Hawaii VA Loans

So, you found your dream home, got your accepted offer, and everything is flowing along smoothly with you lender (hopefully it’s us).  You’ve already picked out the new colors for the bathroom & kitchen, found all you need to know about schools in the area, and have already decorated the entire home in your mind.  It’s a wonderful and exciting process purchasing a new home.  You get a phone call from your lender, and they have some not-so-great news.  The 3^rd party appraisal came in with a value less than your accepted offer.  No lending institution (that I know of) will lend more than the appraised value of the home, and clearly this can be an issue if the appraisal comes in low.  Yikes!

So, what exactly does this mean?  Do you lose the home?  Can you still continue?  Luckily, there are a few options available to a VA borrower:

• Buyer comes in with the difference
  • Buyer pays the difference in value between the accepted offer and appraised value of the home (ie appraised value = $350,000 … accepted offer = $355,000 … borrower pays additional $5,000 to cover the difference)
• Renegotiate purchase price
  • The purchase price can be renegotiated between seller and buyer to the appraised value of the home.
• Meet in the middle
  • The seller can reduce the price a portion, and the buyer can come in with additional cash to meet in the middle.
  • Both agents and lending partner could also contribute towards the difference in value (i.e. lowering commission or providing additional credits)
• The borrower can walk away
  • The VA borrower is protected by a ‘walk away’ clause in the VA Addendum to Contract.
  • If the appraised value comes in low, and an acceptable compromise cannot be negotiated, the borrower can walk away without losing their escrow deposit.

While it’s not the greatest scenario, all is not lost if the appraised value comes in below your accepted offer.  Everyone involved in the sale process wants the deal to close, and that’s why it’s important to work with real estate professionals that you can trust, knowing that they will be willing to work and negotiate in your best interests.  We know how much you love that new paint color!

Aren’t They the Same Thing?

There is often confusion about the difference between getting “prequalified” and “preapproved” for a loan. Don’t they mean the same thing?  It’s common to think so, but they’re actually different.

Prequalification

Getting prequalified means that you’ve contacted a loan officer, allowed them to review your credit, and provided them verbal information regarding your assets & monthly income.  The loan officer determines an approximate monthly payment for the proposed loan and makes sure that the Debt-to-Income ratio (how much you make vs. how much you pay out in monthly expenses each month) is within tolerance.  The process can take as little as 15 minutes over the phone.

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The Lesson

I learned an expensive lesson this week.  In general, for Hawaii purchase transactions, escrow fees are split 50/50, owner’s title insurance is split 60/40 and the conveyance tax is paid by the seller.  I learned that this is not law, actually just the traditional agreement as outlined in the HAR (Hawaii Association of Realtors) standard purchase contract, Section C-11.

The transaction I was about to close was an REO (bank or lender owned property) owned by Fannie Mae.  Fannie supplies their own purchase contract and within it is a section that states that, regardless of local tradition or customary practice, Fannie Mae will not pay any transaction costs nor any transfer (conveyance) taxes.  This means that the buyer is responsible for 100% of the escrow/settlement fees and 100% of the owner’s title insurance premium.

…and Even More to Learn

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The $8,000 first-time homebuyer credit just won’t quite go away.  As much as we’d love to say this was for everyone, it’s a bit limited in scope, but if you qualify, what fine, fine news!  Eligible taxpayers who contracted to buy a home qualifying for the first-time homebuyer credit before the end of April now have until Sept. 30, 2010 to close the deal, according to the Internal Revenue Service.

The Homebuyer Assistance and Improvement Act of 2010, signed by the President earlier this month, extended the closing deadline from June 30 to Sept. 30 for any eligible homebuyer who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010. The new law addresses concerns that many homebuyers might be unable to meet the original June 30 closing deadline.

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This is a valid and quite common question.  Technically, on a VA Loan, the only income we can use for qualifying purposes is the Veterans’ and the Veteran’s spouse.  No other person can be on the loan - not the parents, brothers, girlfriend’s or fiancee. But there is one exception.

If two Veterans who are eligible for a VA Loan want to purchase a property together, they can by doing a “Split Entitlement” VA Loan.  What “Split Entitlement” means is that instead of a Veteran using 100% of his or her entitlement to purchase a home, the entitlement is split 50/50 with another Veteran - which they in-turn share responsibility in making sure the loan is eventually paid in full.

What are the steps for “Split Entitlement”?

The process is quite similar to doing a regular VA Loan.  The only difference is that when all Prior-to-Doc conditions are met (right before signing final loan documents), the file must be sent to the local VA office for prior approval.  This process may take up to 10 days, but once the final approval is issued by the VA office, the VA Loan Specialist may proceed with ordering the loan documents and closing the loan.

Doing a “Split Entitlement” VA Loan is best for unmarried Veterans looking to share the cost of homeownership.

What Happened?

Greece is in financial trouble and that is affecting economies the world over.  The problem is that Greece’s National Debt simply grew too large.  Due to government’s spending, the debt expanded 15% annually, but the economy itself was shrinking about 5% each year.  As a result, the total government debt grew to 115% of the GDP and it is expected to grow to 150% by 2013.  What that means is that the government owes more money than the whole country produces in a year.  Believe it or not, the 115% number isn’t that much higher than many other industrialized countries.  However, Greece has deep systemic problems. It was forced to cut back it’s spending and because it is a consumer based economy that produces almost no exports, there is little for the economy to do but shrink and make it’s debt burden greater.

Why Now?

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