Hawaii VA Loans

As usual, the answer to that question isn’t so simple;  yes and no.  Appraisals are appraisals, they look at the property, compare it to others and determine a value.  That can be said for VA appraisals as well; however, there are some nuances that do make VA appraisals different.

The differences start with the ordering process.  VA appraisals are not ordered directly from the appraiser like they are in the conventional loan process.  The lender must order the appraisal through the ‘VA Portal’.  At that point, an appraiser approved with the local VA office is randomly assigned the job.  The lender must provide the fully executed purchase contract (with all addendums and counteroffers) before the appraisal is started.  For condos, the lender must provide the budget, minutes, financials and condo disclosures before the appraisal can start.  That is why it is important for all parties involved to make sure those documents are provided as soon as possible.  The appraiser then has 5 business days to inspect the property (assuming cooperating parties can provide access within that timeframe) and another 5 to complete the report.  Once completed, the appraisal is uploaded into the VA Portal where the appropriate party can review it.

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This is a tricky question and one that we, as VA Loan Specialists, have a hard time answering simply.  The best answer is, in fact, “it’s complicated”.  So, with that in mind, let’s take some time to see how the rules are applied.  Thankfully, the VA has recently posted clarifications and examples to make it easier on all of us.

The first thing that we need to understand is that the VA now adjusts the maximum loan amounts by county thanks to recent changes intending to support the ‘Jumbo’ loan market that lenders have shied away from in the past year.  Some counties may be at the national limit of $417,000 but if housing prices are higher than average, they may have a higher limit.  Here in Honolulu, the limit is currently $793,750 but will adjust downward to $721,050 at the beginning of the year.  Remember, that is the max for 100% financing, and that the VA program will actually allow for loan amounts greater than that as with a minimal down payment.

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One of the main reasons we started HawaiiVALoans.com was that we found that there were so many misconceptions about VA Loans.  Whether it was the broker/lender giving the wrong information or Veterans finding outdated information from non-reliable websites - it was evident that for whatever reason, the facts about VA Loans were getting distorted.

Over the years - we’ve heard it all.  I thought it would be a good idea to debunk the 5 most common myths we’ve heard about VA Loans:

1. “I can only use my VA Loan eligibility once”

This is by far the most common myth we hear - but this is definitely false.  There is no limit on the number of times you can use a VA Loan.  Now if you’ve had a VA loan previously, you need to have had your entitlement restored by paying off the mortgage (pay off balance, sell the property, refinancing into a conventional mortgage) in order to get another VA Loan.  There is a possibility  in which you could have more than one VA Loan outstanding at a time - but only if you didn’t use your entire entitlement on the purchase of the first property.  Now if you’ve already used a VA Loan previously, you just have to keep in mind that the cost of the VA funding fee is increased from 2.15% to 3.3% (no down payment) for every subsequent use of a VA Loan.  If you’ve accumulated equity on the sale of your first home, and you can put a 5% down payment the next time, your funding fee can be reduced from 3.3% to 1.5%.

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This is an age old question and actually quite complicated one (ok, maybe not quite age old, but common questions nonetheless). However, I will do my best to answer it as simply and accurately as possible. This is a slight oversimplification and this explanation may not apply to all mortgage rates, but it is the driving force behind the majority of rates (there are some lenders who set rates completely at their choosing, i.e credit unions, but they often base their rates off of other lenders’ rates which are described here). So, here it goes…

Mortgage rates, like stock prices are set by the open market. What does that mean? Well, it means that there isn’t someone sitting in a back room in Washington telling people what the rates are going to be. There are thousands of investors (mostly large banks, insurance companies and others) that buy and sell mortgage ‘securities’ every second the market is open. Whenever two agree on a price, that is the new market price. So…what are these securities? Lenders across the country sell individual loans to Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac, in turn give them back a security equal to the amount of loans sold to them. They also provide a guaranty that the principal (or the face value) of the security will be repaid. Because of this guaranty from Fannie Mae or Freddie Mac, investors are willing to buy these securities because they are now considered a safe investment. The buyer of the security does not need to worry if Joe in Detroit loses his job at the auto plant. Fannie and Freddie do that worrying for them and absorb any losses (I may describe that process in another blog post, but you’ve got enough to absorb within this one).

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Having little to no money in the bank can be one of the main deterrents to homeownership. In this case, the logical option would be to rent since it would be less cost upfront, right?  Well, if you are eligible for a VA Loan, this may not be necessarily true.  Let’s do the math!

Meet Cindy, Joe & Mark

Cindy & Joe are both looking to buy a $500,000 property. Joe is eligible to finance the purchase through a VA Loan. Cindy on the other hand is not VA eligible, and will purchase via a conventional mortgage.

Now Mark is eligible for a VA Loan but feels like he can’t afford the upfront costs of buying a home right now, so he’s looking to rent. He’s looking to rent a home for about $2500, which is comparable to the $500,000 property that Cindy & Joe want to purchase (see rentometer.com).

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Right about now, you’re probably getting tired of reading headlines about how bad the real estate market is and that the financial world is on its way to a meltdown.  Me too, but there’s another side to all of this, and one that you, on main street, can turn to your advantage.  Guess who else is aware of this phenomenon.  That’s right, every seller of a home currently listed for sale.  Credit is tightening for other loan programs and, in many pockets, prices are lower than they have been in years.

As a VA eligible homebuyer, you can purchase one of these homes at a value not seen in years…and with potentially very little out of pocket expense.  How so? Not only can you negotiate on price when buying a house, there’s another tool that can make getting into a home much easier, seller credit.  A seller credit is an additional sum of money paid by the seller for you to use to pay the closing costs on your loan.  Make sure to discuss this with your real estate agent.

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