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How VA home loans Work

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For veterans, active-duty service members and some spouses, VA home loans can be a great way into homeownership. But they differ in some key ways from traditional home loans. Find out if a VA home loan is right for you, and if so, what to expect.

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If you’re thinking of buying a home, a VA home loan can help you make it happen.

Let’s take a look at what VA home loans are as well as some of the advantages they offer that traditional mortgages don’t.

A VA home loan is a loan that veterans, active duty service members and some surviving spouses are eligible to apply for. They often come with better terms than a traditional mortgage and can be easier to qualify for.

There are specific eligibility requirements in order to qualify, like the length of your service, which we cover in an accompanying checklist.

If you’re eligible, you can apply for a VA home loan at any time during or after your service when you’re looking to buy or refinance a home as long as the home will be your primary residence.

You can also use a VA home loan more than once, if, say, you end up selling one house and buying another later on.

As always there are a few exceptions. You can check the VA’s website to find out if you or the home you want to purchase might qualify.

VA home loans can offer benefits over a traditional mortgage:

One is potentially lower interest rates. Since the VA guarantees a portion of the loan, they are less risky for lenders, because the guarantee protects the lender. As a result lenders might offer you lower rates than you could get with a traditional mortgage.

Still, different lenders will offer different interest rates and terms on VA home loans, so it’s worth taking some time to shop around for the best deal.

Another potential benefit is that you aren’t generally required to make a down payment, which means you could finance 100% of the home’s value.

For a traditional mortgage, lenders often require borrowers to make a down payment of at least 20% of the home’s value. If they don’t, they typically have to pay private mortgage insurance which can significantly add to the cost of the loan.

But, with a VA home loan, you aren’t required to pay mortgage insurance if you don’t make a down payment.

Now, there are other fees for VA home loans - like the funding fee- which we'll discuss later. But, if you don't have savings to put toward a down payment, not having to pay mortgage insurance will likely save you quite a bit of money.

On the other hand, not putting anything down means you’ll be taking out a larger loan, so over time you will likely pay more in interest.

For example let’s say you buy a $180,000 house with a 30-year fixed rate home loan at 3.5% interest. If you don’t make a down payment, you could pay a total of about $291,000 for your house over the life of the loan.

On the other hand, if you were to make a ten percent down payment of $18,000, you’d end up paying a lot less. You’d have lower monthly payments and you’d pay about $262,000 over the life of the loan… Adding your original $18,000 down payment, you might pay a total of about $280,000 for the same home.

That’s a difference of about $11,000. So, as you can see, if you can make even a small down payment, you could save money in the long run.

In addition to the typical closing costs and fees, there are two fees specific to getting a VA home loan that are worth noting: the appraisal fee and the funding fee.

When you apply for a VA loan, your lender will arrange an appraisal with a VA-approved appraiser. This required appraisal protects both you and the bank by making sure the home meets the minimum property requirements set by the VA—basically that the property is safe, structurally sound and that your purchase price is a fair value. In most parts of the country, an appraisal will cost you around $400 to $500. You can find out what the maximum allowable appraisal fee will be for your region at va.gov.

There is also a “funding fee.” This is a one-time fee on the loan that is intended to reduce the loan’s cost to taxpayers. It’s charged as a percentage – from 0 to 3.3% of the total amount of your loan. What you’ll be charged depends on a variety of factors, including some of the details of your military service and how much of a down payment you make on your home – the lower your down payment, the higher your funding fee.

This funding fee can be bundled with the rest of your loan, so you won’t have to pay it out of pocket at the closing, but bundling it with the rest of your loan means you’ll accrue interest on this fee.

When you take into consideration additional interest over the life of the loan- this fee can be significant,

so again, if you can afford it, making just a small down payment, and even paying the funding fee upfront, can save you money over the long run.

The US Department of Veterans Affairs has a funding fee table that can help you estimate what percentage you might pay at va.gov.

There are some circumstances which might make it difficult for you to qualify for a VA home loan—as well as some limits on the amount you can borrow without making a down payment.

If you have a lot of debt in relation to the amount you earn, it could keep you from qualifying for a loan.

And if you have a low credit score, it won’t necessarily stop you from getting approved by the VA for a VA home loan, but it could keep you from getting approved by a specific lender. And, like other types of loans, the better your credit score, the lower the interest rate you will likely be offered.

There also are some limits on what you might be able to borrow. While the VA doesn’t put a cap on how much you can borrow, there is a limit on the amount they can be held liable for. This can affect how much money a lender will loan you, and if you might be required to make a larger down payment. You can find out more about these limits at va.gov.

It’s also worth noting that VA home loans can take longer to process than traditional mortgages.

Down the road, the VA can be a source of assistance and support if you encounter financial hardships and cannot make your monthly loan payments on your home. They can help negotiate with your lender on your behalf and help you find an alternative to foreclosure if you need it.

Finally, before you buy a home, think about whether homeownership is right for you right now. With the cost of buying and selling a home, including the closing costs, property taxes, home upkeep and maintenance, renting could be a cheaper alternative if you need to relocate in the near future.

A VA home loan can be a great benefit for those who qualify—especially if you want to buy a home but haven’t yet saved enough for a full down-payment.

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• Kentucky Federal Housing Administration (FHA) loans: “With a 3.5% down payment, Kentucky homebuyers may be able to get an FHA loan with a 580 credit score or higher. If you can manage a 10% down payment, though, that minimum goes as low as 500.”
• Kentucky Conventional loans: “The most popular loan type typically comes with a 620 minimum credit score.”
• US. Department of Agriculture (USDA) loans: “In general, lenders require a minimum credit score of 640 for a USDA loan, though some may go as low as 580.”
• US. Department of Veterans Affairs (VA) loans: “VA loans don’t technically have a minimum credit score, but lenders will typically require between 580 and 620.”

Kentucky VA Mortgage Loans Financing up to 100%

 

Purchase, Type 1 Cash-Out Refinance, and Interest Rate Reduction Refinance Loans (IRRRL) 620 minimum credit scores** Standard and high-balance loan limit of $1,500,000 15, 20, and 30-year fixed-rate terms DU or LP findings accepted  Maximum 41% debt-to-income ratio (DTI)*** for AUS Refer/downgrades, unless residual income is exceeded by 20% and underwriting determines that there are other compensating factor

These are general credit guidelines for VA loans.  They do not represent the only requirements but 

do provide a general overview

Credit Report

Credit Scores

In order to verify your credit history, your lender will obtain a credit report containing 

information as reported by all 3 of the major credit bureaus: Trans Union, Equifax and Experian.

Most people will have 3 credit scores but it is possible that you may have only 1 or two scores if 

you have limited credit history.

This report will also include information on any public records such as bankruptcies, judgments and 

tax liens.

Though VA does not have a set minimum credit score requirements, lenders will have a minimum credit score requirement.

General Credit Score Requirements

Minimum Credit Score

620

In addition to the credit scores, your actual credit history is also analyzed. Collection account 

may need to be paid off in order to close your loan

It is preferable that the most recent 12 months show satisfactory payments and no other derogatory 

information.

If you experienced a major derogatory credit event, there will be waiting periods that will have to 

be observed before you can be eligible to qualify for a loan.

Bankruptcy Chapter 7

2 years from discharge date

Bankruptcy Chapter 13

Immediately after discharge or

After 12 months of payments**

Foreclosure*

2 years from completion date

Short Sale*

2 years from completion date

* If the foreclosure or short sale was on a VA loan, you may not have full entitlement available 

for the new loan

*** Must obtain written permission from the bankruptcy court/trustee and provide proof of 

satisfactory payment history

Income and Employment

Minimum History of Employment

A minimum of 2 year history in the same industry/line of work is required in most instances but 

it’s not a universal rule.

Recent graduates can satisfy the two year requirement by providing proof of schooling with a degree 

for the line of work you are now employed in.

Active duty members do not need a two year history as long as the minimum service requirement for 

eligibility has been met.

Self employed borrowers must always have a two year history of self employment and must show a two  year history of filed tax returns to meet the 24 month requirement.

Retirement, Disability, alimony and child support income does not require a 2 year history but 

verification that it will continue for at least 3 years is required in order for it to be included.

Income Calculations

If you are salaried, your base income will be used to qualify you for the loan.

However, if you are an hourly employee with varied hours, more than likely, your income will be 

averaged

over an extended period such as 18 or 24 months depending on the situation.

Overtime, bonuses, commission and part time employment must have a 24 history in order to be 

included in the qualifying income. The income will be averaged out over 24 months. Verification of 

likelihood to continue will also be required.

Non taxable income can be grossed up to account for the non-taxable status.

ASSETS

No down payment does not mean no cash needed

As mentioned in the closing cost section, there are fees that will need to be paid as part of your 

home

purchase or refinance.

You must have sufficient funds to cover any closing costs or fees not paid by the

seller or lender credit.

VA does not require additional cash to cover a certain number or mortgage payments or unplanned 

expenses (cash reserves), however, your ability to accumulate liquid assets and the amount of 

assets currently available is taken into consideration in the overall credit worthiness analysis.

Allowable source of funds

Funds for your down payment, closing costs and other expenses can come from:

•    Checking/savings accounts

•    Investment accounts

•    Retirement account

Gift funds from a relative are an allowed source of funds to cover down payment and or closing 

costs.

The gift will need to be verified and paper trailed via bank statements and a gift letter will need 

to be signed

by your and the gift donor .

Funds from unsecured loans (signature loans, credit card advances) or funds that can not be 

documented are not acceptable source of funds.

Federal regulations require that all deposits into your account be documented.

In the instance of payroll deposits, nothing will need to be done if the deposit shows as a Direct 

Deposit from your employer.

All other deposits will need to be explained and documented.

Debt to Income Ratios

A debt to income ratios is the percentage of your total debt obligation, including the new 

estimated mortgage payment, all debts shown on your credit report, as well as alimony, child 

support etc, as compared to your gross qualifying income

Deferred student loans

If student loan repayments are scheduled to begin within 12 months of the date of loan closing, the 

anticipated monthly payment will be included.

If you are able to provide evidence that the loan(s) will be deferred for a period outside that 

time frame, the payment will not be included.

Alimony/child support You will be expected to truthfully declare that you pay alimony or child

support. You will be asked to provide your divorce decree and/or child support order to verify the 

amounts.

Documentation Checklist

The following is a general list of documentation required for a home loan application.

Not all items will apply to your situation

CREDIT / IDENTIFICATION/ ELIGIBILITY

🏭 Copy of driver’s license or other photo I.D.

🏭 Copy of divorce decree

🏭 Copy of bankruptcy papers, including all schedules and discharge, and credit 

explanation letter for reason for bankruptcy.

🏭 Letter of explanation on any late payments, collections, charge off’s or derogatory 

credit

🏭 Letter of explanation for all recent credit inquiries

🏭 DD214 if not active duty or Statement of service if active duty

EMPLOYMENT/INCOME

🏭 Pay stubs (LES) for the most recent 30 days available

🏭 W-2's for the previous two years

🏭 Federal tax returns for the previous two years. All pages and schedules must be 

included

🏭 If self-employed, provide all pages and schedules of last two years’ business tax 

returns and corporate K-1's

🏭 Award letter for Social Security benefits, disability or Pension

🏭 Proof of receipt of child support,  alimony or any other non-employment source of 

income

ASSETS

🏭 Provide ALL pages of most recent 2 months’ statements for all accounts; including all 

checking, savings, stocks, IRA, 401k, etc. The statements must show your name, account number and 

the name of the banking institution. Any non-payroll deposits will have to be explained and 

documented.

🏭 If funds to close will come from a gift, complete the gift letter (will be provided to 

you) and the following:

🏭 From the donor - bank statements showing the funds in the donor's account and a copy 

of the check from the donor's account

🏭 From you - a copy of the deposit slip showing the gift check deposited into your 

account

🏭 If funds to close are from sale of home

🏭 Estimated closing statement showing anticipated proceeds

🏭 Copy of final closing statement and deposit slip showing proceeds deposited into bank 

account

PROPERTY

🏭 Select your insurance agent and provide agent's name, address, and phone number

🏭 If refinance, or if you will be retaining your current home or own other property

🏭 Current mortgage statement

🏭 Copy of insurance declaration page

🏭 If you’re currently renting, provide your Landlord’s name, phone number and address.

🏭 12 months canceled rent checks will be necessary for private landlords. If you live 

with a family member, letter stating you live rent-free will be required

When can you get a VA Mortgage again after a foreclosure or short sale?

Foreclosure, Deed-in-Lieu of Foreclosure, and short sales:

Kentucky VA Mortgage Guidelines for getting a VA mortgage after a foreclosure or Short Sale?

See guidelines below:

VA

• Follows guidelines provided for bankruptcies filed under straight liquidation (Chapter 7)
• 2 years from transfer date on Commissioner’s or Transfer deed 
• If the bankruptcy was discharged within 1 to 2 years, it is probably not possible to determine that the applicant is a satisfactory credit risk unless both of the following requirements are met

1. The applicant has obtained credit subsequent to the bankruptcy and has made satisfactory payments over a continued period of time, and 
2. The bankruptcy was caused by circumstances beyond the control of the applicant such as unemployment, prolonged strikes, medical bills not covered by insurance and the circumstances are verified.   Divorce is not viewed as a circumstance beyond the applicants control

•  If the foreclosure or Deed-in-Lieu of a Foreclosure was on a VA loan, the applicant may not have full entitlement.  Information on entitlement not restored and remaining entitlement available can only be determined by borrower’s COE (Certificate of Eligibility)

Kentucky VA Loan

VA loans are for veterans and active duty military personnel. The loan requires no down payment and no monthly mi premiums, saving you on the monthly payment. It does have an funding fee like USDA, but it is higher starting at 2% for first time use, and 3% for second time use. The funding fee is financed into the loan, so it is not something you have to pay upfront out of pocket.

VA loans can be made anywhere, unlike the USDA restrictions, and there is no income household limit and the max loan is $453,000 in Kentucky

Most VA lenders I work with will want a 580 credit score.

VA requires 2 years removed from bankruptcy or foreclosure.

Joel Lobb (NMLS#57916)
Senior  Loan Officer

American Mortgage Solutions, Inc.

10602 Timberwood Circle Suite 3

Louisville, KY 40223

Company ID #1364 | MB73346

Text/call 502-905-3708
 kentuckyloan@gmail.com

Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant's eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant  Equal Opportunity Lender. NMLS#57916 http://www.nmlsconsumeraccess.org/

-- Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. The content in this marketing advertisement has not been approved, reviewed, sponsored or endorsed by any department or government agency. Rates are subject to change and are subject to borrower(s) qualification.

(KHC) has $3 million available in MRB, Special Funding, for active or non-active duty veterans at a 2 percent interest rate, fixed for 30 years.

Kentucky Housing Corporation (KHC) has $3 million available in MRB, Special Funding, for active or non-active duty veterans at a 2 percent interest rate, fixed for 30 years. This special funding program is available on a first-come, first-served basis.

This program is targeted to:

• Households whose gross annual income does not exceed $40,000.
• An existing or new construction property (purchase price limit $130,000).
• 620 minimum credit score.
• FHA, VA, or RHS first mortgage options.
• Households that include active / non-active duty veterans or other persons receiving VA benefits.
  
  Documentation may include but not limited to:
• Leave and Earnings Statement (LES)
• DD214 - Discharge from Active Duty
• VA Award Letter

• Must meet insuring agency guidelines.
• Available statewide.
• Both Regular and Affordable DAP are available.

As of Wednesday, September 20, 2017, KHC still has $184,500 available in Affordable Closing Costs Funds.

Only Homebuyers obtaining a KHC first mortgage are eligible for DAP. All DAPS take a lien

position & require input into LP/DU as subordinate financing. DAP funds can never be used to

pay for repairs. Once you have determined the loan type it’s time to see which of the following

KHC Down payment Assistance Programs (DAP) your borrower is eligible for. Follow the easy

steps below….

1. Check to see the applicant(s) income falls below the Affordable DAP Limits:

If yes then the borrower qualifies for the Affordable DAP up to $4,500. Affordable DAP

is amortized over 10 years at 1%. Borrower must qualify with second mortgage payment.

In addition, if the borrower is financing their first mortgage through a conventional loan,

the borrower qualifies for a $1,500 Affordable Closing Cost Grant. There is no lien or

monthly repayment since it is a grant. If borrower is not under the Affordable DAP

income limits, then proceed to Regular DAP.

2. Check to see if the applicant(s) income falls below the Secondary Market Limits.

If yes the borrower is eligible for Regular DAP up to $6,000. Regular DAP is amortized

over 10 years at 5.50%. Borrower must qualify with second mortgage payment

if you have questions about qualifying as first time home buyer in Kentucky, please call, text, email or fill out free prequalification below for your next mortgage loan pre-approval.

Joel Lobb
Senior  Loan Officer

(NMLS#57916)

Text or call phone: (502) 905-3708

email me at kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/

The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only.  The posted information does not guarantee approval, nor does it comprise full underwriting guidelines.  This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the views of my employer. Not all products or services mentioned on this site may fit all people

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Posted By Blogger to Louisville Kentucky Mortgage Lender for FHA, VA, KHC, USDA and Rural Housing Kentucky Mortgage at 5/01/2017 08:02:00 AM

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