, but by adding cash as down payment you can increase the size of the loan. In all cases, you still have to qualify based on your credit and income just like conventional and FHA loans.

Appraisals for VA have a reputation for being rigorous, slow and conservative (meaning it might come in low).  A low appraisal might prevent the sale unless the buyer pays the difference, which undermines the whole point of “no down payment.”

VA financing requires that an eligible property is within U.S. territories and is a completed structure, either new built or existing, not undeveloped land.  If the home is a condominium, the complex also has to be approved for VA lending, which is not a given.

Something For Your Service

The potential roadblocks you might encounter are professionals reluctant to work with a VA loan, harsh appraisals and the need for condo approval. But these are not insurmountable challenges; a little persistence will go a long way when you are attempting to buy a home with a VA loan and no down payment. Approach the process as if you are hunting for a bargain and when you have your new home, you will find it is a bargain that you earned with your service.

Back To Credit Score Basics – What You Can Do To Qualify

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credit-score-basicsHow Do You Get A Credit Score?

The consumer finance tool known as your FICO Score came from its namesake, The Fair Isaac Co., in response to a need for financial institutions to have a mathematical snapshot of consumer financial health. For sixty years it has helped American financial services companies to judge the credit worthiness of individual customers and whether or not to extend credit.

Credit scoring has been instrumental in facilitating purchases, improving the probabilities that lenders recoup their investments; it has also given customers the lifestyles that bring joy and happiness while boosting the performance of the economy as a whole.

FICO Scores By The Numbers

The credit bureaus score consumers based on the Fair Isaac formula and the information they have compiled from reporting lenders. This score, ranging between 300 and 850, might vary slightly between agencies because they have differences on file. Not all credit-reporting businesses give information to all three services. However, the information is not likely to deviate significantly from one service to another.

Factors in scoring: Payment history, the length of your credit history, the number and type of accounts, and how many new accounts you have. It is important to note that when a lender views your credit report it has an adverse impact on your score! Ironically, too many hard inquiries are a bad thing when you are seeking the best lending terms. So limit your applications to only the ones that will give you offers you plan to accept.

Actions That Raise Your Credit Score

Higher is better in credit score calculation. A low score is not the same as no-score where you cannot get credit, but instead, it will indicate the terms that lenders will offer you. If you have a low credit score banks and mortgage companies will offer you more expensive terms. When you qualify for better loan terms, you will save many thousands of dollars over the term of your home loan.

Keep making payments on time – Missed payments stand out on your credit report like enormous red flags, and this reflects directly on your credit score. The regular and consistent payments you make are critical to increasing your score, and these financially healthy habits will be more important as your credit history gets longer.

Avoid applying too often – Start new credit accounts and inquiries as sparingly as possible, too many new accounts or hard inquiries drastically reduce the average age of your accounts, which drags your credit score down.

Use the credit you have – If you start new accounts, it is a negative mark but if you utilize the lines that you have it will help to establish a history that shows how you behave over time. Although there are many ways to go wrong and abuse your credit, not having any credit history will prevent you from getting approved altogether.

Pay down debt – Reducing your debts from your highest levels of borrowing will demonstrate to finance companies that you will act responsibly with their capital.

Look at alternative lending packages – If you have the cash, consider prepaying more points for a lower rate and put down a smaller deposit, this will help to keep your interest rate down.

Look Out For Misleading Mortgage Offers

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refinance-mistakes-to-avoidIf The Finance Deal Sounds Too Good, It Probably Is

Buying a home is a big undertaking and one that has implications for the decisions that you make today that could impact your wealth and lifestyle for years to come. You need to be extremely careful to get the financing right so that you can reap the benefits of a smart choice.

The financial services industry is gigantic and diverse; it accounted for $1.26 trillion worth of sales in 2014. While the majority of companies provide excellent service, there are a few that are unscrupulous, and in between there are those companies that maybe just push the hard-sell tactics too far. So let’s point out some of the selling tactics to look out for and take as signals to avoid particular real estate lending offers.

Watch Out For Deceptive Wording

“Low Fixed Rates” that are just ARM introductory periods – If the blurb says something along the lines of, “low fixed rate for the first five years,” that is a sure sign that the loan is an adjustable rate mortgage or ARM. While an adjustable rates are not necessarily bad, they can be worded deceptively and potentially leave the borrowers open to the risks associated with the terms and uncertainties at the time that the adjustment takes place.

“A great deal because it’s government backed!” – Really? Government programs, for example, Freddie Mac and Fannie Mae, “back” most loans that meet the conforming criteria by purchasing them as investments; such claims are misleading because they overstate the significance of that backing.

Refinancing Offers To Avoid

Unsolicited offers in return for information – In refinancing a home loan, it is always a safer policy to take the initiative. Do not respond to unsolicited offers that promise to find a great deal if you “just fill out a form.” The risk of getting scammed is just too high.   The information that they ask you to give is exactly the type of information that identity thieves crave; you are better off just assuming that unsolicited refinance offers are scams.

Never pay fees up front – There is no good reason to pay a lender anything before closing. If they ask for payments up front, it is a sign that you need to go elsewhere for your refinance.  Don’t do it, and don’t walk out, RUN!

Bonus Tip

Avoid prepayment penalties – How about your interest if you pay off the loan early? Who knows what will happen in the next five years? The pace of technological changes and politics are so volatile these days that you don’t want to be tied into some financial commitment, with a cash penalty as the only alternative. But this is what can happen with a home loan that has a prepayment penalty tying you in as part of the contract. Regardless of your present plans, always insist that your home loan has no prepayment penalties.

Information on what to avoid in real estate finance is not hard to find. A search of the Internet will return a list of the latest scams and scoundrels and how to avoid them. Researching the reviews of services on social sites, the Better Business Bureau and getting advice from trusted and disinterested parties is all part of the process of finding the right provider for your home loan.

 

Sacrifice These 6 Bad Habits To Find Home Financing

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mortgage-loan-basicsEighteen Months To A Down Payment

It is amazing how much the typical consumer spends on convenience items that they can substitute with a little effort. If you set a goal of buying your first home, there is a good chance you can get there in the next eighteen months by making some changes like avoiding the financial traps exemplified by the six following spending habits.

What Sort Of Down Payment?

If you finance with an FHA loan, you will need 3.5 percent of the sale price for the deposit and 1.5 percent for closing costs (usually included in the loan, but let’s be conservative here). So, 5 percent of a starter home that might be $100,000 to $300,000, depending where you live.

That means you need five to fifteen thousand dollars, which sounds daunting, right? But here is the thing: You might easily spend that much in eighteen months on things that you can cut from your spending. Even a single person might find $5,000 of savings in eighteen months (that’s just over $64 per week).

A married couple can easily economize to come up with an extra $64, $128 or even $192 per week by cutting down on all of the non-necessities the modern world want so badly to sell you.

Cut Out These Habits

Eating out daily – Make it a special treat for once a week and find recipes for easy-to-make home-cooked meals that you enjoy. Meal preparation is time-consuming, but if you cook for several days at once and refrigerate portions in single serving containers. You can multiply the benefit and maximize the savings by taking them to work or for hassle-free dining when you get home.

Growing credit card balances – Stop spending money on your credit cards, just stop, do it now! Lenders look at debt-to-income when considering loan applications, and they frown upon higher debt, so turn it around now and start reducing your balance.

Going to casinos – Gambling is taking money straight out of your pocket, the house always wins, and you will never own the house until you stop giving your money to casinos!

Premium cable packages – While it might hurt to forego the live game feeds and shows about dragons, ask yourself if that massive cable bill is worth not having homeownership in your future?

That gym membership you never use – Gyms sell hope more than anything else. If you have a monthly membership that you never use, save the money and get out and take part in some other free physical activity.

Those ten-dollars-a-month Internet services – How many accounts for audio books and streaming content do you have? Take a steely-eyed look at what nickel-and-dime services are soaking up your income and which ones are genuinely delivering value to your household.

Save Now And Enjoy The Rest Of Your Life

If you don’t already have the necessary means, then you are going to have to do a little work. Put these six habits to rest and you will be about eighteen months closer to making a life-changing purchase. It will be effort well spent that you appreciate most when you finally turn the key in the lock of your first home.

Do Adjustable Rates Make Home Loans Dangerous?

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ARM BasicsAdjustable rate mortgages or ARMs are home loans where your payments change with the state of the economy, to reflect changing interest rates. A typical ARM has a period fixed for five years and then adjusting annually after that. The hazard for ARMs is that, if the economic conditions are right, they can become very expensive down the road.

Breaking Down The Payments

Home loans pay interest as rent to the lender for the amount outstanding and gradually repay the principal. In the case of fixed rates, the interest rate is set when the loan company or bank creates the loan, and you have a predetermined schedule that pays a fixed rate of interest on the outstanding balance, and the rest of the payment goes to returning the principal.

A fully adjustable would allow the lender to charge you whatever interest they felt like each month, this is not the case with ARMs. The interest rate adjustments occur on a schedule, they tie to some independent factor, commonly the prime lending rate plus a predetermined percentage.

As the principal you have paid increases, the less interest and the more rapidly you pay down the balance of the loan; this is also true of ARMs but when they adjust you continue to repay the principal according to schedule but the updated interest rate changes your overall payment.

Give And Take For An Enticing Initial Lower Rate

The market for ARMs is not a free-for-all, but this type of loan does present a risk in the future if the prime rates should change dramatically right as your rate is due to adjust. If the prime rate were to climb rapidly to the double-digit levels seen last in the 1980s, your home loan could become extremely expensive as soon as the ARM updates.

The advantage of ARMs is that you can get a better initial rate; ARMs cost less to start, and you might pay less over the life of the loan, assuming economic conditions remain favorable for the next fifteen to thirty years.

However, even if the average prime rate stays flat, there is the risk that, for reasons yet unknown, the prime rate spikes for a short time, just as your rate resets and you have to pay higher interest for a year or more. Additionally, it may not be possible to refinance on favorable terms because, if the prime rate goes up, all new lending will tend to incur a higher rate of interest.

Betting On Good Times Ahead

Just because double digit resets are not likely, that is not the same as impossible. If you borrow on an ARM, you take the risk that the unexpected will occur. The other side of that risk is that introductory rates on ARMs are often lower than the equivalent fixed rate loan.

If it works out that rates do not change, or they improve, over the lifetime of the loan it could save you a lot of money. When you choose an ARM, you are making a bet that interest rates will not move against you.

Refinance To Pay Off Your Home Loans Faster, But Watch Out For These Traps

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Mortgage Refinance BasicsOf Shorter Terms And Greater Equity

Your signed up for your first home loan, it was probably over thirty years because that was the cheapest way to finance or it gave you the most home for your monthly payment. When you were shopping for funding, did you happen to notice that fifteen-year loans did cost more but not double what you ended up paying each month?

Now that you have a history of making payments on time perhaps you can refinance your home to pay off your loans faster, or you can refinance to make your payments smaller. You can even refinance to take cash out of your home, although, unless you intend to invest it in real estate it is probably not a good thing to do; hold on to your equity and growing your wealth will be the much more rewarding path in the long-term. If this sounds like a smart move, start to make inquiries about it, but keep these potential traps in mind.

The Loan Term Reset Trap

The first trap to avoid in refinancing is rolling from from one thirty-year term to another because you will just reset the clock back to the beginning. It is like you are adding the payments up front where they are mostly interest and little principal. In addition to the closing costs, you will end up paying more interest over a longer period.

Leaving Mortgage Insurance Behind

If you financed your present loan through FHA, with a small down payment and mortgage insurance or on a conventional loan with PMI, it was a great way to get started. However, once you have accrued some equity, you can move on to save costs and expand your equity share more quickly. FHA rules require you to have mortgage insurance for the life of the loan, hence the necessity to refinance to get those savings. For conventional loans, PMI payments can be stopped after the loan balance is paid down sufficiently.

The Cost Of Closing Trap

There are always costs in refinancing; these closing costs must be weighed against the monthly savings to determine if it is worth refinancing. The cost added to your loan should be less than the savings you gain over three years. Also, try to avoid the temptation to take cash out at closing because this is essentially a hidden closing cost. Even a relatively small cash advance will cost you several times the amount over the life of your loan.

Traps That Steal Long-Term Value

Are you certain enough of your income to justify a higher monthly payment to clear your loan sooner? If you find yourself forced to sell, you will not get the benefits down the road. Don’t get trapped into refinancing and then having to sell with all the additional closing cost hanging over you.

Refinancing is only really beneficial if you intend to stay put for a significant length of time. If you are in your home long-term, you want to cut your term from thirty years to fifteen, and have enough equity to forego mortgage insurance then you can save some money by refinancing. If you replace your previously government-backed home loan with one that has no need of mortgage insurance, a lower interest rate and half the term you will pay much less over the life of your loan.

Financing Manufactured Housing And Mobile Homes

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Home Mortgage BasicsYou Can Finance Your Manufactured Home

Since the dawn of the automotive age, mobile homes have been convenient options for consumers to purchase as habitats, with or without title to land on which to place these abodes. In its modern form, the humble mobile home is now called a manufactured home, and it is a low-cost way to become the owner of your domain.

Historically, manufactured housing has had a reputation of sorts. However, standards of construction and design have improved dramatically. Prefabricated homes have a range of niche uses from vacation homes to senior housing. The ability to move homes on site, assemble the sections and connect utilities rapidly makes them ideal to support disaster relief and other temporary housing needs.

Mobile Versus Manufactured Defined By A Date

The name comes from being prefabricated structures, transported complete or in sections by road to the community where the owners will live. Manufactured homes are most often doublewide, meaning two sections or more joined side-by-side, transported separately and joined on site; these are more popular and hold value better than singlewide homes that arrive onsite complete.

The most significant distinction is that mobile homes ended production before June 1976, and manufactured homes entered production after that month. Pre-1976 mobile homes are not financeable, but you can obtain loans for newer manufactured homes if they meet state and HUD regulations that facilitate national distribution by manufacturers. FHA, USDA, and VA insured loans are available for manufactured housing whether the home is sited on a purchased or leased lot.

Appreciating Personal Property Or Real Estate Depreciation

Manufactured homes lie on the boundary between personal property and real estate, sometimes are convertible from one to another. In real estate, the value resides in the land, which cannot be moved or removed by definition and so its value cannot depreciate, merely changed by its use and zoning, but all of the structures on the land are subject to depreciation.

Manufactured housing depreciates more rapidly than conventional site-built structures; it has a direct impact on the ability of owners to finance the purchase of it. Singlewide homes depreciate more quickly than doublewides. The standards of construction in manufactured homes have improved to justify treatment as conventional housing structures. However, the status of a particular home is determined by many factors including the laws of the state.

Refinancing Manufactured Homes

When manufactured homes hold title as personal property, they are financed by chattel loans of fifteen to twenty years at sub-prime interest rates. Converting the title to real estate enables borrowers to refinance chattel loans to mortgages at lower rates of interest. Refinancing will require that you have the title to the lot and a permanent foundation. Manufactured homes are a specialization for some realtors, who deal with nothing else. By becoming experts in manufactured home sales, they can help buyers find the right financing and get settled in as comfortably as owners of any other type of home.

Private Mortgage Insurance Is Your Conventional Loan Leverage

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private-mortgage-insurance-basicsBut Leave It Behind At The First Opportunity

If you thought that borrowers have to put a twenty percent down payment on a home to conventional home loans, you would be pleasantly surprised to find that this is not the case in fact. Borrowers can purchase insurance on conventional loans. The innovation of private mortgage insurance or PMI has been enabling buyers to acquire homes with minimal down payments for many years now.

The Lender’s Side Of Conventional Loans

Conventional loans come from corporate financial institutions, whose objective is to invest capital and receive income in return. The practice of banks and other lenders has been to mandate a deposit of twenty percent, or more; this is not only a tradition it is a firmly established business practice of the financial industry.

Fluctuations in the market value of real estate and the cost of a forced sale mean that in all probability, an investor can be reasonably confident of recovering 80% of full market value in the unfortunate cases when loans result in foreclosure, it is also the difference between the retail and wholesale values of real estate.

However, finance companies want to reach out to the large pool of consumers who do not have access to large piles of cash to invest. The solution has been to insist that borrowers purchase mortgage insurance.

Extending Loan To Value Ratios With Private Mortgage Insurance

The deciding factor in lending is the loan-to-value ratio or LTV, where 80 percent of, say, a $360,000 loan is $288,000, and the down payment would be $72,000. So, for a lender to underwrite a loan for more than the wholesale value of property, the most important requirement is that their additional investment must be insured to account for any potential losses.

PMI exists to bring the risk of a low down payment conventional home loan in line with the acceptable investment standards of mortgage lenders. Government-backed loans provide a similar protection in which the agencies that sponsor them provide the insurance.

FHA And the VA do not make loans, but they are in the business of promoting homeownership. FHA does this by providing mortgage insurance for the portion of loans over 80%. VA loans can be up to 100% without any insurance requirement.

Calculating PMI

The cost of PMI derives from the value of the loan and the credit score of the applicant. Using the above example, you put down 5% or $18,000; you need insurance on $342,000, which might cost between $86 and $428 a month, depending on how you qualify. This amount will be added to your monthly payment for as long as your loan balance has a LTV ratio of greater than 80%.

One significant difference between mortgage insurance on FHA and conventional loans is that with PMI, once your outstanding LTV ratio is below 80% it can be terminated, this can mean a significant reduction of the monthly payment.

PMI offers the opportunity for consumers to purchase homes on conventional loans that they would not otherwise be able to afford, it is a classic win-win situation. Lenders can safely make loans to a market segment that otherwise would not be able to purchase homes and consumers can achieve home ownership and build wealth for the future.

Do These Three Things To Raise The Down Payment On Your First Home

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First Time Buyer BasicsThree Things To Unlock Your First Home

Did you know that it could be cheaper to buy than to rent your home? That’s right! Even if you have never owned real estate before, there are officially sanctioned hacks that are designed to support home ownership in the United Sates, even after all of the highly publicized problems of the last decade.

If your plan is to buy your first home, and you don’t have enough cash to make a down payment, what do you do? Well, it is reasonably straightforward. If you have a mediocre credit score and steady employment you are half way to owning your home.

A Home Ownership Plan For Everyone

Let’s run through the basics how you can get there; it boils down to three inter-related things: Your debt, your income, and finding the down payment. We are assuming here that you are not a servicemember or veteran of the United States Military or Coast Guard, who might be able to purchase a home without any cash using a VA loan.

But you will probably still be able to qualify for an FHA-backed loan; this is another government–backed loan program designed to get working Americans into home ownership with a low minimum down payment of 3.5 percent and you can add any buyer’s closing costs to your loan.

Debt To Income Ratio And Saving For Your Down Payment

If you are starting at zero savings and mediocre credit score, you are going to do three things to achieve your first home purchase: Reduce your debt, increase your income and save up a deposit. Lenders will carefully analyze your debt-to-income or DTI ratio, and they will prefer to see less debt and more income.

You will need to come up with 3.5% of the purchase price of your new home. Let’s start with a ballpark figure for the value of a starter home or condominiums you can expect. For argument’s sake, let’s make it exactly $150,000, which means that you will have to produce a deposit of $5,250 to close the deal on your new home. If you express this as weekly savings, it is $101 a week to save in a year or $67.31 per week over eighteen months.

Helpful Deposit Raising Tips

Here are some tips about things to do to save up for your deposit.

Create a budget – This will enable you to see what you have to earn and what you can do to reduce your debt. Of course, you will have to be disciplined enough to live within the budget so make sure that it is realistic.

Pay off loans – Reducing debt will have a positive impact on your credit score and reduce the numerator of your DTI ratio.

Change jobs sooner rather than later – If you want to buy a home in a year to eighteen months, change employment for a higher income as soon as possible because lenders will want to see job stability before they approve your loan application.

Keep your job – Do all the overtime you can get.

Keep your present job or don’t But get a second part-time job as well as your full-time job.

Of course, housing prices in your region may vary, but this just makes the point that it will take you some work to get to your home-owning destination. Given the motivation, steady employment, and good credit, homeownership is within reach of most people within the next year to eighteen months. So, perhaps it is time to start getting excited about the possibilities.

Marking The Path To Home Ownership With Information

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stages-of-home-ownershipUse Your Personal Financial Information To Help Yourself

The digital age gives consumers the chance to find out how they appear to credit agencies, to track changes in credit and manage finances better. With a little determination, consumers who know how to exploit the technology and interrogate the right information sources can use it to assist themselves in qualifying for a home loan.

Unless you just won the lottery or you have great personal wealth, when you go to buy a home you will need to borrow the money to do so from a bank or mortgage company. Lenders will look at two aspects of your finances: Your income and spending habits to decide on your creditworthiness.

Check Out Your Three Credit Reports

The Fair Credit Reporting Act (FCRA) gives you the right to review your credit reports without charge from Experian, Equifax, and TransUnion once a year. If you have not done so in the last 365 days, go to the Website at annualcreditreport.com to download your reports from the three main credit-reporting agencies. These reports will show you exactly the information that lenders will see when they consider your loan application. A little preparation can prevent a disappointment; sometimes consumers discover incorrect information on their reports. You should look through all three reports very carefully and be prepared to query anything that appears to be inaccurate.

Track Your Credit Score Changes

Your FICO Score is an excellent indicator of your financial condition; it is a standardized model for credit scoring, and financial services companies have used it for more than five decades now. There are now web-based services that will give you an up-to-date calculation based on your information from the credit reporting agencies. If you choose one such as creditkarma.com, which does not ask for a credit card when you sign up, you need not worry about fine print trapping you into a payment plan.

Create A Structure To Pursue Your Goal

One of the most useful types of mobile digital applications is the personal finance app. It gives you the insight to track your spending and set up a budget and savings plan. As an example, mint.com will help you set up a budget and even connect with your bank and credit cards to give you real-time information. When you have this sort of insight into your personal finance you have a better chance of staying in control and beating your goals.

The credit card companies and banks know a lot about you, and they use that information to market unsuspecting consumers with any enticing financial products they think that they can sell. So, don’t be an unsuspecting customer any longer. Information is the key to taking control of your financial life. Make use of online personal financing analytical tools to set a budget, pay down your unsecured debt and start saving for a deposit.

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