Tag Archives: home-buying

Is There a VA Loan In Your Future?

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In todays real estate and mortgage market, assuming an existing VA loan, when available, may be your best financing option

Assuming a VA loan means taking over the current mortgage of a home that has a VA (Department of Veterans Affairs) loan on it—often at a lower interest rate than current market rates. Here’s how to assume a VA loan and what to watch out for:

✅ Steps to Assume a VA Loan

  1. Verify Assumability
    • VA loans closed before March 1, 1988 are generally freely assumable (no lender approval needed).
    • VA loans closed on or after March 1, 1988 require lender and VA approval.
  2. Meet Eligibility Criteria
    • You do not have to be a veteran to assume a VA loan.
    • You must qualify financially: creditworthiness, income verification, and debt-to-income ratio will be reviewed.
  3. Contact the Loan Servicer
    • Reach out to the current servicer of the VA loan to begin the assumption process.
    • Request an assumption package or application.
  4. Submit Application & Pay Fees
    • Complete the lender’s assumption application.
    • Fees typically include:
      • Assumption fee (usually $300–$500)
      • VA funding fee (0.5% of the loan balance)
      • Closing costs and title transfer expenses
  5. Receive Approval
    • If approved, you’ll sign an Assumption Agreement and related legal documents.
    • The lender will formally transfer the loan into your name.
  6. Close the Transaction
    • Finalize the property transfer via a real estate closing, with title work and possibly an escrow account setup.

⚠️ Important Considerations

  • VA Entitlement Tied Up: If the seller allows you to assume their loan and you’re not a veteran using your own entitlement, the seller’s VA entitlement stays tied to the loan until it’s paid off or refinanced.
  • Release of Liability: The seller should ensure the lender issues a Release of Liability, so they are not held responsible if you default.
  • No Cash-Out: If the home’s market value is higher than the loan balance, you’ll need to pay the difference in cash or arrange secondary financing.

🔍 When Is It a Good Idea?

  • When interest rates today are much higher than the VA loan being assumed.
  • When you want to avoid a full new loan underwriting process.
  • When the home seller is offering favorable terms or low equity buy-in.

Any real estate transaction has  several steps and several moving parts which must be effectively managed to assure a clean transfer of title and proper assumption of the VA loan. No one (buyers, sellers, agents) wants problems after money and title changes hands.

Always engage an experienced real estate agent and their recommended professionals for guidance, start to finish.

Can I help? Absolutely. Call me at 253-219-2162.

Bare Naked versus Shielded Risk

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What would happen if FNMA/FHLMC were privatized without guarantee fee intact?

Privatizing Fannie Mae (FNMA) and Freddie Mac (FHLMC) without the guarantee fee intact would have significant and complex implications for the U.S. housing market. Here’s a breakdown of the potential consequences:

Key Implications:

  • Increased Mortgage Rates:
    • Without the implicit or explicit government guarantee, investors would perceive a higher risk in mortgage-backed securities (MBS) issued by these entities.
    • To compensate for this increased risk, investors would demand higher yields, leading to higher mortgage interest rates for borrowers.
    • This could significantly impact housing affordability, making it more expensive for individuals to purchase homes.
  • Reduced Liquidity in the Mortgage Market:
    • The guarantee provided by Fannie and Freddie ensures a high level of liquidity in the mortgage market.
    • Without this guarantee, the market for MBS could become less liquid, making it more difficult for lenders to sell mortgages.
    • This could lead to a contraction in mortgage lending, limiting the availability of credit for homebuyers.
  • Increased Credit Risk:
    • Without government backing, Fannie and Freddie would be exposed to greater credit risk.
    • They would need to build up substantial capital reserves to absorb potential losses from mortgage defaults.
    • This could lead to stricter lending standards, making it more difficult for borrowers with lower credit scores to obtain mortgages.
  • Changes in Market Participants:
    • The role of various market participants, such as banks and institutional investors, would likely shift.
    • Banks might play a larger role in the mortgage market, but their focus could be on higher-quality loans.
    • The Federal Reserve’s ability to hold non-guaranteed MBS on its balance sheet would also be a question.
  • Impact on Housing Affordability:
    • The combination of higher mortgage rates and tighter lending standards would negatively impact housing affordability.
    • This could have broader economic consequences, as the housing market plays a significant role in the U.S. economy.
  • Increased volatility:
    • Without the stabilizing effect of the government backing, the mortgage markets would likely become far more volatile, especially during times of economic stress.

In summary:

  • Privatization without a guarantee fee would introduce significant uncertainty and risk into the mortgage market.
  • It would likely lead to higher mortgage rates, reduced liquidity, and tighter lending standards, with a notable negative impact on housing affordability.
  • Liquidity in the Mortgage Backed Securities marketplace adds backing by the full faith and credit of the United States government. Any investor would prefer a pool of mortgages with a guarantee.

It’s important to note the exact outcomes would depend on various factors, including the specific details of the privatization plan and the overall economic environment.

Seven Myths About Reverse Mortgages

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Reverse mortgages are often misunderstood, leading to a number of myths and misconceptions. Here are seven common myths about reverse mortgages, along with clarifications:

1. Myth: The Lender Takes Ownership of Your Home – Reality: With a reverse mortgage, the borrower retains ownership of the home. The lender only places a lien on the property, which is used as collateral for the loan. The borrower must continue to pay property taxes, homeowners insurance, and maintain the home.

2. Myth: You Can Be Forced Out of Your Home – Reality: As long as the borrower meets the loan obligations (such as paying taxes and insurance, and maintaining the home), they can stay in the home for as long as they lives in their home. The loan is only due when the borrower sells the home, moves out permanently, or passes away.

3. Myth: Reverse Mortgages Are a Last Resort – Reality: While reverse mortgages are often marketed to those with limited income, they can also be a strategic financial tool for retirees. Some use them to supplement income, delay drawing down on other retirement assets, or as a line of credit that grows over time. You can use proceeds from a Reverse Mortgage to buy a second home. It’s your money!

4. Myth: Reverse Mortgages Have High Fees and Interest Rates – Reality: Fees and interest rates for reverse mortgages are comparable to those for traditional mortgages. However, it’s essential to shop around and understand the full cost structure, including any mortgage insurance, closing costs, and origination fees. Ask for an itemization of all fees and closing costs up front. We’re happy to provide this.

5. Myth: Your Heirs Will Be Saddled with Debt – Reality: Reverse mortgages are non-recourse loans, meaning the borrower or their heirs will never owe more than the home’s value at the time the loan is repaid. If the home is sold for less than the loan balance, the Federal Housing Administration (FHA) insurance covers the difference.

6. Myth: You Can’t Get a Reverse Mortgage If You Have an Existing Mortgage – Reality: You can get a reverse mortgage even if you still have a mortgage, but the reverse mortgage proceeds must first be used to pay off the existing mortgage. A reverse mortgage will eliminate monthly mortgage payments, freeing up cash flow.

7. Myth: Reverse Mortgages Are Only for the Poor – Reality: Reverse mortgages can be useful for a wide range of retirees, regardless of income level. They are often used by those with significant home equity who wish to improve their retirement cash flow or preserve other assets. Many use reverse mortgage proceeds as a financial planning tool. Remember, it’s your money!

Would you like more information on any of these points? Call, text or email. My contact information is on the left.