Will a VA Mortgage Work for You?

VA mortgages are partially guaranteed by the Veterans Administration, require low down payments, require no mortgage insurance and have negotiable mortgage rates.

I’m a veteran having served with the Air Force as a radar technician. I was one of the few women in my career field. I remember cold winter nights repairing air traffic control radar in a remote part of Osan Air Base in Korea. When my husband left the Air Force in 1986, we used a VA loan for our first home.

A VA loan can be a great way to finance you primary residence, particularly if you don’t have the 20% down payment that most conventional mortgages require. Down payments can be as low as nothing, if the home appraises above the mortgage amount. If not, the bank will want down payment money to make up the difference.

Some banks are happy to work with you on a VA loan. The advantage to them is that the Veterans Administration partially guarantees the loan for them. However, there’s going to be more paperwork, but that’s the price you pay for dealing with both a bank and the government.

I would advise going to the VA website and downloading VA Form-1880 Request for Certificate of Eligibility so that you have the certificate before you approach a participating bank. The bank can request the certificate for you, but I would bet there would be a significant delay if they do it for you.

When you approach the bank, ask them if they are currently making VA loans. The VA does not guarantee the full amount of the loan, so the banks are going set their own standards for making the loan. You will need decent credit and sufficient income to qualify.

The major advantage of the VA loans is the low down payment and no mortgage premium insurance (PMI). You may also have reduced closing costs with this loan. The loan limit for Daytona Beach homes and condos is $417,000 for 2010. That should cover about 90% of available homes in the area.

Now for the caveat – if you are going to use a low or no down payment loan, plan to stay in that home for awhile. By awhile, I mean more than 5 years and probably closer to 7 years. You cannot get back your closing costs and pay sales costs in the short term. If you had to sell in two years, it would take money out of your pocket to make the sale.

If you are eligible for a VA loan, I believe you should explore the possibilities. You could get a better rate and save some money.

Congress Tinkering with FHA Loan Guidelines – A Mess in the Making?

50% or so of all mortgage loans currently being made are FHA loans. Why? Because the terms and down payment requirements are less stringent and cumbersome than other types of loans.

Here are the current guidelines for FHA Loans:

• As little 3.5% down payment
• Borrowers can get up to a 6% credit from sellers against closing costs
• Borrowers can have substandard credit and still qualify

Here are proposals being floated in Congress for changes:

• Change the down payment to 5%
• Reduce seller closing cost credit to 3%
• Credit worthiness requirements will need to be increased

Now the reason for the changes makes some sense. The US Government guarantees the loans against default. So lenders get their money back in case of default. The attempts by congress are to reduce defaults. However, this actions seems counter to the give away of $8,000 in tax credits for first time home buyers and others who qualify.

On one hand money is being given away, while on the other hand a major source of financing for the first time home buyers will be harder to get. One hand wants to stimulate, the other hand wants to slow things down.

I really don’t know what’s right in the long-term. It’s probably better to reduce defaults, but the law of unintended consequences will probably rear its ugly head. Congress never seems to learn the lesson of keeping their hands off what is working.

If we are in a recovery, and some signs are pointing that way, why mess with it now. Wait until the economy is strong and then tinker with a few things. Right now, it’s probably better just to leave it alone.

Sales of Daytona Beach condos and Daytona Beach homes have rebounded significantly this year. Sales in Florida and around the country are doing the same in most places. Slowing down any part of the economy that is improving makes no sense to me at this time.