Tax Day 2011 for Veterans

by VA Loan Pro on September 7, 2010

This year’s Tax Day was not the homebuyer tax credit’s deadline for everybody.

Qualified service members of the Armed Forces, Foreign Service and intelligence community get an extra year to put the tax credit to use if they are on official extended duty abroad. April 30, 2011 is the last day for them to sign a binding sales contract that they must close by July 30, 2011. The maximum return is $8,000 and $6,500 for new and repeat homebuyers, respectively. Even on starter homes at $150,000, the return can account for more than 5 percent of the value.

Military members can apply the tax credit to a loan guaranteed by the Department of Veterans Affairs. VA loans carry myriad upsides, such as no money down and no private monthly mortgage insurance. The VA Home Loan Guaranty program caps interest rates for active-duty military members.

As with any tax credit program, there are some general prerequisites. The maximum purchase price of a home cannot exceed $800,000. To be considered first-time homebuyers, qualified members and their spouses cannot have owned a home in the last three years. Individuals with an annual income of $125,000 and married couples with that of $250,000 do not qualify for the tax credit. For repeat buyers, the only additional requirement is that they occupied their home for five of the last eight years.

Qualified members who have to move or sell the tax credit home within three years because of official extended duty, the recapture rule does not apply.

{ Comments on this entry are closed }

VA Loans vs. Conventional Loans

by VA Loan Pro on August 30, 2010

Today’s low interest rates do not automatically cause the market to favor homebuyers. Lenders everywhere are tightening their credit and income requirements, which makes it more difficult for borrowers to get these near-record low interest rates on their loan. Even if buyers qualify, the down payment on conventional loans may soar as high as 20 percent and closing costs won’t be covered by the seller.

But for honorably-discharged veterans and qualifying active-duty military members, VA loans eliminate a number of these financial constraints common to conventional loans. Qualifying homebuyers won’t need to bring as much money to close a VA loan as they would on a conventional loan. Not only are VA loans one of the last no-money-down options, they’re loaded with benefits to make home buying easier for our nation’s heroes. Because the VA insures up to one-quarter of a loan’s amount, thus reducing lenders’ risk, lenders are likely to lower borrowers’ interest rates.

All loans fall into one of two categories: conforming and non-conforming. Two government-sponsored enterprises, Fannie Mae and Freddie Mac, issue guidelines. Loans that meet these guidelines are conforming and usually are loans valued up to $417,000. All loans with terms outside the GSE’s parameters are non-conforming, or jumbo, loans.

Homebuyers also have to decide whether they want a fixed rate mortgage or adjustable rate mortgage. VA and conventional loans come in both forms. Homebuyers need to know how long they plan to live in the home and how much money they expect to have during the life of the loan to figure out which type of rate is ideal. In addition to knowing these basic concepts, borrowers should know the difference between VA loans and conventional loans.

First of all, not every veteran qualifies for the Veterans Affairs Home Loan Guaranty program. Military members who served 90 days during war time or 181 during peace time and who spent 6 years in the National Guard or Reserves may be eligible, as may spouses of those killed in the line of duty. Members who served fewer than 90 days but were discharged because of a duty-related disability may be eligible.

Once members establish their eligibility, they can capitalize on the home loan program. Qualifying for a VA loan is far easier than getting a conventional one. In fact, about 80 percent of veterans who qualified for a VA loan could not get a conventional loan. The VA has no credit or income requirement for borrowers. However, VA-certified lenders expect to see a score of at least 620. That’s not much different than conventional loans where scores above 740 often land the most favorable terms, and anything below 620 tend to have interest rates.

-Borrowers with a history of bankruptcy can still qualify for VA loans. After chapter 13 and chapter 7 bankruptcy borrowers need to wait one year and two years after the date of discharge, respectively. Full explanations of the bankruptcy need to be provided. Proof of payments on chapter 13 bankruptcies and written approval from the court is necessary too. Compared to conventional loans that often require longer waiting periods post-discharge, href=”http://valoans.vamortgagecenter.com”>VA loans have more lenient qualification terms. Even veterans with a history of foreclosure may be eligible.

-On top of that, VA loans curb the initial financial headache for qualifying borrowers. Up to 6 percent of closing and concession costs may be covered by the seller. Conventional loans’ appraisal fees and origination costs add to the up-front costs, and require borrowers to empty their pockets when they close the deal. They might have the option to lump some of these costs into the mortgage, but that will likely inflate interest rates.

-Often, borrowers get lower interest rates with VA loans because of the VA’s insurance against the borrowers’ default. Active-duty military members have the added perk of caps on interest rates. To shrink monthly costs even further, VA loans do not have private monthly mortgage insurance fees. As long as borrowers put down 15 to 20 percent of a conventional loan, they won’t pay mortgage insurance. Otherwise, this cost adds up every month.

-When VA loan borrowers pre-pay, the will not get penalized. Most conventional financing deals include prepayment penalty clauses. The penalty is charged against the borrower who is trying to pay off the mortgage ahead of schedule. Agreeing to such a term with a prime lender may get the borrower a lower interest rate, or avoid this penalty clause altogether. Subprime lenders aren’t likely to let borrowers off so easy. Regardless, prepayment penalties disappear after the first three to five years of the loan’s life. Even so, lenders will usually accept prepayments of up to 20 percent of the balance in a year before levying the penalty.

-Processing a VA loan may take longer than finishing conventional financing. The latter gets done in about two to three weeks, while VA loans might take one or two months to process.

Of course, if you qualify it makes sense to apply for a VA loan. The VA loan program is designed to abet those who served our country and struggled to develop great credit and savings because of travel or other hardship. However, conventional financing has its place. Prospective homebuyers with stellar credit and enough savings for a hefty down payment may earn those unprecedented interest rates with a conventional loan.

{ Comments on this entry are closed }

No Down Payment Mortgage Loans in Wisconsin with Rural Housing

September 9, 2009

There are only two no down payment mortgage loans available for home buyers in Wisconsin. One is a VA mortgage loan and the other is a Rural Housing Loan. Minimum down payments have made it more difficult for home buyers to qualify for a mortgage loan. The Rural Housing Program is a mortgage loan that [...]

Read the full article →

Military Blog Carnival – July 24, 2009

July 24, 2009

Welcome to the July 24, 2009 edition of military blog carnival. Adam Shields presents My Life as a U.S. Army Soldier posted at Military Life – My Life in the U.S. Army saying, “Military Life Discussion and Knowledge site posting the experiences of one soldier as he makes the transition from civillian to military life.” [...]

Read the full article →

Military Home Rentals

July 10, 2009

As a member of the United States Armed Forces, you must be ready to move yourself or your entire family at the drop of hate. PCS orders may come to you and with that you whisk your family away across country to another base. While some families choose to look to purchase a new home [...]

Read the full article →

Veterans Surety Bonds

March 10, 2009

This is a little off the mortgage topic, but if you’re a veteran business owner than this applies to you.  I was recently helping a friend, who is a veteran, set up a small mortgage company in another state and like all brokers he had to get a surety bond.  It seems to be an [...]

Read the full article →

Be Cautious to Avoid Predatory Lending

August 12, 2008

Even if you may think that you can’t be taken advantage of by predatory lenders, you should still be careful and know how to spot bad lending practices. Many borrowers have lost their homes due to predatory lending, but there are signs that can help you avoid being taken advantage of by a lender when [...]

Read the full article →

Home Financing the American Way. What Exactly is a VA Loan?

July 9, 2008

A VA loan is a type of mortgage loan guaranteed by the government in the case of default. VA loans are administered by the Department of Veterans’ Affairs, and part of the original GI Bill of rights signed into law in 1944. As confusing at that sounds, the loan itself it very easy and offers [...]

Read the full article →

Disadvantages of VA Loans in Comparison with Conventional Mortgages

July 1, 2008

Although there are significant advantages to a VA loan, there are drawbacks in comparison to a conventional loan as well. Carefully weighing these factors will help you determine which type of loan is best for your financial health. • Maximum loan amount: Although there is no maximum of the value of the home you can [...]

Read the full article →

The Benefits of VA loans vs. Conventional Loans

June 26, 2008

If you qualify for a VA loan, there are several significant advantages VA loans hold over the conventional mortgage.• No down payment: Because the Department of Veterans Affairs guarantees 100% of the loan, you are not required to place a down payment on the purchase of your home. This can be a great advantage if [...]

Read the full article →