There is good news for veterans using their VA eligibility to finance buying a new home in Virginia. The recently passed Public Law 112-026 will lower VA Funding Fees for VA transactions funded after September 30, 2011.

For a veteran purchasing his or her first home with no down payment, the financed VA Funding Fee will decrease from 2.15% to just 1.40%. If you have used your eligibility before, the funding fee will also decrease by a half percent from 3.30% to 2.8%.

Veterans that want to do a cash-out refinance will also benefit with a lower funding fee.

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Beginning October 1, 2011, if you are buying a home in Virginia and using the 100% financing USDA rural housing loan program, the upfront guarantee fee that is financed into your new loan will be reduced from 3.5% to 2% of the loan amount. That’s the good news.

However, you will now have to pay an annual fee of 0.3% of your unpaid loan balance as part of your monthly payment.
Is this a good deal for you? It depends on how long you keep this mortgage.

For example, on a sales price of $300,000, your net after tax benefit payment will go up by $58 per month. But your starting loan balance will by $4500 less under the guidelines. Take a look at the numbers below.

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Choosing the right mortgage to finance your home in Virginia can make a significant difference to the overall cost of owning your home. It is important to select a mortgage based on your needs, objectives and the net costs of each option. Deciding how long you would want to be in the house before selling or refinancing it when comparing your options will help you pick the best mortgage program for you.

A fixed mortgage may be more attractive than an adjustable mortgage because the rate of interest remains fixed throughout the term of the loan. The term can be as long as 40 years or as short as 5 years. A fixed rate will protect you from rising interest rates which would increase your monthly payments, making budgeting in the future a challenge. The flip side to fixed-rate mortgages is that if interest rates fall, your rates would remain same. You may obtain a lower rate by refinancing your home, but that may involve paying closing costs.

If you opt for an adjustable-rate mortgage, you can select for how long you would like the initial rate to be fixed. The initial fixed period may as short as one month or as long as 10 years. Adjustable rates are usually offered at a lower rate than fixed rates. If you know how long you want to keep a mortgage, an adjustable rate locked in for 5 or 7 years may offer you a lower cost than a fixed rate for the time period you are going to use the mortgage.

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HUD has just removed the requirement for the annual MIP (mortgage insurance premium) for FHA mortgage loans with terms equal to or less than 15 years and LTVs (loan to values) equal to or less than 78%.

In plain English this means that if you are financing a home in Virginia with an FHA 15 year fixed loan, you will no longer have to pay a monthly mortgage insurance premium as part of your payment if you have a down payment of 22% of the sales price or are refinancing your home with this loan and have 22% equity in your home.

The chart below outlines the previous and new Annual MIP requirements for FHA loans with a loan term ≤ 15 years for new FHA loans originated in Virginia.  Changes are outlined in blue font.

FHA will still require that you pay the 1% upfront mortgage insurance that is financed into your loan; however, a monthly insurance premium will no longer be required if you meet the above requirements.

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Regardless of economic factors, Virginia mortgage rates from all lenders will increase on April 1^st, 2011.

Why?

It is one of the unintended consequences of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed last summer. The act, also known as the financial reform bill, was put into place to prevent a repeat of the financial crisis we have all experienced over the past few years by creating more oversight of financial institutions.

A new loan officer compensation requirement will go into effect on April 1, 2011 as part of the reform.  Up until now, a loan officer’s compensation could be based on the profitability of each individual Virginia mortgage loan within reasonable limits. So if a borrower needed help paying some closing costs or needed a lock extended for free, a loan officer might be able to reduce their compensation and give the borrower the help they needed to make the transaction work.

Under the new compensation rules, the loan officer must be paid the same percentage of the loan amount regardless of the profitability of each loan. If a borrower needs help covering some costs, the lender will now have to absorb 100% of the cost of assisting the consumer.

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Ever wonder what happens when a Virginia mortgage lender requests your credit score? First, the lender sends a request to a credit bureau, and they receive a report. This report will include:

• Your name
• Your Social Security number
• Your address (and any previous addresses)
• Your current and past loan information
• Your public record information (court judgments, bankruptcies, liens)
• A list of other companies who have reviewed your credit.
• Your 3 digit credit score

While some of this information is self explanatory, the credit bureaus have made your credit score is a bit of a mystery on purpose. Few people understand how it is calculated or how your credit history and credit usage affects your scores.

Most people understand that failing to make a payment will make your score go down, but there are a number of complexities that are not so obvious. If you pay your debts on time, don’t carry too much debt on any one card, don’t close older accounts unless absolutely necessary and only apply for new credit when you have to, you will generally be in good shape. However, it is important to keep yourself informed so you can maintain a credit score that accurately reflects your credit history.

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A recent underwriting change from Virginia mortgage lenders now requires that no account that appears on your credit report may state that it is in dispute.

The reason is because when you dispute an account, the disputed information is temporarily removed from the data that calculates your credit scores. So if you disputed a late payment on an account, your credit score will likely increase while it is in dispute. If you don’t win your dispute and the late payment remains on your account, your credit score will decrease.

A lender that approves your loan at the higher credit score while your account is in dispute may not be able to sell your loan in the secondary market when it is later discovered that your credit score was actually lower based on the results of the dispute. With a lower credit score, your loan may not have been approved at all or you may not have been able to receive a better rate.

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You don’t need to be a veteran to qualify to buy a home with no down payment in many areas of Virginia. A USDA home loan (yes, the US Dept. of Agriculture) offers a little known home financing program that is one of the most flexible and attractive financing option available today.

This is a great program for a first-time home buyer or a move up buyer because you can finance 100% of the sales price of your home and even the closing costs if the home appraises for more than the sales price. You can negotiate to have the seller pay all your closing costs or a relative can give you a gift to cover your closing costs and pre-paid items at closing.

Unlike FHA loans, USDA home loans do not have a monthly mortgage insurance premium so your payments will be lower. Similar to VA loans, USDA home loans charge a onetime guarantee fee of 3.5% which is financing into your loan.

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