Important Factors To Consider When Getting Financing On A Foreclosure, Short Sale or New Construction

There are a number of foreclosures and short sales in the market and when you are planning on buying a home, they may present a lot of value. But there are certain problems associated with them that homeowners should be aware of before applying for foreclosure sale financing:

  • Property Condition- Homeowners who are facing a foreclosure or want to short sell their house generally do not have the money to maintain the property well or pay for the mortgage. This can cause problems for you, if you are planning on getting an FHA loan. These require that the property should be ready to move into

  • Timing Challenges- Typically, a short sale process has very awkward timeframes for approval of the purchase contract and loan closing. Every bank has different rules; however the approval can take 7-120 days. Since there is no fixed timeframe for approval of a short sale, timing of the loan submission, rate locks & the closing can become very challenging. When you are buying a short-sale property, you should be prepared for loads of paperwork

  • New Construction- If you want to make use of FHA financing to buy new construction – there are a number of different issues that might crop up. You must have a CO- Certificate of Occupancy and if this is not available, you will not be able to go to the FHA and may have to opt for a renovation loan

  • Builder’s Certification- You might need a 10-year warranty, termite inspection, well test and septic inspection, when applicable while buying a home

  • Construction Permits- You will require specific documentation (in a certain combination), to satisfy the lender and the FHA. It is important that you work with a knowledgeable loan officer while buying any new construction with financing from the FHA

The Right Support

If you decide to use conventional Freddie Mac/ Fannie Mae financing you will still have some hurdles to navigate, but they will be a little less than the ones you encounter with the FHA. But the down payment will be higher and there are more stringent credit qualification guidelines.

Regardless of whether you plan on a FHA loan, renovation financing or conventional financing, it is crucial that you have a strong home-buying team who can help and support you through the negotiations and tons of paperwork. For more information on financing for foreclosures, contact ResMac Home Loans.

 

Why Do I Need To Pay A VA Funding Fee?

The VA Funding Fee is an essential component of the VA home loan program, and is a requirement of any Veteran taking advantage of this zero down payment government loan program.

This fee ranges from 1.25% to 3.3% of the loan amount, depending upon the circumstances.

On a $150,000 loan that’s an additional $1,875 to almost $5,000 in cost just for the benefit of using the VA home loan.

The good news is that the VA allows borrowers to finance this cost into the home loan without having to include it as part of the closing costs.

For buyers using their VA loan guarantee for the first time on a zero down loan, the Funding Fee would be 2.15%.

For example, on a $150,000 loan amount, the VA Funding Fee could total $3,225, which would increase the monthly mortgage payment by $18 if it were financed into the new loan.

So basically, the incremental increase to a monthly payment is not very much if you choose to finance the Funding Fee.

Historical Trivia:

Under VA’s founding law in 1944 there was no Funding Fee; the guaranty VA offered lenders was limited to 50 percent of the loan, not to exceed $2,000; loans were limited to a maximum 20 years, and the interest rate was capped at 4 percent.

The VA loan was originally designed to be readjustment aid to returning veterans from WWII and they had 2 years from the war’s official end before their eligibility expired. The program was meant to help them catch up for the lost years they sacrificed.

However, the program has obviously evolved to a long term housing benefit for veterans.

The first Funding Fee was ½% and was enacted in 1966 for the sole purpose of building a reserve fund for defaults. This remained in place only until 1970. The Funding Fee of ½% was re-instituted in 1982 and has been in place ever since.

The Amount Of Funding Fee A Borrower Pays Depends On:

  • The type of transaction (refinance versus purchase)
  • Amount of equity
  • Whether this is the first use or subsequent use of the borrower’s VA loan benefit
  • Whether you are/were regular military or Reserve or National Guard

*Disabled veterans are exempt from paying a Funding Fee

The table of Funding Fees can be accessed via VA’s website – CLICK HERE

The main reason for a Veteran to select the VA home loan instead of another program is due to the zero down payment feature.

However, if the Veteran plans on making a 20% or more down payment, the VA loan might not be the best choice because a conventional loan would have a similar interest rate, but without the Funding Fee expense.

The best way to view the VA Funding Fee is that it is a small cost to pay for the benefit of not needing to part with thousands of dollars in down payment.

* Disclaimer – all information is accurate as of the time this article was written *

_________________________________

Related Articles – Mortgage Approval Process: