Class Blog (1 of 7)
Restoration of VA Home Loan Entitlement
A mortgage loan originator is working with a veteran who had previously used his VA home buying benefits. The veteran advised the mortgage loan originator that the loan no longer exists. The mortgage loan originator in turn advised the veteran that if he had paid off the prior VA loan and disposed of the property that the eligibility can be restored for additional use. What the veteran did not tell the MLO was that the home had been sold on assumption and that the assuming borrower defaulted on the loan. This veteran had been liable for the deficiency that the VA incurred in liquidating the property and the VA settled for payment representing fifty percent (50%) of the deficiency. The veteran was released from future liability with the settlement.
What should the
mortgage loan originator tell the veteran about the reusability of that
entitlement?
Class Blog (2 of 7)
The Conservative Risk Taker
Class Blog (2 of 7)
The Conservative Risk Taker
What should conservative borrowers be looking for when they begin shopping for an arm product?
Class Blog (3 of 7)
Picking The Right Score for Consideration
A young married couple is attempting to purchase their first home. Both have established credit and both have historically paid their bills on time. In this relationship, he is considered to be the primary wage earner. They have ten percent (10%) to invest in down payment and their lender has advised them that the minimum acceptable credit score for a ninety percent (90%) loan to value loan is 715. The lender runs a factual data credit report on the couple and the credit scores are reported as follows:
Him:
755-670-695 Her:
825-795-812
Would this couple meet the required criteria for the 90% LTV
loan?
Class Blog ( 4 of 7)
Housing/Debt Ratios #1
The applicants’ gross income totals six thousand dollars ($6,000), their monthly house payment totals one thousand dollars ($1,000), plus they have two car payments of five hundred dollars ($500) and four hundred dollars ($400), a student loan for ninety dollar ($90) per month, and credit card payments of one hundred and ten dollars ($110).
What are the housing ratio and the total debt ratio? (show your math)
Housing/Debt Ratios #1
A borrower buys a house for four hundred and thirty seven thousand, five hundred dollars ($437,500) and qualifies for a ninety percent (90%) maximum LTV. Closing costs are four thousand five hundred dollars ($4,500), and the borrower made a good faith deposit with a real estate company to be held for seller of one thousand dollars ($1,000).
How much does the borrower bring to closing?
Class Blog (6 of 7)
Down Payments #1
How much does the borrower bring to closing?
Down Payments #2
A borrower must make a ten (10) percent down payment on a purchase transaction to qualify for the loan. The borrower made a one thousand dollar ($1,000) good faith deposit at the time of acceptance of the offer to purchase on a home sold for one hundred and seventy-two thousand dollars ($172,000). The seller agreed to pay closing costs for up to one percent (1%) of the sales price. The buyer’s closing costs totaled two thousand one hundred dollars ($2,100).
1 of 7
ReplyDeleteThe
mortgage loan originator should do the math and help the veteran understand the costs
involved. The veteran can either pay off the remaining deficiency or come up with the
down payment required to offset the shortfall of guarantee necessary to provide the
twenty-five percent (25%) level required.
2 of 7
ReplyDeleteConservative arm borrowers should be looking for the longest initial period before the
first adjustment, the lowest caps affecting payment change and the least volatile index.
The combination of these elements provides a pretty significant level of predictability to
the loan.
3 of 7
ReplyDeleteno
4 of 7
ReplyDelete6000 income
2100 monthly debt
6000/2100 = 35%
1 of 7
ReplyDeleteThe MLO should do the math and help the veteran understand the costs involved. The veteran can either pay off the remaining deficiency or come up with the down payment required to offset the shortfall of guarantee necessary to provide the twenty-five percent (25%) level required.
2 of 7
ReplyDeleteConservative arm borrowers should be looking for the longest initial period before the first adjustment, the lowest caps affecting payment change and the least volatile index. The combination of these elements provides a pretty significant level of predictability to the loan.
This comment has been removed by the author.
ReplyDelete3 of 7
ReplyDeleteNO
4 of 7
ReplyDeleteHousing
1000/6000=16.7%
Debt
2100/6000=35%
Darryl Lewis
Delete5 of 7
ReplyDelete$47,250
6 of 7
ReplyDelete$78,500
7 of 7
ReplyDelete$16,580
1 of 7:
ReplyDeleteThe veteran needs to work with the MLO to see if paying off the first dept. would be better than to just make up the difference on the new loan?
5 of 7
ReplyDelete47250
6 of 7
78500
7 of 7
16580
2 of 7:
ReplyDeleteLooking for the lowest rate for the longest time with the idea of refinancing before the rate or payment increase.
3 of 7:
ReplyDeleteNO, since he is the primary wage earner you would have to take the middle credit score which doesn't meet the requirements.
1 of 7
ReplyDeleteThere would need to be an evaluation of what the best options are to handle this. A COE might be useful if the VA can provide further information to the MLO in regards to the history of the sale and the veteran seeking the new home loan. Since the information about the defaulted loan was not revealed to the MLO, the first thing I would do is request the COE to better advise the veteran.
4 of 7:
ReplyDeleteAssuming that $6,000.00 is the Monthly income and not yearly.
1000/6000 = 16.7% Housing ratio
2100/ 6000 = 35% Combined housing and dept. ratio
5 of 7:
ReplyDelete$437,500.00 x 10% = $4,3750.00
Closing costs $4500.00 - $1000.00 deposit = $3500.00
$43,750.00 + $3,500.00 + $47,250.00 to bring to closing.
6 of 7:
ReplyDeleteSame principles apply as the last question.
$78,500.00 to bring to closing.
7 of 7:
ReplyDelete$16,580.00 to closing.
3 of 7:
ReplyDeleteAs the primary wage earner, he doesn't meet the 715 requirement. However, I'm uncertain whether the score would be determined by the average of the middle score of both parties combined, in which case, they would qualify.
2 of 7:
ReplyDeleteThey should look for the lowest annual and lifetime caps on the mortgage.
1 of 7:
ReplyDeleteThe MLO should explain the difference between a sale that results in a satisfaction of mortgage and an assumption where the seller (veteran) is liable in the event of default. An updated COE should show the amount of eligibility restored.
4 of 7:
ReplyDeleteGross income:
$6,000
Total expenses:
$2100
$2100/$6000 = 35% debt ratio
$1000/$6000 = 16.7% housing ratio
5 of 7:
ReplyDelete$437,500 x 10% down payment $43,750
Closing costs $4,500 - $1,000 deposit = $3,500
Buyer brings to closing $47,750
6 of 7:
ReplyDelete20% of purchase price of $375,000 = $75,000
Closing costs = $4,500 less credit for deposit $1,000 = $3,500
Total to bring to close $78,500
7 of 7:
ReplyDelete10% of purchase price of $172,000 = $17,200
Closing costs = $2,100 less credit from seller $1,720 = $380
Minus $1,000 deposit
Total to bring to close $16,580
The veteran will need restoration of VA loan entitlement. After doing the math the MLO should discuss with the veteran of the amount needed to pay off deficiency or come up with 25% down payment to offset the shortfall.
ReplyDeleteDo Hwang Ji2ga32@Gmail.com
1 of 1
ReplyDeleteAranza Larranaga Mier
The MLO should explain to the veteran that even though the loan is paid off and he is technically not liable for that loan anymore, that the VA suffered a loss when they paid the deficiency he left when he defaulted the loan, which makes him unable to reuse this benefit until he has paid the loss that the government has suffered. While the MLO is explaining, he should do the math and see if the veteran can pay the deficiency in full or the down payment required and start anew. The MLO should help the veteran figure out what is the best path for his situation, and if it is worth having a clean slate for future purchases or not. I am unaware of the eligibility for other types of loans if you default in your VA loan and if there are other repercussions other than just losing you VA benefit.
2 of 7
ReplyDeleteLook for the loan that offers the lowest rate over the longest time possible. If there is a maximum rate, make sure there are enough finances to cover the increase that is inevitable.
When looking for an ARM product there are 3 things the borrower should be looking for:
ReplyDelete1. The longest period before the first adjustment happens
2. The lowest caps available
3. The less volatile index
2 of 7
ReplyDeleteLongest period before 1st adjustment
Lowest caps
least volatile index
3 of 7
ReplyDeleteThis doesn't specify whether the qualifying credit score is for the primary wage earner only. If so, the answer would be NO. If it is looking at a combined score, the couple would qualify.
3 of 7
ReplyDeleteNo, the since there are multiple barrowers the lowest median (middle) score is used; in this case it would be 695. The minimum for a 90% loan to value loan is 715 in this case study, so the couple would not meet the requirements.
1 of 7
ReplyDeleteThe MLO could've mentioned that if the remaining deficiency is paid that would restore the use of the COE for full entitlement of 25%
2 of 7
ReplyDeleteBorrowers should seek out lowest intro rate/ start rate on a arm to maximize savings before 1st adjustment. Seek out caps on adjustments to save more.
3 of 7
ReplyDeleteMiddle score of the 3 is used since he is the primary which means he would not qualify for LTV of 90%
4 of 7
ReplyDelete1000 housing / 6000 = 16.7%
2100 total debt / 6000 = 35%
5 of 7
ReplyDelete437500 * 10%
43,750 - 1000
42,750 + 4500 = 47,250
6 of 7
ReplyDelete375000 * .2 - 1000 + 4500
78,500 brings to closing
7 of 7
ReplyDelete172000 * .1 - 1000 - 1720 + 2100
$16,580 brings to closing
4 of 7
ReplyDeleteGross Income $6,000
House Payment $1,000
Car #1 $500
Car #2 $400
Student Loans $90
Credit Card $110
Housing Obligations: House Payment $1,000 / Gross Income $6,000 = .167 or 16.7%
Monthly Debt: Total monthly debt $2100/ Gross Income $6000 =.35 or 35%
5 of 7
ReplyDelete$47,250
House: $437,500
Max LTV: 90%
Closing Costs: $4,500
Deposit: $1,000
Down Payment Needed: $47,250
$437,500 X 10% = $43,750
$43,750 - $1,000 Deposit = $42,750
$42,750 Remining down payment +4500 (closing costs) = $47,250
Class Blog (6 of 7)
ReplyDeleteDown Payments #2
Down Payment Needed: $78,500
House: $375,000
Max LTV: 80%
Closing Costs: $4,500
Deposit: $1,000
$375,000 X 20% = $75,000
$75,000- $1,000 Deposit = $74,000
$74,000 Remining Down Payment + $4,500 (closing costs) = $78,500
Class Blog (7 of 7)
ReplyDeleteDown Payments #3
Down Payment Needed: $16,580
House: $172,000
Down Payment: 10%
Good Faith Deposit: $1,000
Seller’s Closing Costs: 1%
Closing Costs: $2,100
$172,000 X 10% = $17,200
$17,200 - $1,000 Deposit = $16,200
$16,200 Remining Down Payment + $2,100 (closing costs) = $18,300
$172,000 X Seller’s concessions 1% = $1,720
$18,300 - $1,720 = $16,580
4 of 7
ReplyDelete$1000/$6000 = 16.7% for housing ratio
$2100/$6000 = 35% for total debt ratio
5 of 7
ReplyDelete$437,500 X 10% = $43,750
$43,750 - $1,000 Deposit = $42,750
$42,750 Remining down payment + 4500 = $47,250
The buyer needs $47,250
1 of 7
ReplyDeleteThe mortgage loan originator should step in and break it all down and help the Vet see what the best case scenario would be in this situation.
6 of 7
ReplyDeleteBuyer needs to bring $78,500 to closing
2 of 7
ReplyDeleteLowest rate before the time of increase
7 of 7
ReplyDeleteBuyer needs $16,580 at closing
17,200 - 1000 = 16,200
16,200 - 1720 = 14,480
14,480 + 2100 = 16,580
$16,580
3 of 7
ReplyDeleteNo. Using the lowest rating of the 2 borrowers they would not qualify. The underwriter would have to use other factors to determine if a loan was appropriate.
4 of 7
ReplyDeletePITI is $1000
car 1 $500
car2 $400
student loan $90
credit cards $110
Monthly debt $2100
Housing ratio 1000/6000 16.7%
Total debt 2100/6000 35%
5 of 7
ReplyDelete10% of 437,500 $43,750 because 90% LTV - $1000 Earnest deposit $4,500 closing cost $42,750 + $4,500 = $47,250
6 of 7
ReplyDelete80% of $375,000 = $300K leaving $75,000 buyer responsibility
$75,000 - $1000 deposit + $4,500 closing costs =
$78,500 to closing
7 of 7
ReplyDelete10% of $172,000 = $17,200 - $1000 Earnest deposit = $16,200 + $2,100 closing cost = $18,300 - 1% Seller help $1,720 = $16,580 to the table.
Alison Roae 1 of7: I would explain the situation to the veteran that although they are no longer liable for the loan, it is law that to be eligible for his va entitlement, he will need to pay the deficiency. I would discuss his 2 options which would be to make right on the prior loan or pay the 25% down payment.
ReplyDeleteAlison Roae 2 of 7- The borrower should be looking for a combination of things when it comes to deciding on the least risky ARM. They will want to look at the payment & lifetime caps to ensure they can still afford the loan if all of the wheels fall off. Also, they will want to consider what index the ARM will be associated with as each index has it's pros & cons. Finally, they will want to consider the length of the adjustment period & aim for it to be as long as possible between adjustments periods once a rate is set.
ReplyDeleteAlison Roae 3 of 7- With the couple, the credit score that would be considered would be 695 which would not meet the credit score requirement of 715. However, there could still be other factors that could coexist that would make them eligible that would need to be looked into.
ReplyDeleteAlison Roae 4 of 7 The housing ratio is:
ReplyDelete$1000/$6000=0.167 which would equate to 16.7%
The Total Debt Ratio is:
$2100/$6000=0.35 which equates to 35&
Alison Roae 5 of 7
ReplyDelete$437500x0.1 (10%)=$43750
$4500-$1000=$3500
$43750+$3500= $47250 would be the amount the borrower will need to bring to cover closing costs
Alison Roae 6 of 7
ReplyDelete$375000x0.2 (20%)=$75000
$4500-$1000=$3500
$75000+$3500= $78500 would be the amount the borrower will nee to bring to cover closing costs.
Alison Roae 7 of 7
ReplyDelete$172000x0.1 (10%)= $17,200 (down payment for loan)
$2100-$1720=$380
$17200+$380-$1000= $16580 is the amount the borrower needs to bring to closing
1 of 7
ReplyDeleteThe LO should inform the veteran he/she needs to resolve the deficiency directly with the VA to have their eligibility restored.
2 of 7 If the conservative borrower was planning on moving shortly or a first time home owner they may want a 5/1 arm. I don't think I would be interested in an adjustable rate loan.
ReplyDelete3 of 7 It would seem like both their scores would count equally and if so even though the husbands is a little low, the wife's should bring his up to the 715 for the 90% loan.
ReplyDelete4 of 7 This couple should be ok because their top ratio of dividing their monthly mortgage payment by their monthly gross income is 17% and the bottom ration of their mortgage payment plus their other monthly debts divided by their gross monthly income is 35% does not exceed the 28% top and 36% bottom.
ReplyDelete5 of 7 iF the borrower is good for 90% and paid 1000. to hold then he will need 10% of the loan and 3500. of closing which would be 47,250.00
ReplyDelete! of 7 The MLO would have to tell him because he was liable for the defaulted property and the VA settled for 50% of the deficiency to release the veteran from the balance that he does not qualify to use the VA loan again.
ReplyDelete6 of 7 The borrower needs 20% of 375,000. which is 75,000. and he/she needs 3500. for closing because they have already given 1000. good faith money toward the home.
ReplyDelete7 of 7 The borrower needs 17,500. less the 1000. good faith money toward purchase and his closing cost is 2100. and the seller will pay 1% of the cost which is 1720. which leaves the buyer paying 380. plus the 16,500. and that is 16,580.
ReplyDelete