Understanding VA Loan Requirements and Guidelines

If you are an active or retired United States military service member, you can likely get help buying or refinancing a home.

Mini American flag and mini houses

If you are an active or retired United States military service member, you can likely get help buying or refinancing a home. The Department of Veteran Affairs (VA) Loan helps current and former military members get better mortgage terms than you would with a private lender loan.

Eligibility Requirements for VA Home Loans

You may be eligible for a VA-backed purchase loan if the following three requirements listed below:

Qualify for a VA-backed home loan Certificate of Eligibility (COE). Your COE is based on your service history and duty status. If you are currently active, you will need to show you served for 90 continuous days during wartime or 181 days during peacetime. If you are a veteran, your eligibility will depend on when you served, for how long and under what circumstances you exited the military. Click here for a full list of COE requirements for veterans. You are not required to have your COE to apply for a VA loan. Most lenders are able to pull your COE through the VA’s automated system.

Meet the VA—and your lender’s—standards for credit, income and other requirements. A VA Loan is the only loan that does not require student loans deferred over one year to be included in the debt–to-income ratio, which is used by lenders to determine how much you can afford to borrow.

You will live in the home you are buying with the loan. The VA developed occupancy requirements to ensure that VA loans are for primary residences only. Second homes and investments properties do not qualify for a VA loan. Homebuyers have 60 days to occupy the home after the loan closes, but the VA can extend this limit if you are on active duty or preparing to separate from service. A spouse or dependent child of an active service member also satisfies the occupancy requirement.

VA Loan Benefits

100% Financing – The VA guarantees this loan, potentially allowing you to finance the entire purchase price of the home. Nearly all conventional and FHA loans require the loan-to-value to be below 100%.

No Monthly Mortgage Insurance Costs – Most loans with less than a 20% down payment require you to pay for monthly mortgage insurance. While there is no monthly mortgage insurance, there is a one-time funding fee, based on your eligibility and down payment. You may also be exempt from the funding fee – talk to a lender to find out.

You Can Have Two VA Home Loans at a Time – VA does allow you to purchase another home if you are choosing to move prior to selling your current VA-financed home. It depends on how much entitlement you have left from the previous purchase and the loan limits in the area where you are buying your new home.

RCB Bank is proud to offer a VA loan benefit to our active duty service members and veterans. We can help you determine your eligibility and qualifications. We will walk you through the process from start to finish. Lenders at RCB Bank are happy to help answer questions even if you are not a customer. Give us a call or visit our online Mortgage Center.

Sources

Eligibility Requirements For VA Home Loan Programs | Veterans Affairs
Chapter 6 Home Loan Guaranty – Office of Public and Intergovernmental Affairs (va.gov)

Opinions expressed above are the personal opinions of Kenneth Wohl and meant for generic illustration purposes only. For specific questions regarding your personal lending needs, please call RCB Bank at 855-BANK-RCB. With approved credit. Some restrictions apply. RCB Bank is an Equal Housing Lender and member FDIC. RCB Bank NMLS #798151. Kenneth Wohl NMLS #453934.

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Home Inspection Tips that Save Money

Your Property Inspection Requires a Professional.

Home Inspection Tips

Not every state requires home inspectors to obtain a license to do home inspections. Before you hire someone, check the home inspection requirements in your state. Your real estate agent will likely recommend a few inspectors, but you should call and interview them before hiring. Ask for references and a sample inspection report. Find out if they are bonded and insured. Also, examine their website and read reviews on Google, Yelp and Angie’s List™.

Inspections should be thorough with final reports often 25-80 pages long. Key areas that should be included are structural components, exterior features, electrical, plumbing, heating and cooling systems, insulation and ventilation, fireplaces, roof and crawl space. Don’t be afraid to ask questions and insist these areas be examined before they turn in their final report. Most home inspections cost between $350 and $600. If they ask for significantly more or less, that may be a red flag.

Know Your Home Inspection Options

Depending on the home’s age and condition, you may want to perform additional inspections. For instance, properties that do not have access to public sewer systems should have the septic system inspected. Similarly, a home that is not connected to public water should have the well and water tested. A pest inspection to check for termites or other wood destroying insects is also valuable. While all of these inspections may cost money up front, they may save you thousands of dollars in future repairs.

Understand the Benefits of Home Inspection

A thorough and professional home inspection allows you to examine any red flags before you decide to purchase a home. Sewer and drainage issues, such as standing water in the yard, erosion and heaved walkways may indicate the need for expensive fixes in the future. Check to see if the home is in a flood zone and look closely for any water damage or mold. Find the source of the mold or water damage and assess the costs to repair it before making a decision to buy. Foundation and electrical issues are also red flags in any inspection. Electrical issues may increase the chance of fire and major foundation issues may cost up to $10,000 to repair.

Negotiate Repairs that Protect Your Home  

If you feel confident in the results of the inspections and are ready to move forward, another round of negotiations will likely occur to discuss fixes or buyer/seller cost responsibilities. How these negotiations play out depends on the issues discovered during the home inspection. Remember, very few inspections are perfect. You may ask the seller to repair the issues before closing, however sellers are not always motivated to have high-quality work done. Instead, you may want to ask for a price reduction for repairs. You may also ask for a home warranty to cover the first year in case you need to repair the 25-year-old water heater or other appliances. Work closely with your realtor to determine how to approach repairs.

Lenders at RCB Bank are happy to help answer questions even if you are not a customer. Give us a call or visit our online Mortgage Center.

Opinions expressed above are the personal opinions of the author and meant for generic illustration purposes only.  For specific questions regarding your personal lending needs, please call RCB Bank at 855-BANK-RCB. With approved credit. Some restrictions apply. Equal Housing Lender, Member FDIC. RCB Bank NMLS #798151. Kenneth Wohl NMLS #453934.

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What is Escrow?

Home Buying Basics: Escrow Accounts, Requirements and Benefits

Escrow and coin stacks.

What is Escrow?

As a homeowner, you are responsible for expenses beyond your mortgage payment such as property taxes, homeowner insurance and mortgage insurance. Put simply, an escrow account is set up by your lender and helps you budget for these expenses by including them in your monthly mortgage payment.

How Does Escrow Work?

First, your lender adds up your additional home-related costs outside your mortgage payment, including property taxes, homeowners insurance, mortgage insurance and flood insurance. Then, they divide the total cost of these payments by 12 months and add it to your monthly mortgage payment.

With an escrow account, you make one monthly payment that includes your mortgage principle and interest, plus a percentage of your insurance and tax expenses. Every time you make a mortgage payment, your escrow account grows. When insurance and tax payments are due, your lender uses the money in your escrow account to pay those bills.

Is an Escrow Account Required?

Most lenders require escrow accounts on mortgages where you pay less than 20 percent down. Your escrow account is set up at closing and allows you to pre-pay the required insurance and taxes for the following year.

If you put more than 20 percent down and decide not to open an escrow account, you will need to pay your property taxes and insurance premiums as lump sums. Depending on the value of your home, these payments can cost several thousand dollars each year. Make sure to budget for these costs so they do not catch you by surprise.

Escrow Management: Can my payment change over time?

Yes, if there are changes in insurance costs and taxes, your escrow payment will also change.

Your lender will review your escrow annually. The review looks at updated taxes and insurance costs to ensure the amount paid into the account is enough to cover costs. If costs have decreased, due to a change in insurance for example, there may be an overage and you will be issued a refund. If costs have increased, you will be required to make up the difference.

There are two ways to manage escrow payments if costs increase: 

  1. Pay the difference in one lump sum. Your full payment covers the past payments and brings your account to balance. An increase in monthly payments is still necessary to cover the increased costs in the future, but you will not have to pay the shortage in future payments.
  2. Divide and pay the amount over the next 12 payments. Paying back your shortage over time will increase your monthly payment because you are paying the shortage plus the increase in costs over the next year. This option will increase your payment by twice what the previous option would increase.

Financially Fit Tip: Shop Around for Insurance

To reduce how much your escrow fluctuates from year to year, review your homeowner’s policy and insurance plans. It is always a good idea to comparison shop and request quotes. If you find a better deal, contact your lender to update your escrow account information.

Lenders at RCB Bank are happy to help answer questions even if you are not a customer. Give us a call or visit our online Mortgage Center.

Opinions expressed above are the personal opinions of the author and meant for generic illustration purposes only.  For specific questions regarding your personal lending needs, please call RCB Bank at 855-BANK-RCB. With approved credit. Some restrictions apply. Equal Housing Lender, Member FDIC. RCB Bank NMLS #798151. Kenneth Wohl NMLS #453934.

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The Truth on Three Spooky Mortgage Myths

With Halloween around the corner, here are three spooky myths about getting a mortgage.

mortgage myths

There is a lot of incorrect information out there that may persuade you not to pursue getting a home. Before you run in fear, talk to a lender first about your concerns, so we can help you know what is truth or myth.

Myth #1: You have to have a 20% down payment in order to get a mortgage – WRONG.

There are many down payment options. For instance, if you are a veteran, or buying in a rural location, you could potentially get into your new home with little to no down payment.

Several first-time homebuyer loan options start with a 3% down payment, and Federal Housing Administration (FHA) offers financing options starting with a 3.5% down payment.

With all of these down payment options, homeownership may be more BOOlievable than you think.

Myth #2: Being Pre-Qualified is the same as being Pre-Approved – WRONG.

Pre-qualification is based on un-verified information. This is an initial look at your application to make sure there are no major red flags that may prevent you from getting a mortgage. For example, a pre-qualification may use an estimate of your credit score and compare your income with your debts to see if you can support a mortgage payment. The pre-qualification process is quick and is based on information you provide to your lender. A pre-approval is a more extensive process where the lender uses verified information (e.g., your credit report and pay stubs) to determine which mortgage you actually qualify for.

Without a pre-qualification or pre-approval, home shopping may become a frightfully batty experience.

Myth #3: Shopping around for lenders will hurt your credit – WRONG.

Multiple inquiries can hurt your credit, but FICO allows for rate shopping by grouping all similar inquiries made within a 30-day timeframe as one hard-hit. This allows you to shop around as long as it is within 30 calendar days.

When shopping lenders, be sure to ask what fees they charge, what the interest rate and annual percentage rate (APR) are, and if you aren’t putting 20% down, what is the cost for private mortgage insurance (PMI).

Don’t be spooked by misinformation about mortgages. Talk to a lender and get the truth. I’m here to help you have a FANGtastic homebuying experience, even if you are not an RCB Bank customer. Connect with a local RCB Bank lender to get answers to your lending questions. Give us a call or visit our online Mortgage Center.

Opinions expressed above are the personal opinions of the author and meant for generic illustration purposes only. For specific questions regarding your personal lending needs, please call RCB Bank at 855-BANK-RCB. With approved credit. Some restrictions apply. Equal Housing Lender, Member FDIC. RCB Bank NMLS #798151. Alex Penny NMLS #1535836.
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Home Appraisal Guide

One of the most important aspects of getting a mortgage is the appraisal.

Home appraisal guide

Mortgage appraisal— a professional opinion of a property’s market value, determined by a licensed appraiser.

An appraiser will visit the property and examine the interior and exterior of the property. They will take pictures, measure rooms, note upgrades and examine other aspects of the house for functionality. Once they finish looking at the property, they will research similar homes through various assessor databases and local real estate portals.

Appraisal guidelines protect consumers. Lenders are required to give you copies of all appraisal reports and other written valuations. If you have questions, talk to your lender. Open and honest communication will help you better understand the mortgage process.

May I choose my appraiser?

No. Your lender must request the order. Lenders, realtors and appraisers must follow Appraiser Independence requirements to ensure the appraisal is fair. You can read the guidelines on Fannie Mae’s website, fanniemae.com.

Why are appraisals important?

An appraisal is important because it provides you with valuable information about the property so, as a buyer, you do not pay more than the home is actually worth. It can also play a big role in determining the amount of money you may borrow when purchasing or refinancing your home.

I got a home inspection; do I still need an appraisal?

Yes. The home inspection does not replace an appraisal and vice versa. A home inspection is an in-depth, objective examination of the physical structure and major components of a home. A home inspector will not determine the value of the home; they help you assess potential risks that may affect your investment.

How long before I receive my appraisal?

Appraisals can take anywhere from a few days to a few weeks to complete due to many variables that may affect the time frame. For instance, during the peak of real estate season, it may take longer due to the backlog of requests. Rural, luxury or complex properties also take more time to complete based upon availability of comparable sales data.

We are to here to help, even if you are not an RCB Bank customer. Connect with a local RCB Bank lender to get answers to your lending questions.

Invest in yourself. RCBbank.com/GetFit

Opinions expressed above are the personal opinions of the author and meant for generic illustration purposes only. For specific questions regarding your personal lending needs, please call RCB Bank at 855-BANK-RCB, With approved credit. Some restrictions apply. RCB Bank is an Equal Housing Lender and Member FDIC. RCB Bank NMLS #798151. Kenneth Wohl NMLS #453934.

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Rural Development Home Loan Advantage

Get$Fit Tip: Know all your financing options before you start home shopping.

Rural Neighborhood

USDA Rural Loan Requirements

If you feel like homeownership may be out of reach because you don’t have a large down payment, look into the U.S. Department of Agriculture Rural Development loan (RD) program, which provides up to 100 percent financing to qualified households in eligible areas.

Fun fact: Rural America includes 72 percent of the nation’s land mass, according to the USDA RD 2017 Performance Report.

Rural Development Loan Advantages

100% financing

Rural Development loans may only require you to pay closing costs. The majority of other loan programs may require at least 3 percent down.

Lower Interest Rate

Because Rural Development loans are backed by the government, they typically are lower interest rate loans than most conventional loans.

Keep in mind, interest rates vary daily and depend on a number of factors, such as loan amount, credit score and rate lock.

Seller Concessions

Rural Development loans allow the seller to contribute up to 6 percent of your closing costs, which may cover your out of pocket needs entirely.

Mortgage Insurance Reduction

Most loans require mortgage insurance (PMI) if you pay less than a 20 percent down payment. PMI covers the loan in case of default and may require an upfront fee and/or is included in your monthly loan payment. With a Rural Development loan you may be able to finance the upfront portion and receive a discounted rate on the monthly fee.

Talk to a lender to explore your options, and to find out if you qualify for a Rural Development loan.

Lenders at RCB Bank are happy to help answer questions even if you are not a customer. Give us a call or visit our online Mortgage Center.

Opinions expressed above are the personal opinions of Alex Penny and meant for generic illustration purposes only. For specific questions regarding your personal lending needs, please call RCB Bank at 855-BANK-RCB, RCB Bank is an Equal Housing Lender and member FDIC. RCB Bank NMLS #798151. Alex Penny NMLS #1535836.
Source: USDA, https://www.rd.usda.gov/
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Guide to defining your second home

Vacation home

When it comes to buying a second home, understanding how to define the property will help you better understand your mortgage options.

Let’s go over the basic home types defined by Fannie Mae.

Principle Residence, a property the borrower occupies as his or her primary residence.

Second Home, a property that must be occupied by the borrower for some part of the year, restricted to residences suitable for year-round occupancy. Borrower must have exclusive control of the property, must not be rental property or timeshare, and cannot be subject to any agreements that give management firm control over the occupancy of the property.

Investment Property, a property owned but not occupied by the borrower.

The property types seem straightforward, but here are a couple examples of when it gets tricky.

College homes

Many parents planning to purchase a home for their kids while they attend college will often apply for a second home mortgage.

If a home is considered as someone’s primary residence, regardless if that person (or student) is obligated or not on the loan, the home cannot be someone else’s secondary. In this case, the college home is an investment property.

Vacation homes

Another area of confusion are timeshares or homes managed by a management group, e.g., rental company. Most often, these do not qualify for conventional financing.

Your vacation home may qualify as a second home if it is in your full control and not generating income.
Remember, second homes are a second residence for the borrower to enjoy or use when not occupying their primary residence.

If you plan to rent the property while you are not using it, it may not qualify as a second home.

If you’re planning to purchase a vacation home or second property speak to a lender before you start the mortgage process.

The more you know about your loan options and your individual qualifications, the more satisfying your homebuying experience is.

Lenders at RCB Bank are happy to help answer questions even if you are not a customer. Give us a call or visit our online Mortgage Center.

Opinions expressed above are the personal opinions of the author and meant for generic illustration purposes only.  RCB Bank is an Equal Housing Lender and member FDIC. RCB Bank NMLS #798151. Kenneth Wohl NMLS #453934. 
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Talking Mortgage

Talking Mortgage graphic

Lending officers have their own language. We try not to use unfamiliar jargon when working with customers, but “talking mortgage” is second nature to us. Let me clarify some lingo my customers have called me out on.

1003

Your loan application. Pronounced ten-o-three. This is a uniform document all lenders use as their mortgage application.

LTV

Loan-to-value. This is a ratio of what you owe on your home versus what it is worth. In a home purchase transaction, this is also your loan balance versus your purchase price. The industry uses the lower ratio — appraised or purchase price — as the value of the home. Therefore, your purchase LTV may be higher than your actual LTV if your appraisal comes in higher than your purchase price.

CLTV

Combined loan-to-value. This is like your LTV, but includes the overall loan amount versus the overall value when combining a first and second mortgage.

DTI

Debt-to-income ratio. Also known as back-end ratio. A percentage of a consumer’s monthly gross income that goes toward paying debts.

Front-end ratio

Mortgage-to-income ratio. Indicates which portion of an individual’s income is used to make mortgage payments. It is computed by dividing your projected monthly mortgage payment by your monthly gross income. Front-end and back-end ratios are used by lenders to determine how much you can afford to borrow.

PMI

Private mortgage insurance. Commonly referred to as MI or mortgage insurance.  This is required on loans for which the buyer makes less than a 20 percent down payment or has less than 20 percent equity on a refinance. This insurance policy protects the lender in case the borrower ends up in foreclosure.

CD

Closing disclosure. A required disclosure given to all borrowers on mortgage loans three days prior to closing. This is a five-page document that details loan terms, payments, fees and other costs.

LE

Loan estimate. This document mirrors the closing disclosure, but is issued at the beginning of the loan application. Since the two documents look alike, it is easy to compare fees, costs and changes from start to finish.

Hazard Insurance

Homeowners insurance.

 

When it is time to buy or refinance a home, talk to a local lender first. The more you know about the mortgage process, available loan options and your individual qualifications, the more satisfying your homebuying experience is.

Lenders at RCB Bank are happy to help answer questions even if you are not a customer. Give us a call or visit our online Mortgage Center.

Opinions expressed above are the personal opinions of Kenneth Wohl and meant for generic illustration purposes only.  For specific questions regarding your personal lending needs, please call RCB Bank at 855-BANK-RCB, RCB Bank is an Equal Housing Lender and member FDIC. RCB Bank NMLS #798151. Kenneth Wohl NMLS #453934.
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How new tax law affects mortgage deductions

W-4 tax sheet with money and house on it

You’ve likely heard about the new tax plan and the changes coming to our tax code. I am not a certified public accountant (CPA) and cannot speak to how this may directly affect you individually, but I can share how the changes may affect your mortgage tax deduction.

One benefit of home ownership is being able to deduct your property taxes and mortgage interest on your income taxes.

For example, let us say you buy a home for $275,000 and the taxable value of the home is 1.25 percent of the sales price. On a mortgage at 80 percent loan-to-value accruing interest at 4 percent, you can expect to pay around $8,700 in interest and $3,400 in taxes, a total of $12,100, the first year. This amount will decrease each year as you pay down your principal.

Under the current tax code, the standard deduction is $6,350 for single filers and $12,700 for married filing jointly. If you had no other deductions, it would benefit you to itemize if you were single but not if you were married filing jointly.

The proposed tax plan will increase the standard deduction for single filers to $12,500 and married filing jointly to $24,000.

Using our example, the $12,100 mortgage deduction falls below the standard deduction for both single and married filing jointly.

Owning a home is an American dream for many people, and there are benefits to home ownership other than a tax break. Before you decide to purchase, be sure to look at the full picture of ownership.

With many current deductions and potential phase-outs of those deductions if the new tax proposal passes, it’s important to do your homework. Talk with your CPA and ask them to show you a future tax plan based on the proposed law.

When you decide to buy or refinance, first talk to a local lender. The more knowledge you have about the mortgage process, available loan options and your individual qualifications, the more satisfying your home buying experience will be.

Lenders at RCB Bank are happy to help answer questions even if you are not a customer. Give us a call or visit our online Mortgage Center.

Opinions expressed above are the personal opinions of Kenneth Wohl and meant for generic illustration purposes only.  For specific questions regarding your personal lending needs, please call RCB Bank at 855-BANK-RCB, RCB Bank is an Equal Housing Lender and member FDIC. RCB Bank NMLS #798151. Kenneth Wohl NMLS #453934.
Sources: taxpolicycenter.org and irs.gov
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