The Los Angeles housing market has been steadily improving since the great recession of 2007. Nonetheless, it can still be challenging to get a home loan. It used to be that getting a mortgage approved was a far easier process than it is nowadays. Strict lending requirements were put in place to protect the banks and the US economy against homeowners defaulting on their mortgage payments.
Many potential homebuyer are now required to offer a higher downpayment to secure their mortgage, in some cases up to 20%. In addition, credit requirements have become more stringent, leaving the best mortgages to those that have excellent credit. As a result, it has become much more difficult for a mortgage application to be granted approval. Fortunately, the federal government has pledged to revitalize the housing market. They offer several different types of loan assistance programs to help homebuyers and stimulate the economy. One popular program for individuals in the LA area is the VA loan.
What is a VA Loan?
Purchasing a new home is an exciting step forward in any person’s life, however, it can also be a rather time consuming and difficult process as there are so many different types of loans available. If you or your spouse is a veteran, you are likely to find that the VA loan program is a great option for you.
A VA loan is available to individuals who have dedicated a portion, or all, of their life to the service of the country. Whether they joined the Coast Guard, Marines, Army, Navy, Air Force, or National Guard, as long as they are either currently serving with good standing, or have been discharged honorably, then the VA loan is an option that is available to them.
To aid active military and veterans in creating strong finances and families, the federal government created the VA loan program. The government insures VA loans, taking the risk off the lenders. VA loan qualification requirements are often far easier to meet than with conventional loans. From a zero down payment, to no mortgage insurance payments, applicants who are eligible for the program are entitled to a variety of benefits.
Why Consider the VA Loan?
A VA loan is a loan option that should probably be utilized by anyone who is eligible, even those who would normally be able to obtain a conventional mortgage. This is because the VA loan offers very attractive benefits including:
Zero Down Payment
One of the best features of a VA loan is the option to waive a down payment. A normal down payment would be anywhere from 10-20% of the house’s value. However with the VA loan program this requirement is waived completely.
Typically, the smaller the down payment a borrower makes, the greater the interest rate that the lender will charge. These limitations can make it nearly impossible for individuals on a tight monthly budget to buy a new home. Similarly, it is also difficult for people who have credit issues due to a financial mishap in the past. For a conventional mortgage, poor credit will often mean a higher down payment and interest rate.
Federally backed
Another feature of a VA loan that makes it appealing to people regardless of their financial status is that it is backed by the federal government. With a conventional mortgage, individuals borrowing more than 20% of the home’s value are required to obtain mortgage insurance.
Mortgage insurance will pay the lending company in case the homeowner defaults on his payments. Mortgage insurance companies charge monthly fees that are added to the home owner’s monthly mortgage bill. However those eligible for a VA loan, don’t have to worry about mortgage insurance thanks to the federal government. Home lenders are far more likely to approve of a VA loan because that loan is insured by the federal government, limiting their liability.
Competitive Rates
With a VA loan it is possible to secure some of the most competitive interest rates available. Even for those that put no money down on their house or those with poor credit, the interest rates are not exorbitant. Lower rates make it possible for a buyer to get more house for their monthly payments.
Easier to Qualify
A VA loan is a viable option for service members or veterans who have poor credit, no credit, a negative credit history, or similar problems. The loans feature more lax lending requirements while maintaining competitive rates – something that a normal mortgage loan simply cannot offer.
Types of VA Loans
Choosing the right type of mortgage is essential because each loan type is tailored to suit a different lifestyle and financial profile. When you visit a qualified LA home lender like as Shannon Christenot, you will learn about the different types of loans with their pros and cons in a more detailed fashion. However, having a basic understanding prior to meeting with a lender can help tremendously.
Fixed Rate Mortgages – a fixed rate mortgage is the most popular type of mortgage available. Your lender will assess the current market interest rates in addition to your down payment and income to debt ratio to determine your rate. This rate is locked in for the life of the loan.
Adjustable Rate Mortgages – Adjustable rate mortgages (ARM) often begin with a fixed interest rate for a set period of time. Five years is common. After that period, the interest rate changes based on the current market value. ARM mortgages often feature a lower interest rate than fixed rate mortgages, but as the market changes, the interest can get expensive.
Interest Only Mortgages – this is a less common type of mortgage and is offered to individuals who will pay only the interest on their home loan for a set period of time. After the interest only period ends, they can refinance or pay off the entire mortgage amount with a lump sum. This type of mortgage is great for those who are awaiting a settlement or are expecting a significant increase in pay in the future, but otherwise not a very popular option.
Graduated Mortgages – this type of mortgage is an excellent option for individuals who are seeking to obtain their first house, or who are currently in a tight financial situation. The mortgage is predetermined and will increase at increments over a number of years. This is perfect for those who are just starting out in a new job, or who need more time to grow in their career to increase their monthly income.
Am I Eligible for a VA Loan?
Many individuals know immediately if they are eligible for a VA loan because they are currently enlisted in the military; however there are others who don’t. Prior to meeting with your home lender and discussing your VA loan application, you must first obtain a certificate of eligibility from the federal government. This certificate of eligibility, or COE, is obtained through two methods:
- Going online at http://www.ebenefits.va.gov/ and applying for the COE or
- Mailing in the downloaded and filled out form for the COE found at: http://www.vba.va.gov/pubs/forms/vba-26-1880-are.pdf
You are eligible for the VA program if:
- You are a surviving spouse of a service member. For this you must include the death certificate, marriage license and other specified documents.
- You are a veteran of any of the service branches including the National Guard, Reserve, or Coast Guard. For this you must send in the proof of service and the explanation of why you are not in service any longer.
- Lastly, if you are currently active in any of the armed forces you are eligible for the VA loan program. To obtain approval for the COE you must have a commanding officer or the personnel office sign a statement that features your personal identifying details and states that you are on active duty or in service to the country.
The Home Buying Process
If you have your sights set on a VA loan, then the process is fairly straight forward. It can be broken down into the following five steps.
- Obtain your COE – You cannot start the VA loan process if you do not show proof that you are eligible for the loan. It is not up to a lender to determine if you are eligible – you must submit your documents to the government and provide the approved COE.
- Get pre-qualified – once you have your COE, you can find out how much mortgage you will be approved for. After filling out a few forms, you lender should be able to give you a number. This figure is the top amount that you can be approved for, but remember it is not guaranteed, just an estimate.
- Find your house and make an offer – this is the exciting part! Once you know how much money you can spend on a home, you can then begin searching in the areas you would like to live for a house that meets your requirements. After finding your house, you need to make an offer that the owner will accept.
- Home approval – unlike other mortgages, a VA mortgage stipulates that the home must be move in ready and pass various inspections. If the home does not pass these inspections, then the seller must bring the home up to standard or the mortgage will not be approved.
- Closing – the last step in the home buying process with a VA loan is having an underwriter check all of the documents submitted. They will ensure that everything is in order, and then facilitate the transfer of the deed to the new owners. Once the underwriter approves everything, you’ll be given a move in date and the keys to the house will be yours!
Overall, buying a home is a very exciting process and a lot less difficult than many people may initially think. In order to have the process go as smoothly as possible it is important to use an experienced home lender such as Shannon Christenot. Her years of experience helping veterans and active duty military get homes in Los Angeles are sure to help ease you into your new home.
Click here to contact Shannon today!
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