This ARTICLE On Understanding VA Mortgage Rates And Loan Level Pricing Adjustments Was PUBLISHED On December 2nd, 2019
VA loans are the best home mortgage program in the United States.
- The government has created and launched VA loans decades ago to reward qualified members of our U.S. Military to reward them for their service to our country
- Only select qualified active-duty and/or retired members of the United States Armed Services with a valid Certificate of Eligibility (COE) are eligible for VA loans
- Benefits of VA mortgages are prices
- Understanding VA Mortgage Rates is very important
- The VA offers one of the lowest mortgage rates out of any loan program
- VA loans do have loan level pricing adjustments like other loan programs
- Many borrowers think that all VA mortgage rates are the same due to the government guarantee
- This is not true
In this article, we will cover and discuss Understanding VA Mortgage Rates And Loan Level Pricing Adjustments
Comparing And Understanding VA Mortgage Rates
Comparing and Understanding VA Mortgage Rates is very important for borrowers when shopping for rates on VA loans.
- The VA does not mandate a minimum credit score requirement as long as borrowers can get an approve/eligible per automated underwriting system
- However, lenders can require a minimum credit score requirement on VA loans as part of their lender overlays
- Overlays are higher credit requirements that are above and beyond the minimum VA Agency Guidelines
- The VA does not have a maximum debt to income ratio cap
- However, lenders can require a maximum debt to income ratio cap as part of their lender overlays
- There is no maximum loan limit on VA loans
- Again, lenders can create and implement a maximum VA loan limit cap as part of their lender overlays
- However, VA mortgage rates will vary from lender to lender
- VA rates are mainly determined by credit scores, type of property, loan amount, type of VA loans, and other determinants that we will discuss in the following paragraphs
Gustan Cho Associates are one of the very few national lenders with no lender overlays on VA loans.
Understanding VA Mortgage Rates On Refinances
Understanding VA Mortgage Rates on refinances is important.
- Many homeowners often wonder why rates on cash-out versus rate and term have higher mortgage rates
- This is due to loan level pricing adjustments
- Loan level pricing adjustments are often referred to as LLPA. LLPAs are pricing hits by lenders due to layered risks
- The higher the risk for lenders, the higher the mortgage rates
- Cash-out refinances are considered high-risk loans versus rate and term refinances
Therefore, borrowers who do a cash-out refinance on VA loans will get higher rates than rate and term refinances.
Changes In VA Agency Mortgage Guidelines
2019 is a year where there were major changes to VA Agency Guidelines.
The VA Circular 26-18-30, which took effect on February 15, 2019, stated the new changes of VA Agency Mortgage Guidelines. Here is are the new updated VA Agency Guidelines on VA Mortgages:
- The loan to value on VA cash-out refinance will change to 90% LTV from the current 100% LTV
- A new Net Tangible Benefit Test
- Fee recoupment of 36 months for Type I cash-out refinances
Borrowers Need To Meet The VA Net Tangible Benefit Test
Borrowers need to get a benefit to be able to refinance on VA loans. This holds especially true on cash-out refinances. Borrowers need to meet at least one of the eight lists of the net tangible test criteria. Here is the list of net tangible benefits for borrowers:
- Eliminating the mortgage insurance on a current loan
- VA loans do not have annual mortgage insurance requirements
- The new VA loan term being shorter
- The benefit of lower interest rates
- The new housing payment is lower than the loan being refinanced
- The borrower benefits from a larger residual income by refinancing
- The borrower needs the funds to repair and/or renovate the home
- The borrower is refinancing an adjustable-rate mortgage to a fixed-rate mortgage
For more information about net tangible benefits and whether a refinance is beneficial, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.
VA Agency Mortgage Guidelines And Requirements
There are two types of VA mortgage guidelines:
- The minimum mortgage agency guidelines and requirements set by the Veterans Administration (The VA)
- Lender Overlays set by individual lenders
Lender overlays are optional additional lending requirements set by individual lenders. Mortgage companies can have lender overlays on just about anything. All lenders need to meet the minimum agency guidelines set by the VA. Lender overlays will differ from lender to lender.
Here is what Mike Gracz of Gustan Cho Associates said about lender overlays on VA loans:
VA loans are not difficult to qualify for and some lenders have overlays on debt-to-income ratios, credit scores or other internal guidelines that make it more difficult to qualify for. A VA cash-out refinance allows qualified Veterans’ opportunity to extract cash from the home’s equity. Qualified veterans must have an entitlement, which can be restored by paying off an existing VA loan. VA cash-out common ways to use the cashback, but not limited to VA debt consolidation or pay off debts, home remodels, upgrades, and repairs, tuition, books, other school expenses, using the cash for an emergency, other uses.
Understanding VA Refinance Rates
VA loans has the lowest mortgage rates. Many times, VA rates are lower than any other loan programs. However, mortgage rates on VA loans depend on loan level pricing adjustments.
Examples of loan level pricing adjustment or pricing hits on VA mortgage rates are the following:
- Credit scores
- Type of property: Single-family homes, condos, townhouses, 2 to 4 unit multi-family homes
- Cash-out versus rate and term refinance
- Loan size
- County and state
- Manual versus automated underwriting system
- Loan to value
- Lock period
- Lender paid versus borrower-paid
- Other layered risks by lenders
Mortgage rates on cash-out refinance is higher than rate and term refinance due to higher risks.
Closing Costs On VA Loans
Like all other mortgage programs, VA loans have closing costs associated with purchase and refinance loans. One closing cost VA loans have that other loan programs do not have are VA funding fees.
For VA cash-out refinances, the funding fee is currently:
- Regular Military Personnel– 2.15% for first-time use and 3.3% for subsequent use
- Reserve/National Guard personnel is 2.4% for first-time use and 3.3% for subsequent use
The VA funding fees are derived by multiplying the percentage by the total mortgage loan amount. The cash-out funding fee on VA mortgages is added on the mortgage loan balance and is financed.
Refinance Seasoning Guidelines On VA Loans
Borrowers with lower credit scores can close on their VA loans and refinance it at a later date once they improve their credit scores. Credit scores are the single biggest determinant of VA mortgage rates. However, there is a waiting period after closing on a VA loan for borrowers to be able to refinance. Borrowers need to wait 210 days from the first payment have passed, and 6 months of payments have been made on the original.
For more information about VA loans and qualifying with a lender with no lender overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.