The VA home loan is a fairly easy loan to close. It is of course important that several things are taken care of early in the loan process to make sure there are not surprises at the closing table, but that can be said about any loan program. So what is different about a VA home loan?
What makes a VA Home Loan Unique in Orange County?
There are the obvious benefits for the Veteran, including the ability to purchase a home with no down payment. In 2013 most of the country will allow zero down financing up to a maximum loan of $417,000. However, in areas like Orange County, CA, where the median home price is in the $540,000 range VA will allow 100% financing up to a purchase price of $668,750 (2013 VA home loan limit). There is no other loan program that will come close when it comes to 100% financing. Also, VA home loan underwriting guidelines tend to be more flexible when it comes to past credit, FICO scoring, and debt to income ratios.
But still, there are other differences that someone involved in a VA loan transaction should be aware of.
- For VA home loans in California, a clear termite report is required. VA is the only type of financing that requires clear termite. And while Section 1 of the report needs to be clear, it is the "underwriter call" as to whether Section 2 needs to be clear. So don't be surprised if both Section 1 and Section 2 needs clearance. It is important to note that it is not a requirement that the seller pay for the repairs.
- "Non Allowable Closing Costs" - there are certain closing costs which traditionally the Veteran was not allowed to pay, which usually meant the seller had to pay them. Well things are a little different now, especially in "high cost" areas like Orange County. The Veteran is allowed to pay up to 1% of the loan amount in non allowable costs, if there is no Origination Fee. It is not unusual for there not to be an Origination Fee, which means on a $400,000 VA loan (for example purposes) the Veteran can contribute $4,000 towards "non allowables". Non Allowables include the escrow fee, notary, and lender costs (underwriting, processing, etc), which will rarely add up to $4,000. So in most cases, unless the loan amount is small (like $100,000 - not happening in Orange County) non allowables should not even be a concern.
- Appraisal process - While most appraisals are governed by the Home Valuation Code of Conduct (HVCC), a VA appraisal has always been ordered directly through the VA website. VA appraisers tend to be very experienced, and they are even paid better than most appraisers that have to deal with an Appraisal Management Company (AMC) due the the HVCC process. VA sets a time limit the appraisals must be completed by. The valuation method is not different than any other type of appraisal, and appraiser are local. A VA appraiser will be looking for potential safety issues (like an FHA appraisal), so if there are holes in the walls or floors, loose wires hanging out of the outlets, etc, then plan on making a few minor repairs.
- The Veteran will need a Certificate of Eligibility to prove they are "eligible" for this VA benefit. The VA lender should be able to retrieve this at the beginning of the loan process or during the VA loan PreApproval stage. In many cases the lender can get the Certificate of Eligibility online in a matter of minutes.
Pre-Approval Should Always be the First Step for a VA Home Loan
As with any loan program, a Veteran should always getting Pre-Approved for the VA home loan prior to even starting the home search. The lender can retrieve the Certificate of Eligibility and prepare custom loan scenarios with details on the purchase price, loan amount, payment, closing costs, and amount needed to close. Just because there is no down payment doesn't mean the Veteran does not need any money to close escrow. By working with the lender to look at multiple loan scenarios as part of the Pre-Approval, the buyer and real estate agent will know how to structure the initial offer. It is possible to have the seller pay all closing costs, but in the current real estate market in Orange County it may be difficult to get an offer accepted if the seller has to contribute a significant amount. But there are also options for a "lender credit" which can cover some or all of the closing costs with no help from the seller. This is where working with a local Orange County lender knowledgeable with the VA home loan program is important.
Authored by Tim Storm, an Orange County, CA Mortgage Loan Officer MLO 223456 - Please contact my office at Home Point Financial. Direct line at 949-640-3102. www.OrangeCountyVALoans.com