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Benefits and Drawbacks of Kentucky VA Mortgage Loans

Kentucky VA Mortgage  Loans

Why VA Loans?

First and foremost, VA loans put homeownership within reach of a wider population.
That’s because, while they’re issued and administered through a wide range of lending institutions, all VA mortgages are federally guaranteed.

Lenders consider them lower risk than other loans. That means that people with average or even below-average credit scores are more likely to be approved for a VA loan than a traditional loan.

If you have a high debt-to-income ratio or you’ve fallen behind on your credit card payments in the past, you may be eligible for a VA loan, even if you’ve been turned down for a private mortgage in the past.

What’s more, vets and active-duty soldiers can often purchase a loan with no down payment.

Military wages aren’t the most generous. In 2020, new service members earned as little as $19,000 per year, while the median salary in the US is nearly $50,000 per year.

Particularly for people who are just starting out in their military careers, it can be tough to amass enough savings to match the down payment requirements associated with traditional loans.

If you take out a private loan and put down less than 20% of your home purchase price, you’ll be required to pay for Private Mortgage Insurance (PMI) until you’ve established 20% equity in your home. That can add $100 or more to your monthly homeownership expenses.

The government stipulates that VA loan borrowers don’t have to take out PMI.
Finally, VA loan interest rates typically track below market averages. Again, that’s because lenders consider them less risky.

What can that mean in savings for you?

Here’s just one example. A 0.5% interest rate reduction on a $200,000 30-year mortgage can save you more than $19,000 in lifetime loan costs.

And that’s before you factor in PMI payments. The more you borrow, the more you benefit from a low interest rate.

The median purchase price of a US home in 2021 is over $400,000. So chances are, you could wind up saving more with a VA loan.

(Although there are many benefits, there are some disadvantages to a VA loan too. That’s why we partnered with Chris Birk of Veterans United to explain some added drawbacks that are associated with a VA loan. Courtesy of Realtor .com and YouTube. Posted on Sep 27, 2019.)

Avoid The Most Common VA Loan Mistakes

As a home buyer, the most serious mistake you can make, of course, is not investigating VA mortgages before taking out a loan.
You earned this important benefit with your service and you deserve to access it. In fact, you can access it again and again.
There is no limit on the number of VA loans you can take out in your lifetime.
So if you find you need to upsize or downsize your home or pull up stakes every couple of years—a common experience among active service members—you can take advantage of your VA loan benefit every time you buy a home.
For current homeowners who took out a traditional mortgage, not exploring the option of refinancing under the VA loan program can be another costly misstep.
Even if you took out a VA loan a few years ago, it’s smart to look into refinancing right now because mortgage interest rates have reached a near-historic low right now.
The VA makes it easy to refinance into a lower interest loan through its VA Interest Rate Reduction Loan (IRRRL) program.

How to Secure Your Best VA Loan Deal

While VA loan interest rates can be substantially lower than traditional mortgage rates, lenders offer their best interest rates to the most qualified buyers.
That’s true of any kind of loan. Before seeking a VA mortgage, do your best to make yourself as creditworthy as possible.
Lenders judge your creditworthiness largely on your credit score.

Before you begin shopping for a mortgage, download a free copy of your credit report and if your score is lower than 620, take a look at what you can do to bring it up.

Bring all of your credit accounts up to date as a first measure, but understand that late payments will affect your score for quite a few months, or even years.

You may be able to secure a lower interest rate if you keep your accounts current for a significant period before applying for a loan.

Some homebuyers have low credit scores simply because they haven’t amassed a long or varied enough credit history.

If that’s the case, you can likely raise your score by a few points by judiciously applying for small amounts of credit, such as you might be offered by Amazon, a retail store in your neighborhood, or a traditional VISA card or Mastercard.

Make small purchases and pay them off at the end of every billing cycle to establish the pattern of consistent debt repayment lenders look for.

Although the option of applying for a no-down payment loan is available through the VA program, you can also make yourself more creditworthy by putting down as large a down payment as you can afford.
Lenders prefer when they’re not the only ones invested in your home.

Be a Smart Shopper

Even among VA lenders, mortgage rates vary. It pays to shop around. If you belong to a credit union, you might start your comparison shopping there.

You may even want to join a credit union because, as not-for-profit institutions, they’re in business to serve their members and often offer lower interest rates than their commercial counterparts.
If you have an established relationship with a bank, see what kind of deal you can get there. Banks want as much of your business as they can get.

In addition, many online lenders source mortgages with multiple institutions and can be a great resource for researching the lowest rates.

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100% Financing Zero Down Payment Kentucky Mortgage Home Loans for Kentucky First time Home Buyers: Kentucky VA Home Loan Guidelines

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Kentucky VA Home Loan Guidelines

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.

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.

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.

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.

EXAMPLE

The rule of thumb is that your debt to income ratio should not exceed 50% of the usable, gross monthly

income. However, higher percentages can be approved.

In addition to the debt to income ratio requirements, VA also has residual income requirements. VA residual

income looks at how much income is available after all monthly liabilities, including tax withholdings,

utilities and child care, are accounted for.

Residual Income By Region

For loan amounts of $80,000 and above

Family

Size

Northeast Midwest South West

1 $450 $441 $441 $491

2 $755 $738 $738 $823

3 $909 $889 $889 $990

4 $1025 $1033 $1033 $1117

5 $1062 $1039 $1039 $1158

over 5 Add $80 for each additional member up to a family of

seven

2400/5000= 48%

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.

Qualifying income: $5000

New mortgage payment: $2000

All other obligations: $400

Monthly debt payments

The payments shown on

your credit report will be

used to qualify you. If the

payments are incorrect,

you will be asked to

provide proof of the correct

payment.

Co-signed loans

If you co-signed for someone on a loan and

that loan is showing on your credit report, the

payment will be included in the ratios unless

you are able to provide evidence that the other

person on that loan has been making the

monthly payments from an account that you

are NOT a co-owner on.

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.

Non-purchasing spouse

You should be aware that if you purchasing a home

in a community property state such as California

and are married, your spouse’s credit report will be

required. His/her debts will be included in the ratio

calculations even if he/she is not going to be on the

purchase or loan.

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

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

F Copy of divorce decree

F Copy of bankruptcy papers, including all schedules and discharge, and credit explanation letter for

reason for bankruptcy.

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

F Letter of explanation for all recent credit inquiries

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

EMPLOYMENT/INCOME

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

F W-2's for the previous two years

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

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

corporate K-1's

F Award letter for Social Security benefits, disability or Pension

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

ASSETS

F 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.

F If funds to close will come from a gift, complete the gift letter (will be provided to you) and the following:

F From the donor - bank statements showing the funds in the donor's account and a copy of the check

from the donor's account

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

F If funds to close are from sale of home

F Estimated closing statement showing anticipated proceeds

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

PROPERTY

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

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

F Current mortgage statement

F Copy of insurance declaration page

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

F 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