Individually, these areas mentioned in the title are great advantages of VA home loans. But what if all of them happened on the same purchase? Well, they did and we closed it! So, we bring understanding VA home loans to another level. Check out some of the things we were able to accomplish for a Veteran’s purchase.
VA Home Loans Success Story!
Going the extra mile to help a Veteran is something we do all the time. Yet we don’t take an aimless approach to this. Rather, we work hard to stay on top of the intricacies within guidelines to help Veterans get into a home. Recently we were tested with a scenario that had several layers of challenges on a VA purchase.
Challenges Overcome on VA Purchase
- Condo project that was not VA approved
- Low credit score
- High debt ratio
Again, individually these areas are seen all the time. But together, it is much more challenging.
So here is the story…
A Veteran is interested in buying a condo unit using the no money down feature of VA home loans. First of all, the Veteran needed to sell the current home. This freed up the buyer’s VA entitlement, would play a part in lowering the debt ratio, plus freed up cash to be used for structuring the new purchase. Since the prior home was under contract, we were able to devise a plan to follow in order to achieve the success of a new home. So we had to come up with a blueprint to use the funds from the sale, work with the property management company and VA to approve the condo project, decide which debts should be paid off to raise the credit score, and coordinate further use of proceeds plus sales concessions to pay off further debts so that the purchase could happen. Let’s talk about these separately in detail.
VA Condo Approval
When it comes to mortgage lending, condominiums are treated differently from other property types. Typically, a condo project must be or get approved. This is in addition to the obvious buyer approval. Although conventional loans allow for lenders to approve condos for a single transaction, VA is different. In order for a service member or Veteran to use VA home loans to buy a condo, the project must have VA condo approval. The Veterans Administration has a list of VA approved condos online.
In order for a condominium to get approved, there is specific paperwork that must be submitted to VA for review. Recently, we actually received a VA condo approval in only 8 calendar days after submission! Our knowledge of the process plus the help of the Realtors, HOA, and property management company is key to achieve a good result. We are happy to lead this process.
VA Credit Scores
VA home loans are one of the more lenient mortgage programs when it comes to credit. A big misconception Veterans often have is that with the VA guarantee, credit does not matter. But this is not the case. A VA borrower does need to have credit worthy of approval, yet it is not overly strict. Rather, VA will bend more than most programs out there.
In this case, because of accumulated debts that are a mix of credit card balances and loans, the credit scores were being hit hard. Although VA credit scores can be forgiving, getting an approval with a higher debt to income ratio is tougher. In this case, it required creating a strategy that would first raise the credit scores to a level that would warrant loan approval with higher debt ratios.
Typically the quickest way to raise credit scores is by paying down revolving balances which are credit cards or lines of credit. The reason? Actually a revolving balance related to the high credit limit as a percentage accounts for 30% of someone’s credit score. By paying a card down or off can give a quick jump in scores. In this case the scores increased dramatically. Learn how to have perfect credit here! Once we had a score that would allow for pre approval with a higher debt ratio, the next phase of the plan was implemented.
VA Debt Ratio Solutions
Like all mortgage loans, borrowers must fit within program debt to income ratio guidelines. In other words, the total monthly debt payments divided by the monthly income after the home loan. Furthermore, VA loans heavily use what is called residual income for qualification. Residual income is the amount left over after paying the bills and certain other items such as utilities, daycare, and income taxes. On a VA loan, we can actually approve ratios at 55% of the income and occasionally a little higher! The higher the credit scores, the better the chance of approval with a higher ratio.
So this phase of the plan involved how to pay off much of the remaining debts to help the Veteran qualify. This involved a combination of using buyer funds and seller funds to pay off debts. First of all, it is pretty obvious that a buyer can use their own funds to pay off debts. A couple things many do not know is that debts may often be paid off at closing by the buyer. Additionally, a huge benefit of VA home loans is that the seller can pay off debts for the buyer at closing! Do what? Yes, VA sales concessions allow for the seller to pay up to 4% of the sales price towards paying off buyer debt.
VA Sales Concessions
VA sales concessions are an invaluable tool when it comes to Veterans qualifying for a purchase. Not only can a Veteran’s debts be paid off at closing, but there are other benefits too. A great example is where a Veteran may find the perfect home, yet has several months remaining on a rental lease. In this case, VA sales concessions could be used so that the seller can pay the early cancellation fee or remaining months of a lease. This would allow the Veteran to buy now rather than later! Furthermore, these concessions may pay for pre-paids at closing such as the first year of insurance and setting up of the escrows. There is another huge benefit for Veterans using sales concessions recently revealed in one of our articles – The Best Loan in America: VA Loan Down Payment Solutions for Jumbo or Bonus Entitlement Use.
VA Home Loans Success Story Wrap Up
So, in the end we were able to make this purchase happen. In a cohesive effort among the Veteran, Realtors, HOA, property manager, and us as the lender, everything was able to come together. The result is a very happy condo owner. As we say all the time, knowledge is key. Not all loans can work out, but we will use every bit of our knowledge to help make the process easier and most importantly help buyers own a new home.