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Greg Zaccagni's Blog

By Greg Zaccagni | Agent in Illinois

Comparing VA & FHA Mortgage Loans

The VA Loan began in 1944 through the GI Bill of Rights. You must be an honerably discharged vetran or the spouse to qualify.  FHA has no military service eligability requirement.

Gurantee vs. Insure Privately funded mortgage loans

VA will guarantee a maximum of 25 percent of a home loan amount up to $104,250, which limits the maximum loan amount to the conforming loan limit of $417,000. Generally, the reasonable value of the property or the purchase price, whichever is less, plus the funding fee may be borrowed.  FHA loans insure up to 20% of the home loan amount to lenders. Both have a funding fee.

Loan To Value for Purchase & Cash out Refinances

Purchase Money can be up to 100% of the loan value (no down payment required) and closing costs may be rolled in with seller concessions provided the entire loan amount is not higher than the appraisal amount.  FHA requires 3% down payment which may be gifted to buyer.

Cash-Out Refinances are available for both programs provided the it's for the owners principal residence. VA owners can cash out refinance up to 90% of the appraised value.  FHA cash out can go to 95% and has similar underwriting guidelines.

Calculating Total Debt To Income (DIT) Ratios

The maximum VA back end DTI qualifying ratio is 41%. In the event the number exceeds 41%, the VA has a residual income* guideline which may still allow approval.

*Residual Income:
VA loans require that borrowers possess a given amount of residual income after their mortgage payments each month. Most veterans with steady incomes meet these requirements.

Table of Residual Incomes by Region

For loan amounts of $80,000 and above

Family Size

Northeast

Midwest*

South

West

1

$450

$441

$441

$491

2

$755

$738

$738

$823

3

$909

$889

$889

$990

4

$1,025

$1,003

$1,003

$1,117

5

$1,062

$1,039

$1,039

$1,158

over 5

Add $80 for each additional member up to a family of 7.

FHA may allow higher back end debt to income ratios with favorable compensating factors such as years in the same industry, more money down & savings reserves that can be used to make mortgage payments.  These can vary by lender.

Dealing with Credit Issues

VA & FHA are similar in this area.

LATE MORTGAGE PAYMENTS

In circumstances not involving bankruptcy, satisfactory credit is generally considered to be reestablished after the veteran, or veteran and spouse, have made satisfactory payments for 12 months after the date of the last derogatory credit item(s).

When the underwriter analyzes the borrowers credit; it is the overall pattern of credit behavior that must be reviewed, rather than isolated cases of slow payments. A period of financial difficulty does not disqualify the borrower if a good payment pattern has been maintained since then.

Account balances reduced to judgment by a court must either be paid in full or subject to a repayment plan with a history of timely payments.

NO CREDIT HISTORY

In the area of credit, the lack of an established credit history should not be a deterrent to loan approval. As provided in the credit standards, a satisfactory payment history on items such as rent, utilities, phone bills, etc., may be used to establish a satisfactory credit history.

CHAPTER 7 BANKRUPTCY

The VA guidelines state that a minimum of two years must elapse since the discharge date of the borrower and / or spouse's Chapter 7 bankruptcy, not the filing date. A full explanation of the bankruptcy will be required. The borrower must also have re-established good credit, qualify financially and have good job stability. FHA may now be up to 3 years for Ch7.

CHAPTER 13 BANKRUPTCY

Both guidelines state that they will consider a borrower still paying on a Chapter 13 Bankruptcy if the payments to the court have been satisfactorily made and verified for a period of one year. In addition, the court trustee will need to give written approval to proceed. A full explanation of the bankruptcy will be required. The borrower must also have re-established good credit, qualify financially and have good job stability.

COLLECTIONS, JUDGEMENTS AND FEDERAL DEBTS

Both guidelines state that if a collection is minor in nature, it usually does not need to be paid off as a condition for loan approval. Judgments must be paid in full prior to closing. A borrower is not eligible for the loan if they are delinquent on any federal debt. This can include tax liens, student loans, etc. Payment arrangements that would bring the borrower up to date may be considered for loan approval.

FORECLOSURE

A borrower whose previous residence or other real property was foreclosed on or given a deed-in-lieu of foreclosure within the previous two years since the disposition date is generally not eligible for VA & FHA insured mortgages. If the foreclosure was on a VA loan, the applicant may not have full entitlement available for the new loan.

CONSUMER CREDIT COUNSELING PLAN

If a veteran, or veteran and spouse, have prior adverse credit and are participating in a Consumer Credit Counseling Plan, they may be determined to be a satisfactory credit risk if they demonstrate 12 months' satisfactory payments and the counseling agency approves the new credit.

www.MortgageAdvisor.info & www.GregZaccagni.com

 

 
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