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Understanding Mortgages

Who is eligible for VA loan benefits?

The men and women of the U.S. military represent the best of America, whether they’re on active duty or career-retired veterans, newly recruited or long-tenured. They chose to enter the armed forces by their own free will and for that, the country owes them a profound debt of gratitude for serving in one of the most difficult jobs around.

One way of giving back is by making it easier for current or former service members to achieve homeownership, and many do so by leveraging U.S. Department of Veterans Affairs (VA) loans.

What makes VA loans so advantageous? Several things, but chief among them is a borrower’s ability to buy a house without a down payment. Many active duty and veteran service members take full advantage of this perk. Indeed, based on the most recent figures available from the National Association of Realtors, more than 40% of active-duty and career-retired veterans fully finance their house. And that's just one of the variety of benefits that current and former members of the military get when they take out a VA loan. These types of loans are by far the most popular mortgage product among military members past and present.

You may wonder what the qualifications are to be eligible for such a loan. If you're in the military or retired military and looking to buy or refinance, how you answer the following questions should provide some guidance.

How many days of active duty service have you acquired?

There are two ways of answering this question, and it depends on whether the period is considered to be wartime or peacetime. If you apply during a period in which Congress has made a formal declaration of war — as stipulated in Article I, Section 8 of the U.S. Constitution — you're eligible after serving 90 consecutive days on active duty.

During peacetime, on the other hand, the consecutive-day tally required is longer — 181 days, slightly more than double the wartime amount.

Perhaps you're in the National Guard or Reserves. Since most members of the National Guard are on standby mode and only enter active duty when they're called up, satisfying the requirement is a little different. If you've been in either the National Guard or Reserves for six years or on active-duty for 90 days between Aug. 2, 1990 and the present, you should be able to fill out an application form without any issues.

When did you serve?

Maybe your days of active duty are in the rearview mirror and you're wondering how many consecutive days of service you need to satisfy. If you visit VA.gov, you'll see a chart that breaks down the minimum active-duty service requirements to get your Certificate of Eligibility (COE). As you'll discover, a significant portion of America's history has been spent in wartime, thus the consecutive days of service stipulation is shorter.

Are you the spouse of someone who died while serving?

Unmarried surviving spouses are eligible for a variety of benefits. This includes VA loans, if your spouse died in the line of duty or from a disability they sustained as a result of their service. You may also be able to apply if your spouse is a prisoner of war or missing in action.

If any one of these requirements apply to you, a VA loan could be yours. You signed up for the military; make this the time to sign up for a VA loan. Contact us at Residential Mortgage Services today. We're here to serve you. You can get in touch with us via email or phone if you have any questions or concerns related to eligibility as a veteran, military spouse or active duty personnel.


Understanding Mortgages

6 ways to prepare for a VA mortgage

In addition to being a core component of the American fabric, the U.S. military - both active-duty members and veterans - represent a significant portion of the country's homeowners. According to the National Association of Realtors, homeowners on active duty have the youngest median age at 34 years old compared to 42 for their civilian counterparts. They're also far more likely to have a spouse, with roughly 75% married compared to 63% for non-military buyers. 

When soldiers past and present enter the housing market, they frequently do so through VA loans. Backed by the Department of Veterans Affairs, VA mortgages have helped men and women in the armed forces become homeowners more affordably.

Indeed, in 2018 - the most recent year for which data is available - 77% of active-duty military financed their properties with a VA loan. At nearly 60%, a majority of veterans used the same mortgage product, which was created in 1944 under the GI Bill of Rights during World War II. It's been through a number of iterations since, but it still boasts some of the same perks today that it did back then, with no down payments required, nor private mortgage insurance, among its signature highlights.

All this being said, the application process that determines eligibility is fairly rigorous. If you're an active member of the military or veteran and interested in buying a house for yourself or your family, here are a few ways you can prepare to successfully apply for a VA loan while rates are low:

1. Determine length of service

Just being in the Army, Navy, Air Force, Marines or Coast Guard isn't quite sufficient enough to be VA loan eligible; you need to have served for a few months. Generally speaking, length of service must be one of the following:

  • 90 consecutive days during wartime

  • 181 in peacetime

  • Six years of service in the National Guard or Reserves.

Meeting one or more of these criteria gives you authorization to apply for a VA loan. You may also be eligible if your wife or husband was killed or injured in the line of duty.

2. Get a certificate of eligibility

Otherwise known as a COE, a certificate of eligibility acts as written proof that you've met the initial qualifications needed to apply for a VA loan, such as length of service. A COE also helps both you and your mortgage provider determine the amount of money the Department of Veterans Affairs will insure.

There are several options to obtain a COE. You should be able to get one from your lender, real estate agent or if you go online to the VA's website at VA.gov. It should be available through the eBenefits portal.

3. Obtain Form DD-214

If you're retired from the military, you should have received a document called DD-214, which is more formally known as a certificate of release or discharge from active duty. Issued by the Department of Defense, a DD-214 corroborates that you have in fact served in the armed forces and that your time is completed. You should already have this document, but if you need a free copy, you again can go through the VA's eBenefits web portal.

4. Determine your debt-to-income ratio

DTI, or debt-to-income ratio, assesses what percentage of your monthly salary goes toward outstanding balances. It can be ascertained very quickly by doing some simple arithmetic.

All you do is add up what you spend on debt payments each month - for things like a car loan or and credit card debt - and divide that number by how much you earn in salary before taxes are taken out. So, if your monthly expenses add up to $2,500 and your gross income is $7,500, your DTI would be roughly 33%. The lower the percentage, the better. According to the Consumer Financial Protection Bureau, the ideal DTI is anything at or lower than 43%, but your mortgage lender can give you a more accurate figure based on your financial situation.

5. Ensure the house conforms to VA loan limits

Due primarily to robust demand in today's market, home prices are on the rise throughout the country. Indeed, based on the most recent statistics available from the NAR, the median cost for an existing home in January was $266,300, making it the 95th straight month that number rose on a year-over-year basis.

Currently, the conforming loan limit for VA loans is $484,350. Given the national median is well below this figure, you shouldn't have a problem finding a house with a selling price that is below the cap. The limit may be slightly higher in certain parts of the U.S. where asking prices are more expensive.

6. Get a pre-approval letter

Although pre-approval is not necessarily required to obtain a VA loan - or any other mortgage, for that matter - it's a great way to prepare for homeownership because it helps potential sellers see that you're serious about buying and have the requisite qualifications. It also provides you with a general idea of what houses are inside and outside your price range.

Some of the things you'll need for VA loan pre-approval are the same as for other home loan products. They include:

  • Identification (driver's license, Social Security card, etc.)
  • Two years' worth of tax returns (W-2 forms)
  • Hard copies of two most recent pay stubs
  • Credit report
  • Statement of funds (e.g. savings account, checking account, etc.)

Be mindful of the fact that pre-approval is not a formal authorization that you'll get VA loan. That happens when you're ready to make an offer on a potential home purchase.

If homeownership is your destination, a VA loan can provide an affordable pathway, whether you're a veteran or remain on duty. Best of luck on the journey to find the home you're looking for.


Understanding Mortgages

What role does a title company play when you're buying a home?

You may have heard the saying that no one gets to their current situation entirely on their own. The same goes for a home sale. Many "players" play a role in the process, starting with the seller, the lender and - of course - the buyer.

But there are several others involved in such a transaction, some of which aren't nearly as well understood as those just mentioned. Case in point: the title company. You've undoubtedly heard that such a thing exists, but you may not know precisely what one does.

They play a uniquely important role that is fundamental to homeownership and knowing that the property you purchase is on the level.

What does a title company do?

At the most basic level, a title company is charged with making sure a piece of real estate is indeed from the person or party you assume it to be from. It does this by performing its due diligence through a series of actions, some of which include conducting a title search, coordinating with legal entities or state regulatory agencies and checking to see if a title insurance policy exists on the property. Dotting the I's and crossing the T's in this regard provides reassurance to the buyer that the seller has the right to sell the property in the first place.

Imagine what it would be like if you were to move into your newly acquired property, when out of nowhere, someone raps on your door and says the house you bought was sold to you illegally. It would be an awful situation, and unfortunately, one that all too many people have been through. The verification processes title companies go through are for this very purpose.

In short, if someone were to ever make such a claim, you could point to your title - which is a legal document - as the reason they're incorrect.

How does a title search work?

The title search itself is among the most critical functions of a title company, because the findings can ultimately impact whether the transaction can go forward as it was initially intended or if adjustments or concessions may need to be made. Unpaid taxes, liens, lines of credit, second mortgages or assessments can all turn up in a title search.

The title company then summarizes the findings in a comprehensive report and may offer recommendations about how to proceed. The hope, of course, is that the search will turn up nothing, but if there is a red flag, the firm will be able to offer insight on what happens next. For example, if a balance remains on the previous mortgage, what's left of the cost will need to be paid off in full before the title can change hands. This is typically done during the closing process.

Another potential outcome of a title search is the presence of an easement, which is essentially an agreement - typically in writing - that specifies the property can be used for or in a certain way by someone else, be it an individual, family or group. That other party may need to be consulted to see what the circumstances of the easement are and whether the agreement can be amended now that the property is due to be under new ownership.

Ideally, these things would be brought up by the seller and the listing agent, but a title search ensures that nothing potentially compromising gets missed. Because there are so many aspects to buying a home, this type of verification can provide reassurance that nothing will be.

Where does title insurance get involved?

It's usually after the search that title insurance is issued. These policies are designed for the lender as well as the buyer to serve as a resource if a dispute ever arises related to ownership claims.

The insurance policy can establish that a claim to ownership is baseless. Or, in the off chance that what they espouse is true, title insurance can cover the financial costs that may result, such as legal fees or funds to buy a new home.

Generally speaking, two separate policies are issued for title insurance, one to the lender and the other to the buyer. Title insurance is usually obtained and paid for at closing and even though the lender owns one of the policies, the homeowner typically buys both. In some instances, the seller may buy it for the lender.

It's important to mention that an owner's title insurance policy is rarely mandatory; however, a lender's policy is, as it may be a precondition for the lender to offer you the mortgage to begin with. It gives the lender more reassurance that they'll be made financially whole if problems arise.

Does the title company conduct the closing?

Another function of the title company is to prepare the closing documents and conduct the closing. However, this is not true in all States. Many States allow attorneys or title companies to conduct closings while others require the documents be prepared by attorneys. In some cases, the use of independent escrow firms is also allowed. This may seem a bit confusing, but don’t worry, your lender knows which one to use to meet your State’s requirements.

If there is any portion of the homebuying process you're foggy about, Residential Mortgage Services will make it clear as day. Contact us today.


Understanding Mortgages

The Application Preparation Blog Series: Assets

The third and final piece to “the mortgage puzzle” is your assets. Assets are sources of money other than your employment income that you can use towards the down payment and closing costs on your new home. When your lender is reviewing your bank statements, they will look for other liquid assets as well as your employment income.

There are several different types of assets that buyers can choose to use. The most common is the money you have in your checking or savings accounts. Keeping funds in these types of accounts allow you to make deposits whenever necessary and it’s easy to access your money when needed. Because all funds being used towards a mortgage loan need to be verifiable, you should be careful about making any large out of the ordinary deposits. Lenders want to make sure you are not taking on additional debt to use towards the purchase of your home, maybe by borrowing money from a friend, so if they see an unusual deposit into your account, they will need to verify where it came from.

However, if you do want to receive help for a down payment, you can choose to utilize gift funds from a relative as an asset. If you have a family member who is willing to gift you money to help purchase a home, this is a great way to get started. It must be a true gift with no intention of being paid back.  If you do choose to take advantage of this option, your donor may want to consult with a tax advisor regarding possible tax implications. Another tip to help you save time when applying is to establish the gift funds in your account as early as you can to move the loan process along quicker, but make sure you have the proper documentation to evidence the transfer of funds.

Buyers can also choose to take advantage of any retirement funds they have saved. If you do decide to withdraw funds from your retirement there will usually be a tax associated with it, so make sure you are aware of that as well. Using your retirement account could change your plans for the future, but if drawing from other assets is not an option, the pros might outweigh the cons for this scenario. 

Buying a home is often a life milestone people save towards; it is always a good idea to be on the lookout for places in your life where you can save money. Every little thing can add up over time, so your future self will thank you for any spending you can cut back on now.

We hope this Application Preparation series has been helpful to you in getting ready for applying for your home mortgage loan. If you would like more information about mortgage specifics, you can browse through our Knowledge Center to familiarize yourself further with various mortgage terminology and helpful explanations. If you are ready to apply, you can click on the “apply online” button on our website or call a Loan Officer directly.


Understanding Mortgages

The Application Preparation Blog Series: Income & Employment

The second piece of “the mortgage puzzle” is your income and employment. When going through an application, loan officers want to see that you have a steady source of income, which will usually be in the form of employment. The next question will be how your income is determined, whether you’re being paid hourly, a salary, commissions, self-employed, or have guaranteed monthly incomes from social security, or pensions/retirement. Depending on which type of income you have, you might be asked for tax returns, proof of employment, or other specifics to provide more information. They will also want to know the name of your employer, what your position is, how long you have had that specific job and how long you have worked in that industry, so make sure you are prepared with this information and any dates that may be necessary.

The main factor with your income is consistency. Your Loan Officer wants to be sure you have a steady flow of income to evidence you can be reliable making your mortgage payments on time. For example, if you are working commissions, they will want to see a history to support consistent month-to-month income.

One thing first-time home buyers always want to know as they begin the application process is how much they qualify for or how much home they can afford. To figure this out, your Loan Officer will calculate your debt-to-income expense ratio, or DTI, using the income information you provided. This number determines how much you can afford to pay each month by dividing your monthly debt by your gross monthly income. This will be the percentage of your money that can go towards your debt and monthly mortgage payment. So from here it’s up to you to decide how much you are comfortable paying each month for a home while keeping your DTI in mind and considering your usual spending habits on things like food and entertainment.

Once you settle on a number you’re comfortable with, your Loan Officer will work the numbers backwards to draw up a plan from the monthly payment to what the price of your home might look like so you can go shopping for homes in that price range. Do not get discouraged if you feel you need to adjust your comfort number or even the area you want to live considering home prices you find. Adapting to the market is often a part of the process and it may take some time to find the right home, but your Loan Officer will always be there to guide you through any adjustments you make.

Click here to read the next article in the Application Preparation Series


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