VA Helps Veterans Become Homeowners

During the past several years, all the news has been about how much harder it is to purchase a home because lenders have tightened guidelines. However, many have overlooked the fact that the VA Mortgage Program administered by the Department of Veterans Affairs has not tightened at all. The program exists as a benefit to veterans, reservists and active military and also makes Native American Direct loans.

The program is beneficial in helping  those eligible to purchase because of several important reasons:
For those who retain full eligibility, there is no down payment required. Most mortgages with 100% financing have gone by the wayside, but not only has VA maintained this benefit, VA mortgages have consistently outperformed national averages.
VA allows the seller of the home to pay for all closing costs. What does that mean? It means that a veteran or active member of the armed forces can purchase with no money down and no closing costs. Zero cash is required from the borrower.  Keep in mind that prudent financial advice and underwriting standards may require cash reserves after closing and certainly such reserves are a good idea even if not required by VA.

VA requires no mortgage insurance. While a one-time funding fee is required to help pay for the cost for the administration of the program, VA provides protection for the lender against default.  This is the part of the program which is a benefit to the veteran. If the loan defaults, VA will absorb up to 25% of the loss.  On conventional and FHA loans, required insurance can add 0.75% or more to the cost of the monthly payment. 

There are two other important points concerning the funding fee. This fee can be financed into the loan amount and therefore, no cash up-front is required. In addition, those who are on more than 10% disability arising from their military service can have the fee waived. This could mean a savings of thousands of dollars.

As in any program, there are restrictions upon the use of VA mortgages.

·         VA mortgages can’t be used to purchase second home or investor properties.

·         The applicant must qualify using a “residual” method of qualification, which actually goes through a budget and makes sure that there is enough money left over monthly to afford the housing payment.

·         The benefit can be used again after the first purchase, however, the eligibility must be restored by paying off the first mortgage or assumption of the mortgage by another veteran who substitutes their eligibility. Second-time use also increases the amount of the funding fee.

·         As mentioned in the previous   paragraph, VA loans are assumable. The interest rate is not adjusted, making the home easier to sell in certain  environments. However, unless assumed by another veteran, the veteran will not retain their original VA eligibility in order to purchase another home using a VA mortgage.

The program can also be used to refinance present mortgages. 

·         If the present mortgage is a VA mortgage, VA offers an Interest Rate Reduction Loan  (IRRL), a program that streamlines refi requirements. No appraisal and qualification is required to  lower the interest rate on a present VA loan.  The funding fee is also lower for these IRRL mortgages.

·         If the present mortgage is not a VA mortgage, the veteran can refinance into a VA mortgage if they have full eligibility. These loans require full qualification but also have a maximum loan-to-value ratio of 100%, including for cash-out transactions. That means a veteran in this situation can use 100% of the equity of their  home to pay off debts or for other purposes. 

One other point about VA mortgages. There is a restriction on the loan amount.  Generally, the maximum VA mortgage will correspond to the maximum conforming mortgage amount in a particular area.  Most areas of the country have the same loan amount, however, certain high cost areas are higher than the maximum (such as Hawaii) and at other times Congress has extended temporary limits in high cost areas, most recently in response to the severe housing recession we experienced in 2007 and subsequent years. 

The government truly helps veterans and active military purchase homes as well as refinance their present mortgages. This is a major benefit to help those who have served our Nation. 

Mike Ervin, Mortgage Banker

NMLS # 282715

(650) 735-5261 

www.mikeervin.com

Pre-qualification or Pre-approval? The Choice

The process of purchasing a home takes savvy, time and diligence. It is the most important financial investment we make in a lifetime and studies have shown that a consumer takes anywhere from six months to two years to contemplate the purchase. 

The complexity and importance of this transaction gives us every reason to go about it more seriously. This means having every tool at your disposal when you are ready to purchase your first home or move up to a new home. Why would anyone not utilize an important tool—especially if that tool is inexpensive and can save them money, time and energy?

This tool is called a “pre-approval.” What is a pre-approval?  First, let me tell you what it is not. A pre-approval is not a “pre-qualification.”

A pre-qualification is an opinion, typically offered by a loan officer after he/she talks with the prospective purchaser. This opinion is based upon information usually given to the loan officer verbally. It would not be unusual for the information not to be verified and the opinion might contain this statement—-

“This opinion is subject to the information provided being verified, including income, assets and/or credit.”

Though the loan officer may be well qualified, he/she is just proffering an opinion which is couched on information which may or may not be accurate. Many times prospective home purchasers do not even understand the questions they are being asked to answer. 

On the other hand, a pre-approval is a loan commitment. It is a loan approval that is based upon documentation submitted within the application process and underwritten by someone who has underwriting authority. In this case the “pre” merely means that the applicant has not purchased a home as of yet. Therefore, the commitment will be subject to these conditions…

• A sales contract on a property
• The appraisal of that property
• Final selection of a loan program and locking in a rate

These conditions are standard on a pre-approval because the property has not been selected. It should be noted that all loan approvals or commitments will have standard conditions such as a clear title and hazard insurance.

The question is—if you are planning to purchase a home, which process should you go through—pre-approval or pre-qualification? The answer is quite obvious. Let’s say that you would like to sell your home. Would you be more comfortable if the prospective purchaser had an opinion or a commitment? Of course, the answer is a commitment.
 
As a matter of fact, it would not be unusual for a prospective purchaser to have his/her contract accepted over other bidders because of the existence of such a commitment. In effect you may even obtain the house for a lower price because the seller is more comfortable with your bid. The better price may also happen because you are prepared to go to settlement more quickly with an approval in your hand. If the seller wants a quick closing, you will be prepared.

There are other benefits of a pre-approval. These include making sure you do not waste your time looking in a price range you cannot afford and giving the lender more time to work out problems while you are looking. Why shouldn’t the lender be working while you are looking? A pre-approval actually should stand for a better transaction—more negotiating power with less stress. I think you would agree that these were worthy goals. Thinking about buying a home?  Start the process with a visit to your lender!

 

Mike Ervin

Mortgage Banker

NMLS # 282715

(650) 735-5261  

www.mikeervin.com

Why Is My Rate Higher?

Time and time again I get this question from some of my clients.  “I read in the papers that the average rate for mortgages is now ____%.  Yet I am being quoted a higher rate than ‘average.’ Why am I being asked to pay more?”
This is a very good question and one that deserves more than a “cryptic” answer.  After all, your home is the most important investment and typically your largest payment. The rate you are charged directly affects that payment. 
First, you must understand that the averages reported by major information sources such as Freddie Mac and BankRate.com  will be based upon averages of those who have certain “personal” and “transactional” characteristics or variables.   Each of these variables may affect the rate you will be asked to pay.  There are many of these variables that can affect the rate and thus the payment of a home loan.

Personal Variables -
Credit Score. The most widely recognized and most important of all variables is tied to your credit score.  Most applicants now understand that a poor credit record can affect the rate they pay. The higher the score the better and you may need a score of 720 or more in order to procure the lowest rate quote. 
What can cause your score to be lower?  Late payments, significant blemishes such as judgments or bankruptcies, too much credit or not enough credit and more.  It is important to note that a low score does not only affect your mortgage rate, but can also affect your rate on credit cards, other loans and even insurance rates.  Here is the good news: by working with someone knowledgeable such as your loan officer, you can raise your score and lower your quote.
Too many debts.  If you are carrying too many debts, you may not only have a lower credit score, but also a high “debt- to-income” ratio. This high ratio may result in not being qualified for all loan programs.  When choices are restricted, the choices that remain may result in a higher rate.
Not enough income.  In the past, “no-income verification” programs solved the problem for many who had income, but could not document that income for lenders. The financial crisis has caused most of these programs to go away and again limits choices to those which may allow higher debt-to-income ratios.

Transactional Variables -
Primary Residence.  Most mortgage “averages” are quoting the rate on a primary residence, which means you live in the property. If you are purchasing or refinancing a property you are renting out as an investment, the rate is going to be higher and there will be other underwriting restrictions such as a requirement for a  larger down-payment.  Second or vacation homes not rented out often times are quoted the same as primary residences but that is not always the case. For example, one popular program, FHA, does not finance second homes except in unusual circumstances.
Down-payment or equity. If you are putting the minimum down or you have little equity in the home when refinancing, you are likely to be asked to pay mortgage insurance that protects the lender against default. This raises the cost of the mortgage.  Some programs will charge a rate premium as well as mortgage  insurance.
Large loan amounts.  If you are looking for a large mortgage which exceeds the conforming (Fannie Mae or Freddie Mac), as well as FHA and VA loan amounts, then you will be asked to pay a higher rate. The secondary markets are not as efficient for “jumbo” mortgages as the government does not support this segment of the markets as significantly.
Type of property.  Many property types can cause a higher rate.  One of the most common is condominiums, especially those that don’t have approval from the entities specified in the previous  paragraph. What would cause a condo project not to be approved? Perhaps there is a high percentage of investors owning units or a high percentage of owners behind on paying association dues.  Other property types that may include premiums on rate could include duplexes, rural properties, properties with combined commercial usage and other unusual properties.

This list should not be considered  exhaustive as there are other situations that may affect your rate.  However, this list does  demonstrate the importance of meeting with your loan officer BEFORE you purchase a home so that you can make a more informed decision.

Mike Ervin
Senior Mortgage Banker
(650) 735-5261

A Great Time To Purchase

How can this be a great time to purchase? After all, we are experiencing a huge real estate slump. Yet that is exactly what I am saying to you. The question is—why do I think that this is the right time to purchase.  If you are in the right position, you can be an opportunist!
The time to purchase any investment is at or near the bottom. Even though there is the possibility that homes in certain parts of the country will continue to go down in value, if you can purchase a home below today’s value now, you will not be hurt by any subsequent decrease. With the oversupply of homes on the market including foreclosures, you can achieve incredible bargains if you have the resources. The key is to purchase real estate that is not “for sale,” but to purchase real estate that is “on sale.”  

What is the key to achieving this goal? Having a system. A system that includes research, help of professionals including a mortgage consultant, real estate providers and even advice from accountants and financial advisers. Sound like a team? The answer is yes—businesses succeed because they have a team working on their behalf and you can implement the same concept. When you have purchasing power in this market and execute the right decisions, you have a competitive advantage over those who are less fortunate.

In addition to achieving bargains, if you currently own a home, you may be reticent to move up because you may not be able to sell your present home. This is a very real and important concern. You will find that the economics are in your favor despite this concern. Why is this so?

Higher priced homes typically fare worse in a down market than moderately priced homes. Let’s say your home has gone down in value by 10%. A higher priced home may have dropped in value by 20%.
 Let’s take a look at these numbers:

•  $500,000 home less 10% equals $450,000
•  $700,000 home less 20% equals $560,000

In other words, you lost $50,000 in value on the first home. But you wound up getting the new home at a discount of $140,000. That is an excellent trade off!

There is another issue here. What if you can’t sell your present home? Even the positive trade off does not work if you have to carry the costs of a second home for the next two or three years. In this case, you may want to consider renting out your present home. There are several advantages to taking this action—

•  From a tax standpoint, you can rent the home for up to three years without losing your exemption from capital gains. This is because the home needs to be a primary residence for only 2 out of the previous five years before you sell it.
• Also from a tax standpoint, any loss you take on renting your present home is tax deductible as long as you do not make more than $100,000, with deduction phasing out at $150,000.  Not only is the loss on the mortgage deductible, but you can deduct depreciation and maintenance.
• If you wait two to three years to sell the home, chances are that you will be selling the home in a better market. That is what smart investors do—purchase in a buyer’s market and sell in a seller’s market.
• Finally, if you continue to rent the property, rents will rise faster than your mortgage payment—eventually causing a positive cash situation. Now you have positive cash-flow while someone else pays the mortgage. This is a great strategy to create retirement income and an asset that will be worth many thousands of dollars or more with no mortgage as you move into your retirement years.

The final issue is—where do you get the down payment for the house if you don’t sell the present home? If you have the cash accumulated—this is not an issue. But if you don’t, if you have g good credit and sufficient equity, you may be able to refinance and take cash-out or obtain a second mortgage to fund the down payment on the new home.

Mike Ervin

Senior Mortgage Banker

California Retail Division

Office: 650-735-5261

Cell: 650-766-8500

Bankrupt Lenders.. No Mortgage Payments?

I am often asked, "What happens if the lender I got my mortgage from goes out of business?" I think a lot of people are concerned that they will somehow lose their home, or that the bank will ask for the loan to be paid back immediately. Neither of those things can happen. Your debt is a valuable asset of the bankrupt lender and it will be sold and transferred to another lender. So all it means is that the firm receiving your payment will change. You see the firm that receives your payment is called the loan servicer, and they may or may not own the actual mortgage itself. Most loans today are serviced by specialized servicing agents who don't own the loans but collect a fee from the owner to process all the payments and other paperwork, like collecting escrows. When a lender buys your mortgage they assume all the terms and conditions of your original loan. By law they cannot change anything other than where you mail the payment. If you ever have questions and you want honest answers, don't hesitate to give me a call.

Mad Client Call?

The other day I got a phone call from a very mad client! Apparently his real estate agent had made a mistake, or at least the client thought he had. So my question is this...do we get referrals from irate past clients? YES! You can actually get the best client referrals from these situations.....

IF YOU DO THE RIGHT THING!

What is the right thing? It's a 3 step process:

1. Say you are sorry. "Mr. Client, I sincerely apologize for what happened."

2. Take responsibility. "Mrs. Client, I accept full responsibility."

That is a critical step. Never pass the buck or try to put the blame on somebody else, even if that other person is at fault. Passing the buck is like putting gas on a big fire!

3. Last, make it right. "Mr. and Mrs. Client, what can I do to make this right?"

I see agents and lenders frequently start throwing money at the problem, when most of the time all the client is looking for is to just be heard. Don't start off by offering solutions, ask them what they want. Once you have gone through the 3 step process, 90% of the time, these guys are your most passionate referral sources!

More Secrets To Raising Your Credit Score..

Did you know that the credit bureau sells your private information every time you apply for a credit card, a cell phone, insurance, or any loan? You don't even need to give them permission to do it, they just do it! Is it any wonder that identity theft is the fastest growing crime in America? You can stop them from doing this. The government forced the credit bureaus to create an opt out site: www.optoutprescreen.com. This tells the credit bureaus to stop selling your information. When you do this, 2 things will happen.. you will notice a 75% decrease in junk mail and your credit score will go up, because they see this as a responsible thing for you to do!

Did you know that paying a collection account can actually reduce your credit score? Sounds backwards, but here's why.. The credit bureaus look at the date of last activity on each account to determine the impact it will have on the overall credit score. When you make a payment on a collection, the scoring system sees that as recent activity. Even though the activity was to do something good, the credit scoring software goes by date of last activity and makes the collection fresh again. Makes no sense to me either, but those are the facts.

Secrets To Raising Your Credit Score..

These quick tips will help increase your overall credit score.. First, never cancel a credit card that is more than 2 years old. Having a "seasoned" account, one that is more than 2 years old is a big plus for you. Next, increase your maximum allowable credit limit. In other words, if you have a credit card that is close to its maximum balance, call the credit card company and ask them to increase the credit limit. The credit bureaus don't like to see maxed out credit. Tell them you would like them to do this without pulling your credit. You should also spread out your balances among your cards. trying to keep the ratio between card balances and credit limit to 30% or less. If you are even considering buying a new home or refinancing, let's take a look and see if we need to do some work to get your credit score up to its highest possible point. Since lower scores mean higher interest rates, even a few lost points on your credit score could cost you tens of thousands of dollars in wasted interest payments.

Mark Twain's Top 9 Tips for Living a Great Life

1. Approve of yourself. "A man cannot be comfortable without his own approval."

2. Your limitations may just be in your mind. "Age is an issue of mind over matter. If you don't mind, it doesn't matter."

3. Lighten up and have some fun. "Humor is mankind's greatest blessing." "Against the assault of laughter nothing can stand."

4. Let go of anger. "Anger is an acid that can do more harm to the vessel in which it is stored than to anything on which it is poured."

5. Release yourself from entitlement. "Don't go around saying the world owes you a living. The world owes you nothing. It was here first."

6. If you're taking a different path, prepare for reactions. "A person with a new idea is a crank until the idea succeeds."

7. Keep your focus steadily on what you want. "Drag your thoughts away from your troubles...by the ears, by the heels, or any other way you can manage it."

8. Don't focus so much on making yourself feel good. "The best way to cheer yourself up is to try to cheer somebody else up."

9. Do what you want to do. "Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did so. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.

What are some common-sense questions you can ask a lender about mortgages?

Ask all the following questions. A reputable lender will answer them for you in plain English. Question 1: Which type of loan is best for me? Any reputable lender will want to find out more about your situation so he or she can suggest the correct loan (fixed rate, adjustable, etc.) to meet your needs. So, choose a lender who takes the time to gather vital information from you. Also, pick one who explains the advantages and disadvantages of each type of loan. Avoid any lender who tries to force a particular type of loan on you without finding out more about your situation. Question 2: What is the interest rate and the annual percentage rate? The annual percentage rate (APR) is calculated by a complex formula. This formula includes the interest rate and all the other related lender fees divided by the loan's term. However, keep in mind that some lenders do not compute APR correctly. Also, there is no accurate way to compute an APR for an adjustable loan. Finally, the APR does not account for early payoffs. If your interest rate is adjustable, ask about its... adjustment frequency... maximum annual adjustment... highest rate (cap)... index... margin. Question 3: What are the discount points and origination fees? Generally speaking, a "point" is equal to one percent of the loan amount. So, for example, two points on a $400,000 loan results in a cost of $8,000. Points allow you to "buy down" the interest rate. This means that the more points you pay, the lower your interest rate will be. So, for an upfront payment, you save money over the life of the mortgage. Plus, points are tax deductible. Note: some lenders charge origination fees as well as points. Question 4: Do you offer loan rate locks? It is a fact that interest rates go up and down on a daily basis in the marketplace. If those rates are threatening to move up, you can save money by locking that rate in. Typically, lenders charge from zero to one point to lock in a rate and points. Be sure to ask what the charge is... how long it will be locked in... and if the lender will give the lock in writing. Question 5: Is there a prepayment penalty? It is wise to ask about this subject because generally, prepayment penalties allow the lender to collect an additional six months of "unearned interest" if you pay the loan off early through a refinance of sale of the property. Ask the following questions about a prepayment penalty... How much is it?... What are the terms?... Will the prepayment penalty apply if I refinance through you later on? Question 6: Where do mortgage rates come from? Mortgage rates fluctuate daily - sometimes even multiple times a day. Have you ever wondered where those rates come from or why? The answer lies on Wall Street - specifically the trading of Mortgage Backed Securities (MBS). MBS trading could result in a dramatically higher or lower payment when you are ready to lock in your rate. Go to http://www.yourrateexplained.com/ for more details.

There are more questions you can ask, of course, but the six listed  will give you a good start on finding a reputable lender to work with.

Please feel free to contact me with regarding prepayment penalties, interest rates, loans in general, or any other questions. I also hope you will tell your friends and family about me when it comes time to buy, sell or refinance their homes.

Closing Cost Magic Trick?

One of the more popular loans is the 30 year fixed "NO closing cost loan". Some lenders want you to think it's a magic trick. Here's how it works.. the loans come at a slightly higher interest rate and then the lender pays your closing costs with the bonus they get by quoting you a slightly higher rate than a regular loan. For example, let's say you have a $400,000 loan at a 5.75% interest rate. If you refinance to a 4.75% rate, it would save you about $248 per month. If the closing costs would then be $5,800 it would take about 2 years to break even. However, on a NO closing cost loan, instead of saving $248 per month you would save about $187 dollars a month, but there are no costs, so the break even point is immediate. With the no closing cost loan, since there is no cost, you can refinance even if the rate only drops just a small amount, because there are no costs involved for you to pay at all.. Nothing! So now you know the truth behind the "No closing cost" loans! Remember, you can use this strategy for buying or refinancing your home and you can always count on me to give you honest, helpful information. If you'd like to see which method is best for you, give me a call!

How can your credit score affect mortgage refinancing?

Most lenders use your "FICO" (Fair, Isaac and Co.) credit score to evaluate any mortgage loan or refinancing application you make. So, before contacting them, it is wide to get a copy of your credit score. If you are not familiar with the purpose of a FICO score, basically it tells lenders, creditors and others if you are a good risk or a poor one in terms loans. The score is arrived at by a formula involving your history of paying off debts like credit cards, mortgages and the like. The bottom line is this: The higher your FICO score, the better chance you will get a mortgage "refinance" at a lower interest rate. Currently, any score of 700 or above is in the good range to excellent range. If your score is below 700, then refinancing becomes more expensive in terms of interest rates. Since lenders consider you a higher risk, they want to ensure they will be repaid. Where can you get your FICO score? Several companies offer them on the Internet: myfico.com and the three major credit bureaus (Experian.com, TransUnion.com, and Equifax.com) offer you your credit report and your FICO score for a small one-time fee charged to your credit card. Equally important, they provide you with suggestions for improving your score. Be sure to review your credit report carefully. If you find errors, ask the three major credit bureaus to correct them before you apply for refinancing. You should expect to receive a corrected credit report within 30 days.

Paying 50 To 500% Interest On Your Taxes?

During tax time I see all kinds of companies that advertise paying you in advance for your income tax refund. It seems like these are OK deals until you get out your calculator.

Several of the well-known income tax preparation services offer these advance loans, so they seem legitimate. However, the amount charged to receive your loan back a few days sooner is outrageous. According to a report by the National Consumer Law Center, refund loans cost the average person using them anywhere from 50% to 500% interest!

Are You Underestimating The Power of Tax Deductions?

Have you ever had question's about tax deductions? I strongly recommend that you get yourself hooked up with a great tax professional. The amount they can save you will be far more than the amount they will charge you! The most frequent tax question that I hear is "What exactly does it mean when I hear that my home is tax deductible?" I'll explain using your primary residence as an example. Let's say that your $2,000 monthly mortgage payment includes $1,300 in interest, $200 paying towards the principle,$300 in real estate taxes, and $200 in home owner insurance. In this example, the $1,300 in interest and the $300 in real estate taxes are both tax deductible. The $1,600 spent on those two things is tax free. In other words, the first $1,600 of your paycheck is now tax free! Normally you would have $432 taken out of your $1,600 paycheck that now doesn't need to be sent to the IRS. Instead, it's free to go in your pocket. So that $2,000 house payment really costs you $1,568. That's great news! Do NOT underestimate the power of tax deductions. The best part is anybody can use these deductions! You don't have to be rich to buy a home, you just have to have strategies, and that's where I can help you. Give me a call if you are thinking about buying a second home, I'd be happy to help you & make sure you save the most money! I look forward to hearing from you soon!