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VA loans: What to know about funding fees and closing costs

By Mitch MitchelL – MORTGAGE SENSE

Coming up with a down payment for a new home is often the thing that keeps people from taking the leap from renter to homeowner in the first place. That’s why US veterans, active-duty service members, National Guard and reservists who may not have saved up enough for a down payment look to VA loans to help make homeownership a reality.

VA loans allow for 100% financing of a property, meaning no down payment is required for eligible applicants. And because a VA loan comes with a 25% lender guarantee, PMI (private mortgage insurance) is not required either. 

All of this saves you money over the life of your mortgage, but there are some out of pocket expenses that come with a VA loan, including typical mortgage closing costs and a VA funding fee.

VA funding fees

Many homeowners who have purchased a home through this program — backed by the US Department of Veterans Affairs — will tell you that the benefits of the VA loan program far outweigh the applicable (and unavoidable) funding fees that come with it. These fees were recently updated, so this is an excellent time to review what kind of fees you might need to consider.

Let’s say that you’re looking to buy a $200,000 house and you’re eligible to buy that home with a VA loan. VA loans require no down payment from the borrower, however, if you’re a first-time user of the VA-backed loan program and you are going the route of putting no money down, you will be charged a funding fee of 2.3% of the total loan amount, or $4,600. If you’re able to make a down payment of $10,000 (5% of the $200,000 loan), you’d pay a VA funding fee of 1.65% of the $190,000 you’d still need to borrow, which would equal $3,135. 

This chart will help you understand how much of a VA funding fee you’d take on depending on your circumstances. Remember, the funding fee applies only to the loan amount, not the home’s purchase price.

If this is your first use of the VA loan program: 
And your down payment is…Your VA funding fee will be…
Less than 5%2.30%
5% or more1.65%
10% or more1.40%
If you’re using the VA loan program a second (or third or fourth…) time:
And your down payment is…Your VA funding fee will be…
Less than 5%3.60%
5% or more1.65%
10% or more1.40%

Federal law requires VA loan funding fees, but, as with any rule, there are exceptions. While anyone purchasing a home through a VA loan is required to pay the funding fees, the following are exempt:

  • Homebuyers who receive VA disability payments for military service-related injuries
  • Homebuyers who would receive VA disability payments if they weren’t receiving retirement pay
  • Homebuyers entitled to receive compensation, but who are not presently in receipt because they on active duty
  • Homebuyers who are serving on active duty that provide evidence of having been awarded the purple heart
  • The surviving spouses of military personnel who died while in service, or of veterans who died due to service-related disabilities and who is receiving Dependency and Indemnity Compensation (DIC)

VA loan closing costs 

While closing costs are generally minimal with a VA loan, homebuyers may want to budget for these as well. Unlike funding fees, closing costs can not be rolled into the loan amount.

The following fees may apply to your VA loan application:

  • Charges to pull credit reports and credit scores
  • Costs to do a property title search 
  • Determination of whether the home requires flood insurance
  • Taxes and assessments based on federal, state and local laws

Additional fees the VA allows an applicant to pay

The VA regulates which fees VA loan applicants can be charged. These smaller expenses are often included in a lump-sum lender fee: typically about 1% of the total loan amount. Note that even though Movement Mortgage waives all lender fees for VA loans, we thought it would be helpful to list some of these expenses so you’ll be aware of what other lenders may cover with their lender fees:

  • VA loan application fees
  • Document preparation fees
  • Mortgage prep and/or assignment fees
  • Notary public fees
  • Postage

Fees the VA does not allow an applicant to pay

While some are common with conventional mortgages, the Department of Veterans Affairs does not let the following fees to be charged to a VA loan applicant:

  • Lender attorney fees
  • Real estate commissions
  • Broker fees or compensation
  • Transaction Coordinator (TC) expenses
  • Termite inspection fees (in most states)

Can sellers pay VA closing costs?

This is a great example of how VA loans can help homebuyers save money. Because buyers using the VA loan are restricted in what they can and cannot pay when it comes to closing costs and other fees, it is common for sellers to cover some of these costs. That’s right: often, the seller pays!

Sellers aren’t required to pay a borrower’s closing costs, but it’s commonly negotiated. Veterans Affairs allows property sellers to pay a percentage of the purchase price toward the buyer’s closing costs, often around 4%. But seller concessions can also go higher if they contribute to pre-paid fees, paying points, etc. Compare that to conventional mortgages, which can cap seller contributions toward closing costs at 3%.

Is a VA loan right for you?

If you’re a US veteran, active-duty service member, a reservist or a member of the National Guard and you’re looking to buy, refinance a VA loan or want to learn more about VA homeownership benefits, reach out to us today. 

Movement Mortgage can answer your questions about eligibility and help you make the right decision regarding a VA loan. Find a loan officer in your area to get started or apply online

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5 tips to improve your credit score in 2021

By Mitch Mitchell – MORTGAGE SENSE – JANUARY 20, 2021

If 2021 is the year you’re going to make the leap to becoming a first-time home buyer, we’re rooting for you. But before you go out and start house-hunting, remember that the initial step is to get pre-approved for a home loan. To do that, you’ll want to get a handle on your credit history and credit score. The key factors that make up a credit score are:

  • payment history
  • the total amount owed
  • length of credit history
  • types of credit in use
  • new credit accounts

If your credit is less than perfect, non-existent, or otherwise holding you back, it may be time to consider some ways to increase your score so that you can begin the process of buying your first home. Improving a credit score to buy a house takes time, effort, and focus. To help, we pulled together five tips on how to improve your credit score before you apply for a home loan.

1. No credit is no good

Sometimes a lower credit score is given simply because a person has no credit history to base a score on. Some people simply are adamant that it’s not a good practice to borrow money. While that’s rare in this day and age, it is possible. If you haven’t borrowed any money for a student or car loan and you haven’t opened any credit card accounts, there’s no history to make up your credit report at all. 

Having no credit can make a lender hesitant to work with you. If you’re hoping to qualify for a mortgage down the road, you’ll want to rectify that sooner rather than later. Open a credit card or two and make a few purchases on those cards so that you start building a record of using credit and paying it back on time. Over time, being diligent with payments on those cards can show a potential lender that you are a responsible borrower and a good prospect for a home loan.

2. Be smart about credit 

Being responsible for using existing credit is the best way to improve your credit score. For example, if you have a charge card for a retailer or a bank card that offers future travel points, use it on repeatable purchases like groceries or gas for the car. Keeping the balances low and consistently paying off those purchases every month will create a history of responsible credit behavior that will go a long way towards improving your credit score. 

Aiming to use no more than 10% of your allotted credit line is also a good rule of thumb. It shows that you won’t misuse your credit and fall into debt. Also, keep in mind that maxing out a credit card can hurt your score even if you pay it off in full every month. This is even true on a card with a low credit limit, so know the credit limits on each account you have.

3. Make a plan to reduce debt (or better yet, eliminate it) 

It doesn’t take long for a little bit of debt to become a serious long-term problem. Paying for something like a vacation with revolving debt — like the kind you get with many credit cards — can take years to pay off and damage your credit score. That’s not something you want on your credit report if you’re looking to buy a home. What’s needed is a concerted effort to reduce or eliminate debt. 

Many people drowning in debt try increasing monthly minimum payments by just a bit across all their accounts, but that barely moves the needle. Instead, it might be better to tackle the problem by focusing on one account at a time. If you make a significantly bigger payment to only one account each month until that debt is completely repaid — while still making the minimum payment on all other accounts — you’ll notice the debt shave off more substantially. When one is paid off, leave it be (remember, don’t close it) and rinse and repeat with your next account. Keep it up until all your debt is paid down. 

4. Look for lower interest rates  

Another thing you can do to reduce debt is to ask for a lower interest rate. The chances are that you opened a charge card account or bought a car when interest rates were higher. Because so much of a monthly payment goes towards the interest charge and not the actual balance, higher interest rates keep you in debt longer. It’s a well-kept secret, but some lenders can and will renegotiate interest rates. Just be forewarned: customers who’ve paid on time every month are more likely to cut a deal on getting a lower rate.

It also pays to keep an eye out for promotions offering lower interest rates. Balance transfers (from one card or one bank to another) can often get you a lower rate, but be cautious: promotional rates often have expiration dates. Try to pay off any balances before the promotional period ends or you may be subject to higher interest rates after that.

5. Don’t close accounts in good standing

If you have outstanding balances on credit cards, car loans, or student debt — but they’re in good standing and you’ve been making your monthly payments — keep at it. Regular, on-time payments are the solid foundation for a great credit score. But if you’re thinking of paying off a balance entirely and closing down an account, hold that thought for a second. 

Credit bureaus — the businesses that create credit reports — love when borrowers have zero-balance accounts. It shows that even though you have credit available, you’re responsible enough not to use it. While getting rid of an account may sound like a good idea, it could actually hurt your credit score. Keeping an active account open with no balance looks better than having a closed account. Wait until after you close on your new home to cut up any charge cards you no longer need.

Ready to improve your credit score this year?

There are many great federal financing programs available for first-time homebuyers, including FHAVA, and USDA loans. Plus, you might want to look into conventional mortgages from Fannie Mae and Freddie Mac or home renovation loans. Many U.S. states and cities also offer first-time buyer programs and grants for a down payment, financing, and closing cost assistance. 

When it comes to applying to be pre-approved for a home loan, it pays to lay the groundwork with a good credit score. Contact a loan officer in your area to learn what else you’ll need to prepare for and to discuss which program might be right for you.

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Happy MLK Day!

“The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.”
— Strength to Love, 1963 Dr. Martin Luther King, Jr.

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When Is a Good Time for a Price Reduction?

Factors to Consider Before You Drop Your List Price

Whether you call it a price reduction, an improvement, or an adjustment, nobody wants to hear about lowering prices except a buyer. In a buyer’s market or a slow period, it’s not unusual for sellers to point fingers at agents, and for agents to point fingers at sellers’ unrealistic expectations for a price. Still, there are some times when lowering your asking price is the right move. Before you do, there are a few questions to ask yourself so you can determine your home price-reduction strategy.

Are You Selling in a Buyer’s Market?

Demand falls when the market is slow and inventory is high. If that’s the case, and you’re don’t absolutely have to sell right now, then it may be wise to take your home off the market until things improve. You might be better off renting your house, or staying put until the market rebounds if you’re not highly motivated to sell.

Did You Start Too High?

If you initially priced your home too high, you’ll have to continually reduce the price until you hit that “magic” number. This is referred to as “chasing the market down,” and it’s not a good thing. Buyers will begin to wonder if something is wrong with your house. They’ll also wonder how much lower will you might be willing to go and decide to play a waiting game.

Have You Overlooked Anything?

Ask a friend to stop by and give you an honest opinion of how your house shows—honest being the operative word. Yes, your agent should have nailed this months ago. Your place should show like a masterpiece. But sometimes a fresh set of eyes can pick up on something that you and your agent missed. Find it, fix it, and see if things pick up.

If you’re making a habit of hanging around during showings, you should change it. An owner’s presence often makes buyers feel uncomfortable. Leave your prospective buyers to look around in peace. And don’t turn down showings simply because you don’t want to get out of the house.

The bottom line: Make sure you’re not unwittingly sabotaging your—and your agent’s—efforts before you take the scissors to your listing price.

How Is Your Marketing?

If you feel like the market is right for your asking price, and you’re not doing anything to get in the way, you might want to look at your marketing efforts. Before you reduce your price, consider whether you and your agent are making every effort to sell your home for what you think it’s worth. Questions to ask include:

  • How many hits has your listing received in the MLS?
  • Do the marketing comments sell the benefits or features?
  • What kind of direct mail campaign has been launched?
  • How many open houses have been held?
  • How does the house show online? Are there a lot of beautiful pictures?
  • Is your signage in a prominent location? Does it contain several phone numbers and a website?
  • Do you have a virtual tour published?
  • What kind of feedback have you received from agents and buyers?
  • Are you offering enough compensation to selling agents?
  • How many showings have you had?
Watch Other Listings

If you do decide to reduce your price, it’s important to be strategic about it. Pull up pending sales and find ones that had price reductions. How many days were they on the market (DOM) before the price was reduced, and how much of a price reduction was made? You won’t know the sold price, but you can determine average price reduction percentages. Ignore active listings without price reductions unless they’re similar to yours and the DOM are low.

Run side-by-side comparisons with active listings near the price point you’re considering. Price your home so it falls in the bottom two to five listings or—if you’re really determined—price it less than anything else on the market.

Properties that are priced below what buyers are readily willing to pay will receive multiple offers. This is the case even in distressed markets as home prices slide into downward spirals. In many cases, it’s common to see price wars develop among buyers who are competing, which then results in an accepted offer for more than list price.

Consider a New Listing

You might want to take your home off the market and put it back as a new listing at a different price so your reduction isn’t readily evident to any agents who look at your listing. An entirely new listing looks fresh and exciting to a buyer, and new buyers come into the market all the time. Not every agent studies the history of a listing, so this strategy can help you avoid the stigma of a price reduction.

The Bottom Line
Every seller wants to get the most they can for their home, and you should explore every alternative before you make a price reduction. But sometimes even a small price change can make the difference between a quick sale and watching your home languish on the market. An experienced agent should be able to help you answer the right questions and decide if a price drop is the right decision.

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Pre-qualified vs. Pre-approved. What’s the difference?

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Before jumping headfirst into the housing market, a prospective homebuyer will have a general idea of where they want to live, how they want to live and how much home they can afford. And when you start to shop around for a lender and look at mortgage options, you’ll begin to hear the terms pre-approval and pre-qualification. 

 They sound interchangeable, but they have different meanings when it comes to the home buying process. Here’s what you need to know about the differences between getting pre-qualified and getting pre-approved. 

What is pre-qualification?

A pre-qualification is a best guess of what you can most likely afford. Why is it just a guess? Because it’s based on what you verbally tell your lender about your income, and even if you are 100% truthful, it doesn’t show the full picture. 

 Think of a mortgage pre-qual as a nice ballpark number to have if you’re just casually shopping. Just don’t consider it as a guaranteed amount that you’ll eventually be approved for.

What is pre-approval?

A pre-approval is the real deal as it’s the result of a thorough examination of your credit history and actual financial documentation you provide. The mortgage pre-approval is an underwritten estimate of how much home you can afford and how much debt you can take on. 

Pre-approvals are way stronger than pre-qualifications. And once the lender has determined how much they’re willing to loan you, you’ll receive a pre-approval letter indicating the amount. Real estate agents and sellers both prefer working with pre-approved buyers because it shows that you’re committed to buying a home and that you have the backing to make good on any offer you put down (within the pre-approved amount). Not only does a pre-approval save you time, but it’s also a great bargaining chip when you’re buying in a competitive market.

Getting a mortgage pre-approval

Before speaking to a lender about getting pre-approved for a mortgage, you’ll want to start collecting some information. The lender will want proof of income, liquid assets and debts. Let’s look at each of these more closely:

  • Income. More than just your annual pay, income can also include (if you have documentation) freelance income, income from rental properties, alimony, child support, disability payments, retirement benefits and investment returns.
  • Liquid Assets. These are anything that can be turned into cash pretty quickly, like checking and savings accounts. Since you can cash out stocks, money market funds and other investments fairly quickly, they’re also considered liquid assets. 
  • Debts. Generally, this is how much you owe in recurring debt, like car payments and student loans. Fluctuating debt like credit card bills is not as important, but your lender will want to know how much credit is available to help determine how likely it is that you’ll go deeper into debt.

Start gathering these documents

Besides those big-picture details, your lender — or the underwriter — will ask you for supporting paperwork. Depending on your unique financial situation and your lender’s approach, you may have to provide additional documentation, but we think that the following list is a good jumping-off point for most prospective homebuyers.

  • Social security number (you don’t need to have the physical card on hand)
  • W-2 forms for proof of income for the past two years. If you are self-employed, consider documenting income history for the past three years. 
  • 1040 federal tax returns for the last two years
  • Recent pay stubs for the previous two months covering at 30 days YTD income
  • Government-issued identification, like a copy of driver’s license, US passport or Military ID
  • Proof of down payment or a “gift letter” if a family member is gifting you some money towards the down payment amount 
  • Bank statements showing checking, savings, money markets and other liquid assets like stocks, IRAs and mutual funds.
  • Credit history (You’ll have to sign a release form allowing your lender to pull your credit report)

Ready to get pre-approved?

While a pre-qualification may get you thinking about your options, a pre-approval will tell you just how much home you can afford. And you don’t have to choose one or the other: you can get pre-qualified as you start house hunting, and then get pre-approved as you get more serious and want to lock in an interest rate.

Contact: Alex Rivera  |  Market Leader – NMLS 41380
Mobile
 (908) 914-5500Fax (908) 698-0711

Office Address
1031 Route 22, Suite 203
Bridgewater, NJ 08807

www.movement.com/alexander.rivera

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