VA Loans 123 "How Much Home Can I Buy"

Once service members start thinking about a home purchase, a common question arises:
“How much can I borrow with a VA Loan?”
It’s a simple question. The answer? A bit more complex. Here’s a look at five factors that will determine how much a service member can borrow with a VA loan.

Factor #1: The VA Guaranty

The VA loan program doesn’t employ a loan maximum. But in most parts of the U.S., VA lenders cap VA loans at $417,000. Why? Because of an important feature known as the “VA guaranty.”
The VA guaranty is the amount of each VA loan that is backed by the federal government. If the borrower defaults on the loan, that guaranteed amount is paid back to the VA lender by the Department of Veterans Affairs.
Lenders are usually promised 25 percent backing on each VA loan. But that backing typically maxes out once a loan hits $417,000.
Lenders are free to issue VA loans above that amount, but they won’t be granted additional backing. Since that puts more of a lender’s funds at risk, lenders will often refuse to issue loans over the $417,000 benchmark. 

Factor #2: Do You Live in a High-Cost County?

The $417,000 VA loan ceiling applies to most counties in the U.S. maintain. But exceptions are made for 141 high-cost counties.
In Orange County, Calif., for example, lenders can issue loans up to $668,750 with a 25 percent guaranty. In Teton County, Wyo., VA loans can go up to $635,000 and receive the full 25 percent guaranty.
The higher limits allow service members in the VA’s high-cost counties access to a more expensive market. But those larger loans must be supported by a substantial income, which brings us to Factor #3:

Factor #3: What is Your Debt-to-Income Ratio?

Current income and debts can drastically impact the amount service members can borrow. A yardstick known as the debt-to-income (DTI) ratio helps lenders decide how much additional debt a veteran can handle.
Lenders start calculating the DTI ratio by tabulating monthly debts. Only “significant” items (such as the prospective mortgage payment, car loan payment, student loan payment and child support) will figure into that equation. The monthly debt total is then divided by total monthly income to result in a final DTI ratio.
Service members need to strive for a low DTI ratio. Most VA lenders prefer a DTI ratio of 41 percent or lower.

Factor #4: Do You Have Adequate Residual Income?

Residual income also affects the amount a service member can borrow with a VA loan. Monthly residual income is the net income available (after deduction of a mortgage payment and other significant monthly debts) to cover typical living expenses such as food, health care, clothing and gasoline.
The VA employs specific residual income requirements based on region and family size. A Massachusetts family of five, for example, needs to have at least $1,062 left over each month after mortgage and other debt payments in order to meet VA guidelines.

 Service members who fall short of residual income standards can often shift to a smaller loan amount for a good shot at VA loan approval.

Factor #5: What is the Property’s Appraisal Value?

VA loans can’t be issued for more than a home’s appraisal value. Should the appraisal value fall short of the purchase price, buyers have a few options to consider:

• Ask the seller to lower the purchase price
• Attempt to increase the size of the loan
• Make up the difference in cash
• Walk away from the purchase

Conclusion: Get Preapproved!

With so many factors pouring into the equation, there’s only one effective method for estimating a service member’s buying potential: preapproval.
Through preapproval, a VA lender will assess each of the factors mentioned above (with the exception of the appraisal value). This detailed evaluation helps service members determine a workable price range, and can be extremely helpful on the house hunt.

Seattle Real Estate Market Heats up as Inventory Collapsed

Redfin released October housing market data, so let’s take a look at the rate at which new listings are going under contract in two weeks or less in the Seattle area, compared to San Francisco and the national rate:

 

Yikes! That’s a big spike in Seattle and another gain in San Francisco, bringing them each to a new high point. Although fall and winter are typically the slow season for home sales, it seems that this year the serious lack of inventory is leading to even more intense competition among buyers for the shrinking pool of desirable homes.

Here’s a plot of this metric next to total inventory for the Seattle area:

 

If inventory doesn’t pick up early next year I could easily see the percentage of new listings that go pending in two weeks or less moving up over 50% in Seattle, which would definitely not be a fun market for buyers.

Contribution By The Tim

Buying a Home with No Down Payment Options

In the state of Washington utilizing programs available from Washington State Housing Finance Commission, it’s possible to buy a home with no down payment coming from the buyer if the first mortgage is a Washington State Housing Finance Commission Down Payment Assistance sponsored program. Currently there are multiple options for First & Second mortgages available from WSHFC.

The Washington State Housing Finance Commission (Commission), established in 1983, is a publicly accountable, self-supporting team dedicated to increasing housing access and affordability and to expanding the availability of quality community services for the people of Washington.

At the Commission, we feel good about what we do. We stabilize families; we ensure that the elderly maintain their dignity; we finance opportunities for people with disabilities; we provide affordable housing and facilities for community and we foster economic development – all at no cost to the citizens of Washington. As a self-supporting agency, everything we do at the Commission is without taxpayer money.

The Commission provides homeownership opportunities for eligible borrowers purchasing homes in the state of Washington through a statewide network of participating lenders.

The Commission performs program administration tasks and has contracted with ServiSolutions to serve in the capacity of Master Servicer.

BENEFITS OF THE HOME ADVANTAGE PROGRAM

The Home Advantage program is designed for low and moderate-income households. Advantages include:

Program advantages for Borrower:

o Qualifies for a larger mortgage. o Flexible underwriting criteria. o Manufactured homes available. o Upfront Mortgage Insurance program available.

Downpayment assistance programs for downpayment and closing costs:

o Wraps closing costs into the loan. o Combines with other community downpayment assistance programs. o Allows higher Combined Loan-to-Value. o Serves special populations

ELIGIBLE BORROWERS

OCCUPANCY REQUIREMENT

All Borrowers must occupy the Single-Family Residence as their personal principal residence within 60 days from the date the Mortgage Loan is closed.

FIRST-TIME HOMEBUYER REQUIREMENT

The Borrower(s) does not need to be a First-Time Homebuyer unless used in conjunction with the Mortgage Credit Certificate Program or a Commission downpayment assistance program that further restricts.

CALCULATION OF CREDIT UNDERWRITING INCOME

When using credit underwriting income, income is calculated according to the investor’s (FNMA, FHA, VA) underwriting guidelines. The lender should then refer to the Maximum Income Limit in the Program Manual to determine if the borrower is at or below the income limit.

A copy of the underwriter’s loan approval reflecting final income figures must be included in the Pre-Closing Compliance Review File.

MAXIMUM TOTAL ANNUAL INCOME

To be eligible for a Program loan, an applicant's Credit Underwriting Income must not exceed the following Program income limits at the time of loan closing:

Statewide: $97,000 (note: County median income limits apply when using conventional financing. See website for details)

CO-SIGNER/GUARANTOR

The Commission defines a co-signer as a person who signs the Note, may or may not take title to the property, and is only responsible for payments if the primary Borrower does not make the payments. The Commission will accept a non-occupant co-signer.

Fixed interest rate for 30 years:

FHA, VA, & USDA Rural Development Loans & Conventional loans: Interest rates change with market conditions and are posted on the WSHFC website.

You must first attend a free Homebuyer Education seminar. It will provide you with the steps to buying your first home. You will receive a certificate upon completion of the class, valid for two years. This will be a requirement of your loan process. HOMEBUYER EDUCATION | SEMINAR SCHEDULE

Contact a Commission-trained loan officer to see what you will qualify for. They can find the right loan type that will work with our programs. They also know the income limits we require. Robert Bushnell / Sound Mortgage, Inc. is a commission trained loan officer on these loans and can assist you.

Once you know how much you qualify for, it is time to look for a home. Your lender and real estate professional will work with you to locate and finance a home.

Second Mortgage Loans for Down payment Assistance

These programs provide assistance for down payment and closing costs and they can only be used with the Commission's first mortgage loan programs. All down payment assistance loans are due and payable upon sale, transfer, non-occupancy or refinance of property. The Commission does not subordinate our second mortgages upon refinance of the first mortgage.

Home Advantage is a second mortgage program for qualified borrowers.

PROGRAM ELIGIBILITY

1. Eligible Borrowers who purchase within the state of Washington and meet the guidelines below. 2. No requirement for reserves 3. No Needs Assessment or Subsidy Worksheet required.

MORTGAGE DETAILS

Interest Rate – 0% simple interest, payment deferred Loan Term – 30 years Maximum Loan Amount – 4% of 1st mortgage loan amount Repayment – Due at the time of sale, transfer, refinance or 30 years.

Eligible households may qualify for a maximum loan amount of up to 4% of the loan amount in all counties towards downpayment and closing costs. Borrower is not required to take the full 4%.

INCOME LIMITS

To be eligible for a Program loan, an applicant's income must not exceed the following Program Income Limits at the time of loan closing:
Statewide: $97,000

HomeChoice is a second mortgage program for qualified borrowers who have a disability or a family member with a disability living with them. Funds up to $15,000. One-on-one counseling is required.

House Key Schools is a second mortgage program for teachers and employees of community or technical colleges and K-12 public or private schools. Funds up to $10,000.

House Key Plus Seattle is a second mortgage program for people living within the city limits of Seattle.

House Key Veterans is a second mortgage program for Veterans who have served our country. Funds up to $10,000.

The Disappearing Home Inventory and Home Prices

It’s no secret to anyone who has paid attention to housing markets over the past year that the number of homes for sale has dropped sharply.

Interactive information and data at this Wall Street Journal page, shows lots of data from each region.

For example, in Phoenix, where inventory was down in June by nearly 48% from one year ago, the biggest decline is for the least expensive third of the housing market, where supplies are down by 67%. This reflects heavy demand from investors for cheap properties that can be held off the market and rented at a profit.

“On the seller side, most homes priced below $250,000 are attracting a large number of offers and often exceed the asking price,” says Michael Orr, a housing analyst at Arizona State University. That’s created a “dire” situation for home buyers. “Any offer from an ordinary home buyer is typically going to be less attractive than the multiple all-cash offers from investors with few strings attached and no appraisal required. Many ordinary buyers are coming away empty-handed after submitting 10 or more offers.”

Miami inventory is down by 35% from one year ago while Los Angeles and Riverside, Calif., are each down by 36%.

Inventories are also low in some of the hardest-hit markets — those feared to have a large “shadow inventory” of foreclosed homes — because many homeowners can’t sell without taking a big loss. That means markets with high levels of underwater borrowers, or those who owe more than their homes are worth, are perversely seeing fewer homes listed for sale.

In Phoenix, for example, the middle third of the market has 47% fewer homes than one year ago, and the top third has seen a 34% drop in homes for sale. Big drops in the supply of homes for sale — particularly in the West — are beginning to lead to declines in sales volumes.

For the nation as a whole, inventories were down by 20% from one year ago, but it was the middle tier that saw the largest decline in listings (-21%), followed by the top end (-20%) and then the low end (-16%).

Markets that have seen less severe declines in home prices have seen smaller inventory drops. Cincinnati is down by 6% from one year ago, followed by Pittsburgh, which is down by 12%.

Check out what conditions look like in your market.

The Economy’s Impact on Housing

With the economic recovery sluggish at best, many ask what impact this has on housing. Over the last several years, most economists believed that housing would not recover until the overall economy recovered. However, it now seems that the housing sector may be a driving influence in the recovery. 

Here are four reports released in the last 30 days affirming this point:

Morgan Stanley

“In terms of its contribution to real GDP, residential fixed investment has been a positive – albeit modest – force over the most recent four quarters, marking its longest span of back-to-back positive results since 2005.”

Deutsche Bank

“The [overall] resumption in residential activity cannot be understated as the long awaited housing recovery should help buoy consumer confidence and provide a mild lift to second half economic output after what was likely a disappointing first half of the year.”

Fannie Mae

“The data from the past month collectively point to decelerating economic growth, but growth nonetheless…However, despite signs of deteriorating momentum for economic activity, housing continues to be a bright spot as news from the housing market has been relatively upbeat, presenting a rare upside boost to the economy.”

Goldman Sachs

“As we look back at previous major housing recoveries, 1975 and 1991 began with negative jobs growth…In each case, the home sales recovery was fueled by home price improvement, driving new job growth and those jobs creating a fresh wave of demand that supported a multi-year recovery in housing.”

Is housing a victim to the current economic malaise? No. It may even be the cure.

Prices & Home Sales up in Puget Sound Area

Home sales increased in the central Puget Sound area last month compared to May 2011 and prices went up in King and Snohomish Counties.

According to the Northwest Multiple Listing Service:

-    King County -  the median price for a home was just under $325,000 in May 2012 compared to $316,740 in May 2011. Pending sales increased 22.45 percent over a year ago and closed sales rose 2.6 percent.

-    Snohomish County – the median price for a home was $245,000 in May 2012 compared to $230,000 in May 2011. Pending sales increased 20.08 percent over a year ago and closed sales rose 6.52 percent.
-    Pierce County – the median price for a home was $192,000 in May 2012, down from $192,000 in May 2011. Pending sales increased 21.83 percent, but closed sales fell 1.03 percent.

-    Kitsap County – The median price for a home was $228,000 in May 2012, down from $237,000 in May 2011. Pending sales increased 32.69 percent, but closed sales fell 3.08 percent.

Statewide, the median price rose about $2,500 to $242,500. Pending sales were up 21.64 percent while closed sales were up 1.04 percent.

NWMLS said the volume of closed sales topped the 6,000 mark for the first time since September 2007.
Month over month, median prices in King County rose about $5,000 from April. Snohomish County median prices rose about $8,000 and prices in Pierce County stayed steady. Median prices statewide rose $2,000 from April.

“The six month trend of low listing inventory continues to cause strong buyer competition for homes close to job centers,” said Northwest MLS director Joe Spencer.

With the record low mortgage rates available today, buying a home is the smarter move instead of renting, and hear is why:

• Rents will increase over time as inflation increases 
• Locking into a low fixed rate mortgage will keep your housing expenses low, and over time you will hedge well against inflation, which means more disposable income for other expenses in life 
• At some point homes will completely recover to the highs of years ago. 

History always repeats  itself and real estate runs in 10 – 14 year cycles, so we are now 5 or 9 years away from very large gains for today’s home buyers.