What is PMI? Do I Need it for a VA Loan?

private mortgage insuranceBorrowers who make less than a 20% down payment on a home loan typically must pay for private mortgage insurance (PMI). VA Loans don’t have this requirement, which can result in a lot of savings for the borrower.

What is Private Mortgage Insurance (PMI)?

Private mortgage insurance or PMI is an insurance policy that protects the lender if you default on the loan. If the lender must repossess the house and sell it for less than the amount remaining on the loan, they will be covered by this insurance. Essentially, the lender gets protected. You pay for that protection because the cost is added into your loan payment amount.

While that might seem annoying, it makes it feasible for banks to give you a loan without requiring as much of a down payment as they otherwise would. Before PMI was created, banks wouldn’t give loans to people unable to make a large down payment.

How the Amount is Calculated

The cost of private mortgage insurance varies depending on the total loan amount and the size of your down payment. It can range from around 0.3% to 1.5% of the original loan amount annually. For example, a $180,000 loan with $20,000 down might have an additional $52 added to each monthly payment to cover the private mortgage insurance fee.

Lenders must cancel private mortgage insurance when the loan-to-mortgage ratio drops to 78%. Borrowers can request it a little bit sooner, when the ratio reaches 80%.
Loan-to-value ratio is calculated like this:

Mortgage amount owed / appraised value
Example: $70,000 mortgage balance / $100,000 value = 0.70 or 70% loan-to-value

Loans with No PMI Required

The best way to avoid paying private mortgage insurance is to get a loan that doesn’t require it in the first place. You can do that by making a very large down payment so your loan-to-value ratio is 80% or lower from the start. Or you can get a type of loan that doesn’t require it.

VA loans don’t require private mortgage insurance. Because the government backs up these types of loans, the lender is protected already. Avoiding private mortgage insurance can save thousands of dollars over the life of a loan.

Are VA Loan Gift Funds Allowed?

va loan gift fundsVA loans have cemented their position as one of the most valuable loan products in the market. The loan product offers a lot of amazing benefits to eligible veterans. These include, in addition to others: zero down payments and no cap on seller’s contribution to the closing costs. Now, when it comes to closing costs it is not really that easy to find a seller. A seller should be ready to pay the costs and all such costs have to be taken care of before the loan is sanctioned. Apart from under certain special circumstances. But, there is an easy solution out of this. And that solution is VA Loan Gift Funds.

What Are Gift Funds?

Gift funds are very simple to understand. They work exactly like a gift does. Your friends or family give you a certain amount of money without any conditions. VA loan Gift funds allow the money to be used for covering the closing costs towards a VA loan. However, there is a set of restrictions that the applicants need to adhere to. These conditions are generally easy for the loan applicants to fulfill. And are, of course, much less stringent than a regular home loan any given day.

Applicants cannot just show up with a pile of cash and call them gift funds for a VA loan. If they get such a gift fund, then they must be able to prove that it came from a legitimate source. Such a source can include family members or even family-like relations, where even friends may qualify. Even if the gift funds are coming from a known person, they should also have a legitimate paper trail. This means these funds should have records with an established financial institution or a bank.

Who is the Source of the Gift Fund?

Another important thing to keep in mind is that no person who is involved in this entire transaction process, in any way, can act as a source of the gift fund. So, someone like a lender cannot become a sponsor of VA loan gift funds. To make sure that this condition is met, the applicant needs to produce a letter with the gift fund. This letter will include all the important details of the donor. It will also include the amount of gift funds, and the date of transfer of these funds to the recipient. This letter also carries an important disclaimer that clearly states that the donor of the gift fund. This donor, in no way, is expecting a repayment of the funds they have gifted.

VA Loan Gift Funds

In the case of VA loans, there are a lot of provisions that make it easier for the applicants to get the loan. The same goes for gift funds as well. Unlike other loan products, a loan applicant is not required to provide a copy of the “gifter’s” bank statement to the lender or to the VA authorities. All they need to do is to present a cancelled cheque, which is considered ample proof of documentation for a VA loan.

Gift Funds can most definitely be used to fund a VA loan and as it turns out it is easier to get a gift fund with a VA loan than with a regular loan.



What Are The Benefits of A U.S. Veteran

U.S. VeteranGood news for U.S. veteran! Once your time in the military is done, many veterans hope to provide a home for their families. Rising costs of housing and other compounding factors could make one feel overwhelmed. It could also make one feel helpless when it comes to securing funding for a home. Fortunately, there are some financial provisions for veterans. For the many brave citizens who risk their lives for the sake of the nation, there is a VA loan available. This allows them to make their dream of purchasing a home a reality.


Who Are Authorize to Give VA Loans To U.S. Veteran?

The first step after deciding on a home is identifying the institutions that are authorized to give VA Home Loans. Usually, these establishments are private lenders either banks or certain mortgage companies. The lender will take a U.S. veteran through pre-counseling. This provides a preview of what it takes to get a home under a VA Loan. The conversations could include identifying the key players in making a home purchase as well as debt management.

A down payment is not required when beginning the process of laying down roots and acquiring a home. However, in case the homeowner defaults on payments, the guaranty covers for a veteran’s financial difficulties. This ensures that the lender does not incur any losses. The benefit of a guaranty to a U.S. veteran is it could fast track the rate of your loan financed. However, it is crucial to recognize that a guaranty provides no assurance that one will secure the loan.


Advantages of VA Loans

The VA Home Loan is advantageous since there are no monthly insurance premiums like other loans. This means that one’s pocket is not weighed down by monthly premiums that are an added cost when getting a traditional home loan. Loan interest rates are also flexible and negotiable. In addition to this, a VA Home Loan requires a property appraisal before purchase. The valuation ensures the amount quoted for the home matches the actual worth of the home. An appraisal can save veterans lots of house trouble. To a novice, this stage of a home purchase may seem troublesome, but it is an important aspect of the process to acquiring a place to call home.

VA Loan Requirements

When looking at real estate options, it is important to remember how much money you can secure in your loan. Usually, most veterans can get a VA Loan up to four times their entitlement. To get a VA loan, it is vital that one gets a Certificate of Eligibility (COE). The process includes making an application for a COE by submitting a completed VA Form 26-1880 Request for a Certificate of Eligibility and proof of military service. To get the mandatory certificate faster, approach a lender who might have access to the system. This can quicken processing a VA Home Loan.

When finally approved, a loan-closing meeting is arranged in the presence of an attorney to explain the loan terms, loan requirements and also lay out the plan. The VA Home Loan is a great means by which an eligible veteran can secure a home.


Questions to Ask Your VA Loan Specialist

va loan questionsBanks have continued to tighten their lending standards, but this has not lowered the demand for loans. Many banks usually have strict conditions and requirements that must be fulfilled before a person can a get a loan. This can sometimes be hard for some people because some conditions lock them out. While some don’t know where to ask these VA Loan questions. One such group that has limited access to loans are active military members and veterans. These types of loans have helped millions of veterans and active military members to access mortgages.

VA Loan Questions

va loan questionsThe VA loan has remained one of the few mortgage options for borrowers who don’t have a down payment. Qualifying for these loans is much easier than other lenders. The Department of Veteran Affairs is not a direct lender. The loan provided by a private lender and the VA can guarantee part of the loan, as long as the borrower meets certain guidelines. The number of people getting the VA loans has continued to improve. One main advantage with the VA loans is that you don’t need to have a down payment to qualify. You also don’t need to pay for mortgage insurance, which translates to a lower monthly payments. Below are the five things you must ask a VA specialist.

VA Loan Eligibility

Members of the military, veterans, National Guard members and reservist are eligible to apply for the VA loan. Spouses of military members who died while on active duty or service connected disability can also apply. It is important to ask the VA loans specialist to help you know if you qualify for the loan. There are a couple of other things that are considered before you can get the VA loan. The VA specialist will help you know if you qualify for the loan.

Fees on VA Loans

You need to ask the VA specialist about all the fees on the loans. These fees usually depend on the amount of the down payment and the type of veteran applying for the loan. There are also some fees that are waived if you receive disability compensation. A VA loan specialist will help you know the fees you can expect when you apply for the loan.

Underwriting Requirements

VA usually has no minimum credit score, but lenders will have their requirements. Many lenders usually need a credit score of 640 or higher. There are some lenders that will accept a lower credit score but charge a higher interest rate. Make sure you ask more about the underwriting requirements and this information will help you know what to expect.

VA Loan Questions: What happens if you stop making the payments?

One good thing about the VA loans is that you can get help from VA to negotiate on your behalf if you are experiencing difficulties paying the loan. Ask the specialist what options you will have if you are unable to make the payments. You should also ask the effects of delaying your mortgage.

The limit of the VA loan

The limit usually varies by county. Ensure you ask about the maximum and minimum amount that you can borrow. You should also ask more about the terms of the VA loan.