Hawaii VA Loans

es·crow (ěs’krō’, ě-skrō’)
n. Money, property, a deed, or a bond put into the custody of a third party for delivery to a grantee only after the fulfillment of the conditions specified.

First of all, what are escrow impounds and why should you care? Escrow impounds (often just called ‘escrows’ or ‘impounds’) are fees collected by the lender at closing and then each month in order to pay third party bills on your behalf. Lenders do this to ensure important bills are paid and to help budget for these payments because they are due in lump sums which are often quite large. The homeowner pays these fees each month and the bank holds them in a separate ‘escrow’ account and pays the bills when due.

Typically, for single family homes, the impounds cover the insurance and property tax bills. For condos, insurance costs are paid by the condo association and the condo fees are paid monthly by the homeowner to the condo association, so impounds solely cover property taxes.

Taxes are typically due twice a year, while insurance is paid annually. The lender does not charge for this service and often requires it. For all government insured loan programs (FHA, VA and USDA), impounds are required. For conventional loans, many lenders require it and will charge a fee of 0.25% if a borrower wants to manage these payments on their own. For a $400,000 loan that becomes a cost of $1000.

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As a sign of the times, mortgage investors across the country have made it a requirement that a borrower have a 620 FICO score or higher to qualify for a VA loan.  Now, this is not a change implemented by the VA Department - this is something that mortgage investors (those who actually purchase note on the secondary market) have now enforced due to the elevated default risk associated for borrowers with sub-620 FICO scores.

Previously, no minimum FICO score requirements existed - as long as the broker/lender received an approval through either Fannie Mae’s or Freddie Mac’s “Automated Underwriting System” (AUS), the Veteran would be approved.  Even if the broker/lender did not get an approval through an AUS, there was an option to do a manual underwrite in which a VA approved underwriter could approve a loan based on compensating factors and explanations of previous derogatory credit. The compensating factors would have to validate that the Veteran is worthy of credit approval - and can meet the expected housing obligations.  Fast forward to March 2009 and manual underwriting is no longer allowed.  The Veteran must get an approval from an AUS in order to qualify for a VA Loan.

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