Lending Options

B

bigred_IHB

New member
I've been a lurker on this site on and off for a couple of years now and have recently started researching my home financing options. I am hoping people on here may have some experience in this venue and can give me some advice in which direction to head. I'm probably looking to buy by the end of next year, but maybe sooner, perhaps even the beginning of next year. However, I'm in a good rental situation right now and am in no hurry to leave.



Background:

- My wife and I earn around 120-130k gross a year.

- We have been saving for years and would have no problem putting 20% or more down.

- Zero debt.

- FICOs in the 790-810 range.

- I am 10% service connected disabled so VA and CalVet funding fees would be waived.

- One 4 month old baby.

- Have never owned a home.



Amount we are looking to spend for a house: $300-350k (Note: probably not in Irvine for this price)



I am open to anything but I am essentially considering 3 options:



1 - 100% financing with a CalVet loan. My wife and I are currently eligible for the 5.5% rate (barely), but probably not for much longer due to a scheduled pay raise, so chances are that it would end up being at the current 5.95% rate which still seems great for right now. As I mentioned above my funding fee for this loan would be waived, so it would just cost me the 1% origination fee. I am leaning toward the 100% financing for this option because I can do it at a low interest with no extra cost vs. 20% down. The other positive for this loan seems to be the insurance included with the loan which costs $1.50 per $1,000 of coverage and seems to be pretty comprehensive.



There seem to be a couple of negatives associated with this loan. One, being that the financing is done as a contract of sale so it seems there are a lot of limitations to what I can do with the house including renting it out if I should so choose in the future. The website says that it is possible to rent with a waiver, but I have no idea how difficult they are to obtain or how strict they are about this requirement. The other negative is that it may be difficult to get offers accepted when using a 100% financed CalVet loan.



2 - A regular VA loan also financed 100%. I do not know how competitive these are on rates compared to conventional financing. They do not seem to be as good rate wise as a CalVet loan. However, the restrictions on what I can do with the property do not seem as stringent. I have the same concern though about getting offers accepted when using 100% financing in association with a VA loan.



3 - Conventional financing with 20+% down at current interest rates which are around 6.75% (a guess). With this option, it seems my offer would be considered more competitive and the mortgage terms would be normal. I am not sure how the closing costs associated with a conventional loan compare to a CalVet or VA loan. The big negative with this loan obviously is the interest rate. Also insurance for this loan would be higher.



I know I just put a lot of information out there, but thank you in advance for reading through it and for any suggestions or advice offered.
 
There is gives and takes on CAL-VET and VA. If i am not mistaken the CAL-VET loan was an adjustable rate so it could go up. If you do a CAL-VET they do all the loan processing and you would not need to go through a lender. The advantage of both VA programs is that you can do 100% financing. They may still charge a 1% processing fee which is normal and all the fees are cut in stone so you will not get gouged, unlike a conventional loan which is buyer beware. It has been some time since i have dealt with either but VA was easier to do and CAL-VET sometimes was a real nightmare to deal with.



If it where me i would NOT do a 20% down conventional (yes you may get a little better rate but if they are waving the funding fee with VA it is a no brainier) and just do the VA 100% and keep the money in the bank. Figure how long you could live in your home if God forbid you where to loose you job or other emergency etc. where there is a cut in the familys monthly income.



Especially with this market heading downward for the next 3 to 4 years your 20% down may just disappear in thin air and who know how long it will take for it to come back. You are buying a devaluing asset in this market.



Cash is king, keep your cash and you are still King...
 
[quote author="bigred" date=1218160543]The other negative is that it may be difficult to get offers accepted when using a 100% financed CalVet loan.</blockquote>


I'm planning on using the CalVet loan as well, but don't qualify for 5.5% because of income --- and will have to do the 5.95%. As you note, still much better than the open market. We are doing the full $521k available at 100%. The renting provision does not matter to me, we are buying our 20 year home.



My thoughts on whether it will be difficult to get buyers to accept my 100% CalVet financing is "who will be my competition"? With 20% down all but required in conventional financing now, the pool of potential buyers is going to be severely limited. By the time I am looking to buy early 2009 I expect much of the inventory to be "must sell" --- and that there will not be enough qualified buyers that the sellers (banks) can afford to be choosy. 2005 is dead and gone. It's a buyers market now.



Besides, if a seller wanted to discriminate against a veteran for utilizing probably the single largest benefit of their service, why would you want to give them your business anyway? There will be many, many properties that would love to get your CalVet offer --- or any offer --- in the next couple of years. Just move on to the next one.
 
[quote author="CK" date=1218521694]



I'm planning on using the CalVet loan as well, but don't qualify for 5.5% because of income --- and will have to do the 5.95%. As you note, still much better than the open market. We are doing the full $521k available at 100%. The renting provision does not matter to me, we are buying our 20 year home.



My thoughts on whether it will be difficult to get buyers to accept my 100% CalVet financing is "who will be my competition"? With 20% down all but required in conventional financing now, the pool of potential buyers is going to be severely limited. By the time I am looking to buy early 2009 I expect much of the inventory to be "must sell" --- and that there will not be enough qualified buyers that the sellers (banks) can afford to be choosy. 2005 is dead and gone. It's a buyers market now.



Besides, if a seller wanted to discriminate against a veteran for utilizing probably the single largest benefit of their service, why would you want to give them your business anyway? There will be many, many properties that would love to get your CalVet offer --- or any offer --- in the next couple of years. Just move on to the next one.</blockquote>


I also am planning on living in the home for a while, but things can come up and you never know, so I like to have the flexibility.



I hope you are right that in 2009 there will not be enough buyers for the well-priced homes on the market. It seems though for now that the low priced REOs get bought pretty quickly; however, I am well aware that there are many more foreclosures on the way.



I am not saying that the sellers are discriminating against veterans, but rather the VA loan. I have noticed many REO listing descriptions say that they are not willing to accept offers with VA financing. I believe it was also common during the boom for many sellers to frown on VA loans. Now, perhaps, your regular seller is more than eager to accept an offer with VA financing, but typically these are the people that are asking 2006 pricing as they are unable or unwilling to accept lower.



Thanks for the response.
 
[quote author="OCCOBRA" date=1218518691]There is gives and takes on CAL-VET and VA. If i am not mistaken the CAL-VET loan was an adjustable rate so it could go up. If you do a CAL-VET they do all the loan processing and you would not need to go through a lender. The advantage of both VA programs is that you can do 100% financing. They may still charge a 1% processing fee which is normal and all the fees are cut in stone so you will not get gouged, unlike a conventional loan which is buyer beware. It has been some time since i have dealt with either but VA was easier to do and CAL-VET sometimes was a real nightmare to deal with.



If it where me i would NOT do a 20% down conventional (yes you may get a little better rate but if they are waving the funding fee with VA it is a no brainier) and just do the VA 100% and keep the money in the bank. Figure how long you could live in your home if God forbid you where to loose you job or other emergency etc. where there is a cut in the familys monthly income.



Especially with this market heading downward for the next 3 to 4 years your 20% down may just disappear in thin air and who know how long it will take for it to come back. You are buying a devaluing asset in this market.



Cash is king, keep your cash and you are still King...</blockquote>


The CalVet website does mention that the loan does have a variable interest rate, but, my understanding is that it is capped at .5% over the life of the loan and that they very rarely if ever actually adjust the rates. Below is an excerpt from their website:

<blockquote>Cal-Vet Loans have always had a variable interest rate, although historically rates have not been changed often, and the rate is not tied to an index. All loans issued prior to 1999 are required by law to have a uniform interest rate, and if changed they must all change together. Loans issued in 1999 and subsequent years have rates that were set based on the cost of the bond funds and market conditions, and have a cap on the rate increase of 0.5% (1/2 of 1%) over the life of the loan. It is unlikely that the department will need to change the rates on existing loans.</blockquote>


I do like the idea of 100% financing (for me at least) it seems like it would hurt a bit psychologically to part with that 20+% cash. I am surprised though that most people don't seem to advocate putting some money down.



Thanks for the response.
 
Bigred & CK, I don't have anything to contribute to this thread except thanking each of you for serving our country.



Thanks for your contributions to the military.
 
If you are a veteran, have you considered becoming a member of any of the small Credit Unions that serve the military? They often have very good rates on all types of loans. As a Navy brat myself, I've used Pentagon Federal Credit Union for all kinds of loans over the years. Their 30 year fixed mortgage rate is 6.5% today. Check them out at www.penfed.org .
 
[quote author="CalGal" date=1218531048]Bigred & CK, I don't have anything to contribute to this thread except thanking each of you for serving our country.



Thanks for your contributions to the military.</blockquote>


I couldn't agree more! Many thanks to both of you for your service
 
OK, first and most importantly, thank you, thank you so much for serving our country.



Second, and almost as important, why can't you put 10% down for the VA loan? Not only would you save on the insurance, but maybe the rate too.



If I were you I would look at all the options of down payment, insurance, and interest rate. IRCC VA loans are a one time shot, so if you don't plan on being there for a long time you don't want to blow your VA loan on the place, as it might come in handy for the next place.
 
Thank you everyone for your kind words.



[quote author="graphrix" date=1218731808]

Second, and almost as important, why can't you put 10% down for the VA loan? Not only would you save on the insurance, but maybe the rate too.



If I were you I would look at all the options of down payment, insurance, and interest rate. IRCC VA loans are a one time shot, so if you don't plan on being there for a long time you don't want to blow your VA loan on the place, as it might come in handy for the next place.</blockquote>


Because I have a 10% service connected disability rating, I do not pay the insurance or funding fee as it is called. There also is no PMI with a VA or CalVet loan. The insurance that I was referring to is your standard homeowners insurance to cover fire, flood, etc...



Here is the strange thing: If I put 0% down I do not have to pay a funding fee when using the CalVet loan. If I put 3% down I have to pay a 0.63% - 1.38% funding fee in addition to the 1% loan origination fee. What I was told by the representative at the CalVet office is that anything between 1-19% would require that funding fee. If I put 20% down, I would not have to pay the funding fee. I understand that it makes no sense, but that is how it was explained to me. I will definitely need more clarification, but I do know for sure, with 3% down, I would have to pay a funding fee that I would not have to pay with 0% down.



CalVet and VA loans are not one time things. I don't believe you can have more than one VA loan at a time (although there may be circumstances where it is possible); however, as soon as the current VA loan is paid off, whether over the life of the loan, through refinancing, or sale of the home, you are then eligible for another VA loan.



In terms of interest rate differences, there are no differences in interest rate between the various amounts you put down for the CalVet loan: <a href="http://www.cdva.ca.gov/CalVetLoans/Interest.pdf">http://www.cdva.ca.gov/CalVetLoans/Interest.pdf</a>



With the VA loan, I think it more depends on the lender that you are using, it is not as clear as the CalVet loan as to what interest rate you pay. If anyone could explain what VA loan interest rates are based on, I would appreciate it.
 
I can't see a reason not to fund it 100% and then immediately send them a special principal payment after the loan closes, unless your loan precludes you doing so.
 
[quote author="bigred" date=1218750241] If anyone could explain what VA loan interest rates are based on, I would appreciate it.</blockquote>


Bigred --- I have done a lot of research into the VA vs. CalVet, and agree wholly with your characterization above. As I see it, there is really no advantage in either program to making any down payment, unless you want to buy a property over the max limit loan limit. With respect to the straight VA loan rates, my understanding is your rate will be essentially market rate for whichever lender you end up using. IMO (and in my own personal assessment) The VA loan seems to be more flexible overall, but the as long as you are planning to be an owner/occupant, the CalVet provides a better rate.



Also want to say thanks for the nice words from everyone....appreciate it. Reinforces my impressions about what good folks we have trolling the IHB.
 
I looked into the funding fee, and go to <a href="http://www.cdva.ca.gov/CalVetLoans/cdvaforms.pdf">page three of this PDF</a>. From what it says about the disability waiver it can be waived for all CalVet loans except the CalVet97 loan. Therefore if you put 0%-19% down there would normally be a funding fee, but for you it would be waived. I totally support people in the military, but the admin people and the admin people of a Cali guberment office is suspect to me. If I were you, I would call again, or talk to a lender that specializes in CalVet/VA loans, they would know more about it rather than someone who just got Ahhnuld's pay cut.



As for the rates, they are based on special bonds backed by the state, so they will always be under market rates. Those rates are awesome BTW.



BTW, do mind me asking what branch and where you served in? My dad served the Army in Korea, and my uncle served the Marines in Vietnam and experienced the 68 Tet offensive. I have many stories from my dad, but my uncle doesn't talk about it, so I can understand if you wouldn't either.
 
[quote author="graphrix" date=1218777016]I looked into the funding fee, and go to <a href="http://www.cdva.ca.gov/CalVetLoans/cdvaforms.pdf">page three of this PDF</a>. From what it says about the disability waiver it can be waived for all CalVet loans except the CalVet97 loan. Therefore if you put 0%-19% down there would normally be a funding fee, but for you it would be waived. I totally support people in the military, but the admin people and the admin people of a Cali guberment office is suspect to me. If I were you, I would call again, or talk to a lender that specializes in CalVet/VA loans, they would know more about it rather than someone who just got Ahhnuld's pay cut.



As for the rates, they are based on special bonds backed by the state, so they will always be under market rates. Those rates are awesome BTW.



BTW, do mind me asking what branch and where you served in? My dad served the Army in Korea, and my uncle served the Marines in Vietnam and experienced the 68 Tet offensive. I have many stories from my dad, but my uncle doesn't talk about it, so I can understand if you wouldn't either.</blockquote>


Thank you graphrix. I think I understand where I am getting confused. Based on that table, there are essentially two types of loans that CalVet will give you when having a down payment of less than 20%. The first option would be a CalVet/VA loan in which case my funding fee would be waived as these loans are guaranteed by the VA. The second option would be a CalVet 97 loan which doesn't involve the VA and for that I would have to pay the funding fee. I believe there is a distinction because some people don't have the right type of military service to qualify for a VA loan, but are able to qualify for a straight CalVet loan. So for those people that only qualify for a CalVet loan without the VA guarantee, they have to pay a funding fee, disability or not. CalVet/VA and CalVet 97 loans do both have the same interest rates.



I agree that the rates are excellent. The reason that they are so good is part of my concern that I mentioned in my first post. These are not standard mortgages and the money is lent via a contract of sale which I don't fully understand for right now. From my initial impressions, these loans are very recourse and they have the ability to even garnish wages to get their money. There are also many types of restrictions on what you can do with the house. Now, I don't plan on defaulting or doing anything crazy with the house, but things do happen and I just want to know exactly what I am giving up in order to get the good rates in comparison to a standard VA loan or a convential loan. There are other benefits also like the hazard insurance that comes with these loans that seems to both be very inexpensive and comprehensive (even includes earthquake insurance).



I don't mind you asking about my military service. I am in the Army Reserve and was in Baghdad from the summer of 2006 to the summer of 2007. I didn't have the best job there, but certainly there were many that had it much worse than I.
 
Add one more thanks to the vets and those currently serving.



Go Navy!



<em>says caycifish, who is right this minute supporting the military by writing software on a Navy base in a skirt and 5" stilettos.</em>
 
[quote author="caycifish" date=1218780864]Add one more thanks to the vets and those currently serving.



Go Navy!



<em>says caycifish, who is right this minute supporting the military by writing software on a Navy base in a skirt and 5" stilettos.</em></blockquote>


Only 5 inches, Cay? Was it a casual day today?
 
[quote author="caycifish" date=1218780864]Add one more thanks to the vets and those currently serving.



Go Navy!



<em>says caycifish, who is right this minute supporting the military by writing software on a Navy base in a skirt and 5" stilettos.</em></blockquote>


Photos please
 
[quote author="caycifish" date=1218780864]Add one more thanks to the vets and those currently serving.



Go Navy!



<em>says caycifish, who is right this minute supporting the military by writing software on a Navy base in a skirt and 5" stilettos.</em></blockquote>


WANT .jpg!
 
[quote author="CK" date=1218521694][quote author="bigred" date=1218160543]The other negative is that it may be difficult to get offers accepted when using a 100% financed CalVet loan.</blockquote>


I'm planning on using the CalVet loan as well, but don't qualify for 5.5% because of income --- and will have to do the 5.95%. As you note, still much better than the open market. We are doing the full $521k available at 100%. The renting provision does not matter to me, we are buying our 20 year home.



My thoughts on whether it will be difficult to get buyers to accept my 100% CalVet financing is "who will be my competition"? <strong> With 20% down all but required in conventional financing now, the pool of potential buyers is going to be severely limited.</strong> By the time I am looking to buy early 2009 I expect much of the inventory to be "must sell" --- and that there will not be enough qualified buyers that the sellers (banks) can afford to be choosy. 2005 is dead and gone. It's a buyers market now.



Besides, if a seller wanted to discriminate against a veteran for utilizing probably the single largest benefit of their service, why would you want to give them your business anyway? There will be many, many properties that would love to get your CalVet offer --- or any offer --- in the next couple of years. Just move on to the next one.</blockquote>
Just a quick clarification, there are a still a few lenders out there that are funding 90% LTV loans for primary residence purchases including BofA's No Fee Mortgage Program Loan.



OP, thanks again for you service for our country and best of luck to you on finding your dream home.
 
You must log in or register to reply here.
Back
Top