Phew! It’s been a looong while since I last posted. Life got in the way. Awful of me! I apologize.
So, let’s get back to talking about VA loans. Now that you have a general idea of the nature of the loan, its benefits and who are eligible, let’s see what you can buy with a VA home loan.
- Buy a home – or, more than one! Huge. There is a price point limit. On Guam, the VA home loan limit is up to $625,000 (that’s a MacMansion, if you buy just one). So, if you purchase a home for $200,000, you still have $425,000 to use.
- Buy a house, condo or townhome. On Guam, the condo or townhome must have typhoon insurance coverage for the entire development. If you buy a house, VA will require you to purchase typhoon insurance.
- Buy a 4-unit apartment building – and you must occupy one of the units. Love this! You can be a landlord to the remaining 3 and collect enough rent to pay the mortgage (and more) and you live in the 4th unit for free.
- Build a house. VA home construction loans on Guam? I have not found a bank that will do this, unfortunately. But it is a VA benefit.
- Repair or renovate a home.
- Re-finance an existing home loan to reduce the interest rate.
- 100% financing – no down payment needed!! This is a huge plus. This means that you get to keep your savings for turning the house you purchase into a HOME.
- Lower or no closing costs. You can choose to roll your closing costs into the VA loan and keep your savings.
- No Private Mortgage Insurance (PMI) to pay. Conventional loans come with an added monthly charge for PMI premium if your loan is more than 79% of the cost of the home you purchase.
- Fixed rate loan. Your interest rate remains the same for the entire length of the loan. Interest rates in the market place may go up but your interest rate will remain fixed at its original rate.
- 30 year fixed rate loan.
- Higher debt-to-income ratio – up to 41% as opposed to 36% for conventional loans. (In a previous blog, I had explained how debt-to-income ratios are calculated.)
- More flexible credit rating. VA loan qualifications are more forgiving of your credit issues.
Contact me, Patricia Feore, for more information: 671-688-6989 / firstname.lastname@example.org
Who is eligible? A wider group than you thought.
- Any service member – active, Reserve, Guard, retired, separated.
- If you have served 90 consecutive days of active service during wartime or 181 days of active service during peace time.
- You have more than 6 years of National Guard or Reserves service.
- Spouses of a service member who died in the line of duty or has a service-related disability.
To find out if you are eligible, go to www.va.gov
Your DD-214 is your proof of service.
Should you be eligible, you will need to obtain a Certificate of Eligibility (COE) before you apply for that VA loan.
I’ll help you find your HOME! Email or call me at:
email@example.com or +1-671-688-6989
Over the next few weeks, we will discuss VA loans. This is one of the largest group of residents on Guam.
It is always such a rewarding experience for me to help a veteran find a home to purchase. My youngest buyer ever was a VA buyer and he was only 24 years old. I helped my son, a veteran himself, purchase his first home just before he turned 25 years old. There are many benefits of a VA loan and we will explore these over time.
VA loans are made to eligible veterans. These loans are extended by private lenders – the banks. The VA acts as the borrowing veteran’s guarantee to protect the private lender should the loan not be paid. We will discuss who is an eligible veteran next.
VA loans must be for an eligible purpose. We will look into what a veteran can buy with his VA loan.
The veteran must occupy – or intend to occupy – the property as a home within a reasonable period of time.
When you purchase a condo, townhome or a house within a managed subdivision, you automatically become a member in that development’s Homeowners’ Association (HOA). A HOA is an agreement amongst the homeowners to take care of the common areas and the development as a whole. Part of the upkeep and maintenance the HOA covers are “rules of conduct” of residents and visitors. The expenses for the upkeep come from the individual homeowner in the form of a monthly common area fee (CAF).
Here are a few things you want to understand about HOAs to be sure you are comfortable with purchasing within a managed development:
- What is the monthly CAF? This amount can vary from $60 to $1000, depending upon the amenities and services provided. You will need to build this amount into your monthly budget.
- What does the CAF cover? Some examples are hazard insurance (earthquake, fire, typhoon), security, pool, building repainting, grounds maintenance, elevators. Each HOA has its own CAF coverages.
- “Rules of conduct” or House Rules – Review these to make sure that they are not an impediment to your lifestyle.
- Are you okay with living in a community where every home looks the same (particularly the exterior). Some HOAs determine the colors of your home, the type of door, the type of fence, etc..
- Can you have a say in the HOA? Yes, HOAs are mandated to hold annual homeowner meetings. Go to the meetings. Or, you may volunteer to serve on the HOA Board.
Now you have a pretty good idea of how much home you can afford. You may be disappointed that you’re not going to be able to afford your “dream” home. Or, you may be surprised that you really can afford to get a larger property than you thought or ever dreamed you could get.
But, your goal should really be the IDEAL home. The ideal home is the home that REALISTICALLY fits not just your budget but your needs – your present needs. As circumstances change, you can either step up or downsize accordingly.
So, what should you look for in your ideal home?
- Determine your budget: You want to live below or, at least, within your means. Always shoot for a home mortgage payment that leaves you with enough left over to build a savings fund for emergencies.
- Be clear to separate WANTS from NEEDS. What features of the home do you truly need? The “wants” are what make up your vision of your dream home.
You’ve likely thought about buying your own cozy nest. You have a vision in your mind of how you’ll place your furniture, the color scheme, family bbq days…
So, why are you still renting? Or to put it bluntly: Why are you still paying off your landlord’s mortgage?! (OUCH!! That hurts.) Let’s consider the many pluses of homeownership:
- Tax benefits – You get to write-off your property taxes and mortgage interest payments.
- Wealth building – Homeownership is the best indicator of wealth. Generally, real estate appreciates in value. Unlike a car that instantly loses value the moment you drive off the car lot.
- Well-being and Security – A warm glow of pride, satisfaction with life and with how far you’ve come in life. You now belong to an elite group of homeowners.
- Creative freedom – It’s YOURS! Paint it any color, make any changes and renovations. Have a pet – or more. No landlord limiting your creative juices and lifestyle.
- Privacy – No more sharing space with friends or family. No more getting caught up in their drama – create your own drama, hahaha.
- Belonging – A commitment and belonging to the community where you have your home.
- Potential rental income – As your lifestyle, income and family size change, you may want to acquire a larger home – or downsize. You may want to consider renting out your first home and be a landlord yourself – make your tenant pay your mortgage!
So, now you have a pretty good idea of how much home you can afford to purchase – what the banks look for in prequalifying you. Let’s review some of the more common and typical home loans.
CONVENTIONAL LOAN: From as high as 97 percent of the purchase price can be financed by a bank.
- 97% financing – Available only to the first time home buyer. There is a limit on the purchase price – no MacMansion.
- 90% fianancing – Available also to the first time home buyer. Purchase price as high as the mid $600,000.
- 80% and below – Available also to the first time home buyer. Yes, buy your MacMansion! Private Mortgage Insurance NOT required.
USDA RURAL DEVELOPMENT LOAN: 100% financing – no downpayment required! However, Buyer still needs some money ready for upfront expenses – earnest deposit, home inspection, survey, appraisal, loan application fee… There is, however, an income limit and a lot size limit.
VA LOAN: 100% financing with no downpayment required. All full-time service members – active and retired – are eligible for this benefit. Reserve service members have to meet a service time period. For Guam, the maximum purchase price can be as high as $636,150. VA members may also use this loan benefit to purchase a residential investment property – a 4-unit apartment building – but you have to occupy one of the units.
Part 3: CAN YOU AFFORD THE MONTHLY MORTGAGE PAYMENTS?
True, the bank has pre-qualified or pre-approved you. Let’s take it a step further now:
- Check with the bank if the monthly mortgage payment includes property tax and the homeowner’s insurance (hazard insurance for typhoon, fire, earthquake). These obligations are mandatory and payable each year. If the mortgage payment does not include the property tax and insurance, then you’ll need to make sure that you budget for this each month so that you’ll have the funds ready when it is time to pay.
- Let’s take an honest look at whether you really want to borrow at the pre-approved amount. Does your lifestyle allow you to pay that monthly mortgage payment? Do you have medical expenses, private school expenses, upcoming auto repair bills, a kid going off to college? Do you foresee a drop in the family income (will you be retiring before the loan is paid off?)? Job change? A new baby? All these are expenses that fall into the 64 percent mentioned in Part 1. If any of these expenses change, will you be so stretched that you’ll not be able to make your mortgage payment?
PREPARING TO MEET THE BANK.
Almost like meeting the future in-laws. Lots of polite but prying questions! Hahaha…
Before any bank will hand over the money – that is, give you a mortgage loan – the bank would want answers to some questions. And, you can count on these for sure:
- Do you have stable and regular income? You will need to provide proof of your income. For your meeting with the bank, take along your paystub, your last W2 and 2 years of income tax return.
- Who will be on the mortgage loan? If you and your spouse/partner intend to both be on the mortgage, make sure that BOTH your credit is good. If one of you have bad credit, it will pull down the amount of loan you can get – or cause your interest rate for the loan to be higher. But, if you both have great credit, it will improve your chance of getting a bigger loan – and lower interest rates.
- What debt obligations do you currently have? Remember the 36 percent rule in Part 1? Only 36 percent of your income (or joint income) can go toward your debt obligations. This is the debt-to-income ratio that banks look at to determine how much loan you can get. If you have a small debt remaining and you can easily pay it off, do it – this will then increase the amount of loan you can get.