But as great as the VA loan program is, there are still some areas to pay attention to as you look at a VA Home Purchase.

The VA, just like Fannie Mae and Freddie Mac cannot guarantee that the home you purchase is free of defects or that it will be free of defects in the future. When you work through the process of getting your mortgage you will have to get a VA appraisal. The VA appraisal is fairly rigid when it comes to what the appraiser is looking for when they evaluate the value of the home. But the appraiser and the appraisal are not an inspection of the home when it comes to safety, engineering, and pest related problems. The appraiser’s job is to determine the market value of the home.

You are not stuck however because it is very customary for home buyers to order inspections of homes as they go through the home buying process. It is in your best interest to get at the very least a home inspection. You could also get a roof inspection, a termite/pest inspection, and engineering inspection, a heating and cooling unit inspection to name a few.

With it being customary for these types of inspections, most sellers will permit you to arrange and pay for a variety of inspections. Sellers in most cases will also be willing to negotiate price variances if your inspections discover repairs.

If it isn’t clear already, not only with a VA loan, but with all conventional loan programs it is your responsibility as a buyer to order some type of property home inspection to assure to yourself that the home you are buying is all that it is cracked up to be.

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But did you know that there are also several “hot spots” in the state for Veterans to live?

Let’s just pick a few – and all of them have homes that you can finance with an Arizona VA loan.

Gilbert is one of the fastest growing cities in the East Valley and is popular for many Veterans who have families. The population there is growing and you can easily find a home that meets the criteria for a Gilbert AZ VA loan.

Mesa has long been popular – and prior to the Gilbert growth explosion, Mesa was a hot area for many Veterans with the airfield so close as well as a major Boeing factory. And yes, there are also plenty of homes that you can easily finance with a Mesa AZ VA loan because home values are not through-the-roof.

Chandler is a sister city to Gilbert and is popular with Veterans who have retired – not to mention some of the Veterans who now work at any one of the high-tech facilities at companies like Intel. It is a little harder to find a home that meets guidelines of a VA loan in Chandler, but it isn’t extremely difficult.

If you are a Veteran and thinking about moving to Arizona or just moving from one city to another in Arizona, be sure to ask your loan officer about your Arizona VA loan options… it is one of the best ways to finance your home.

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First and foremost, directly from the VA Lender’s Handbook, VA Pamphlet 26-7 Revised, Chapter 4: Credit Underwriting, the VA states:

Income analysis is not an exact science. It requires the lender to underwrite each loan on a case-by-case basis, using:

• judgment,
• common sense, and
• flexibility, when warranted.

With this said, if you are a vet or otherwise are eligible for a veteran home loan and are self employed then there are some requirements you need to know about if you plan to use your eligibility for a veteran home loan.

The most general guideline for being self employed and veteran home loans is that an applicant needs to show stable income. Stable income is typically shown by the income received over a two year period. I like to call this the 2 year employment rule. If you pay attention to mortgage loan requirements you’ll see other 2 year rules in play for other loan requirements. What I am talking about in this post is only relavant to veteran home loans and places

It is because of the broad and misunderstood interpretation of what stable income means that many people say that if you haven’t been self employed for 2 years or more then you won’t qualify for a mortgage as a self employed individual.

The VA stipulates that income from self employment is considered stable when the applicant has been in business for at least 2 years. But if we recall the earlier info from the VA Lenders Handbook from above that says that income analysis is not an exact science we get ourselves into the gray area about being self employed and qualifying for a veteran home loan.

The kicker to the steadfast rule about 2 years needed for self employment is that if you have been self employed for more than 1 year but less than 2 and you have previous related employment you may get an approval. You may also get an exception to the 2 year rule if you received extensive specialized training in your industry/profession.

The VA does state that self employment of less than one year rarely qualifies. They go on to suggest that more “in-depth development is required for a conclusion of stable income on less than 1 year cases.”

With both of these conditions in mind, and the idea that there is no exact science to analyzing income, it will be on you to prove to the VA loan underwriter why your income should be considered stable if you have been self employed for less than 2 years if and when you apply for a veteran home loan.

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When the VA streamline refinance was originally rolled out to veterans it was the easiest loan to qualify for. Just a few years ago your FICO or credit score has no bearing on your ability to streamline refinance into a lower interest rate. The value of your home or its appraisal also had no bearing on your ability to qualify for the VA loans available. Banks and mortgage companies didn’t care who your employer was, how much money you made, or even how much money you’re saving each month.

In the wake of the recent housing and financial meltdown, the VA streamline refinance is no longer as simple to qualify for as it once was. Here is a list of changes that VA mortgage companies and VA lender’s have made to the VA streamline program:

1. The Veteran’s FICO or credit rating now matters.
2. You must be employed.
3. Home value is necessary in most cases.

It is more common than ever to see Veteran’s credit scores suffering — and as a result, any Veterans are not able to refinance with the VA streamline program.

With the highest unemployment rates in decades, many Veterans are unemployed and hence, refinancing is not an option.

And finally — both in Arizona and in other parts of the country, home values have dropped to the point where homes are now often worth less than what is owed on the mortgage.

And until these issues are addressed – I see these issues continuing to keep many VA borrowers from refinancing.

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This means, you must have a minimum of a 620 credit score in order to be considered for a FHA or VA loan. Below are  highlights of the changes which  will be going into effect in the next few weeks:

• The minimum credit score for FHA/VA loans will be 620 for all purchases, re-finances  and streamlined refinances.
• Non-Traditional credit may not be used for creating a credit profile. This  applies to all transaction types. Non traditional credit is where you use the  most recent twelve month history on accounts such as utility bills, cell phone  bill, insurance bills to develop a credit profile of a borrower.
• Non-traditional credit is not entirely out the window. It may be used when the borrower has an acceptable credit score but has less than 3 active credit lines during the past 12-24 months. So, if you only have had a good history with only two credit cards in the past while then we can use your non-traditional credit to supplement the report. However, keep in mind your credit report  must still contain a credit score of at least 620.
• Streamlined refinance applications must contain a tri-merged credit report with credit scores. A tri-merged report is one where all three bureaus report a credit profile. It is then merged into one report. In the case of two borrowers on an application each borrower must have a credit score meeting this requirement.
• Borrowers will now no longer be allowed to pay additional fees to offset credit scores lower than 620? In other words the line pretty much ends at 620. There are no exceptions available and no loan pricing adjustments that can lower the credit score requirement.

For those not familiar with some of the terms used in this post, below is a set  of previous blog posts which can help you understand it better:

Non Traditional Credit: Still operating in the cash economy?

Many loan programs offer what is known as “traditional credit” to replace a credit report. Traditional credit requires rigorous documentation and much effort from the borrowers part. To establish traditional credit the borrower will be required to furnish proof of good standing with four different creditors. Monthly rent paid is automatically counted as one of the four, in essence only three more are required. These three creditors can be utility companies, telephone companies, and any other installment type credit programs.

Read More…

Top Five Credit Misconceptions

The East Valley Tribune published a very informative article yesterday on the top five credit (and debt) misconceptions. According to the EVT (citing Transunion), the top five credit misconceptions are:

Read More…

What Makes Up the FICO Score?

Below is a pie chart that answers a very common question I receive.

Read More…

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