A few months ago we announced there were going to be reductions to the VA Funding Fees for each VA loan scenario. Then, just before the changes were set to take effect, our friends in Washington (no, not the VA, we like them : ) enacted a law to revert the VA Funding Fee to the previous level.
Lowered Again, then Raised Again
Some lucky borrowers closed within the few day window in which the lowered fees had taken effect. Temporary legislation changed the fees back to the higher levels for about a month. Guess what? That legislation expired and fees went back down again for a few days…before reverting back up once again.
And Finally…
Unfortunately, the dust has now settled and fees are once again back to the levels that they have been for the last few years. We do not anticipate any new changes coming soon. Of course, the last announcements were a surprise as well. So, we’ll keep you posted, but for now, it’s business as usual.
Here are the fees:
Note: First Time Use (Active Duty – National Guard & Reserves add 0.25%)
- No Down Payment: 2.15%
- 5% – 9.99% Down: 1.50%
- 10% Down or More: 1.25%
Subsequent Use
- Less than 5% down, Active Duty & Guard/Reserves: 3.30%
- With 5% down or more, the first time use rates apply
On August 3rd, the Restoring GI Bill Fairness Act of 2011 became law and reduced the VA Funding Fee for loans closed on or after October 1st.
The fee is significantly lowered for all first time & subsequent use purchases as well as cash-out refinances. It is also going to be lowered again in 2012 & 2013 for subsequent use purchases with less than 5% down.
Here’s a summary of the changes:
First Time Use (Active Duty – National Guard & Reserves add 0.25%)
- No Down Payment: Reduced from 2.15% to 1.40%
- 5% Down or More: Reduced from 1.50% to 0.75%
- 10% Down or More: Reduced from 1.25% to 0.50%
Subsequent Use (Less than 5% Down – Active Duty/Guard/Reserves)
- As of 10/1/11: Reduced from 3.30% to 2.80%
- As of 10/1/12: Reduced from 2.80% to 2.15%
- As of 10/1/13: Reduced from 2.15% to 1.25%
Note: With 5% down or more, the first time use rates apply
Remember, if you have a VA disability rating of 10% or more, you can have the VA funding fee waived. If not, the funding fee does not need to be paid out of your pocket, it can be rolled into your loan amount.
Aloha veterans and thank you for your service!
“Closing Costs”….just saying it makes people agitated with the sound of their bank account being drained. The reality is, whenever there is a loan transaction, there are fees incurred and parties related to the transaction that need to be paid. Paying fees is never an enjoyable experience, but there are ways to reduce the amount you have to pay. Here are 5 ways to reduce the closing costs on your next mortgage transaction:
1. Negotiate a Seller Credit
A seller credit is an additional sum of money paid by the seller for the buyer to use to pay closing costs. Think of it as a cash back program the seller uses to entice buyers to purchase their property.
What you’ll need to do:
Have your real estate agent request a seller credit in section C-67 of the purchase contract. There’s no guarantee that the seller will agree to give the seller credit, and if there are many offers on the property, it can make your offer look weak. But when done properly, receiving a seller credit can dramatically reduce your closing costs or possibly pay them entirely.
One of the great benefits that a VA loan offers compared to other loan programs is the fact that you can buy with so little money thanks to the ability to do 100% financing. With this said, you usually have to come up with some funds to cover the basic closing costs unless you structure the offer with a seller credit (a way to get the seller to pay all or a portion of your closing costs).
Well, thanks to Fannie Mae, it looks like under their HomePath program, all Fannie Mae owned homes currently for sale, they are offering up to a 3.5% closing credit to help clean out their foreclosed homes inventory. With a 3.5% credit for closing costs – a buyer of a HomePath home should not have to pay any closing costs.
I just checked the HomePath.com site today, and currently they have 303 Hawaii properties eligible for this program. There are a few restrictions:
- Buyer must buy as an owner-occupied residence
- Offer must have been submitted on or after April 11th, 2011 & must close on or before June 30th, 2011 (not much time here).
In addition, the jury is still out to see if a Veteran can do a VA loan and still get that 3.5% credit. If not, HomePath financing requires a 3% down payment (but no mortgage insurance and appraisal is needed).
If you’re interested about learning more about this program feel free to contact us with any questions and check HomePath.com to see what properties are still available.
So you’ve just put your home up for sale and had your first open house. Before you know it, you have multiple offers and it’s time to decide which offers to reject and which offer to accept (or counter-offer). While mulling through your offers you notice that you have a potential buyer who plans on using a VA Loan to purchase your property.
When discussing the offer with your real estate agent, she advises you to ignore the offer by the VA buyer since the Veteran is not allowed to pay certain closing costs on a VA Loan – which in essence, could equate to additional costs for you, the seller. Is this wise advice? Let’s take a look.
The VA Non-Allowables
It is true that with a VA Loan, the Veteran is not allowed to pay for the VA Non-Allowable closing costs which on average will save the Veteran roughly $1500-$2000 in closing costs – and thus, potentially more cost for the seller. But here are two facts that the seller must realize before deciding to deny the Veteran’s offer:
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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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es·crow (ěs’krō’, ě-skrō’)
n. Money, property, a deed, or a bond put into the custody of a third party for delivery to a grantee only after the fulfillment of the conditions specified.
First of all, what are escrow impounds and why should you care? Escrow impounds (often just called ‘escrows’ or ‘impounds’) are fees collected by the lender at closing and then each month in order to pay third party bills on your behalf. Lenders do this to ensure important bills are paid and to help budget for these payments because they are due in lump sums which are often quite large. The homeowner pays these fees each month and the bank holds them in a separate ‘escrow’ account and pays the bills when due.
Typically, for single family homes, the impounds cover the insurance and property tax bills. For condos, insurance costs are paid by the condo association and the condo fees are paid monthly by the homeowner to the condo association, so impounds solely cover property taxes.
Taxes are typically due twice a year, while insurance is paid annually. The lender does not charge for this service and often requires it. For all government insured loan programs (FHA, VA and USDA), impounds are required. For conventional loans, many lenders require it and will charge a fee of 0.25% if a borrower wants to manage these payments on their own. For a $400,000 loan that becomes a cost of $1000.
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In this current mortgage environment, the VA loan program is arguably the best loan program available to help veterans become a homeowner. Despite the fact that VA loan guidelines are generally more flexible than their conventional loan counterparts, there are still many potential pitfalls that can delay or ultimately kill your VA loan transaction. Here are the 5 most common mistakes to avoid:
Mistake #1: Putting an offer on a condominium that is not eligible for VA financing:
One thing to always keep in mind; not all condominiums (this also includes townhomes) are eligible for VA financing. I’ve seen people fall in love with a particular condo, only to find out later that the condo is not approved for VA financing. If you are certain that you will use a VA loan to finance your purchase, don’t waste your time looking at condominiums that are not eligible for VA financing.
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“What interest rate can you offer me?” Ask any mortgage loan officer and they will tell you that this is probably the first and most commonly asked question they get from their customers. Rightfully so, since the interest rate determines what your mortgage payment will be and, of course, we all want the lowest payment possible.
Now, this is a loaded question because one’s interest rate depends on many factors like down payment, equity in the home, credit score, property type and when you actually lock in the rate (here’s an old post we wrote on what determines mortgage rates). Another important factor is the type of loan program you are using – a Conforming loan (a mortgage which the meets the underwriting requirements of Fannie Mae or Freddie Mac – and is most likely sold to them) or a Government loan (mortgage guaranteed by the government, most typically an FHA or VA loan).
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Having little to no money in the bank can be one of the main deterrents to homeownership. In this case, the logical option would be to rent since it would be less cost upfront, right? Well, if you are eligible for a VA Loan, this may not be necessarily true. Let’s do the math!
Meet Cindy, Joe & Mark
Cindy & Joe are both looking to buy a $500,000 property. Joe is eligible to finance the purchase through a VA Loan. Cindy on the other hand is not VA eligible, and will purchase via a conventional mortgage.
Now Mark is eligible for a VA Loan but feels like he can’t afford the upfront costs of buying a home right now, so he’s looking to rent. He’s looking to rent a home for about $2500, which is comparable to the $500,000 property that Cindy & Joe want to purchase (see rentometer.com).
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3 Minute Thursdays: What is Prepaid Interest?