San Diego VA Loans – Debt-to-Income Ratio

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debt ratioOne of the many advantages of VA loans over traditional mortgages is that the qualification process is easier. Historically, the VA loan program has had one of the lowest delinquency rates compared to other loans. This is due to its commitment to time-tested lending guidelines. One guideline is the debt-to-income ratio or debt ratio.

What is the Debt Ratio?

The debt-to-income ratio is a percentage of the borrower’s overall monthly debt obligations divided by the household’s gross income.

As an example, if your monthly income is $8,000 and you have debt obligations like credit card payments, a car loan, a student loan payment, and your new housing payment that total $3,000, your debt ratio is 37.5% ($3,000 divided by $8,000).

Here’s another way to look at the debt ratio:

  • Your annual income is $48,000.
  • Your monthly income is $4,000 ($48,000 divided by 12).
  • The maximum debt obligation you can have to qualify is $1,640 ($4,000 multiplied by 0.41).

VA Loan Debt Ratio Guidelines

The VA has set a maximum debt ratio of 41%. This means your debt-to-income ratio must be 41% or lower to qualify for a mortgage. Under the VA’s rules, your new housing payment will consist of the following: interest and principal payment, one month’s property taxes, and one month’s homeowners’ insurance plus any HOA or condo fees.

The VA has guidelines on which types of debt must be included in this calculation. Monthly obligations that are included to qualify you include:

Credit card payments (minimum due)

  • Installment loans and leases (e.g., car loans)
  • Student loans
  • Child support
  • Alimony
  • Children’s day care

Monthly responsibilities that do not count in the debt-to-income ratio include utilities, cell phone, food, electricity and more.

What if Your Debt Ratio is Higher Than 41%?

VA lenders can make allowances to make a loan with a debt ratio higher than 41%. But other considerations must be made in terms of residual income, employment, and credit rating. In this case, the underwriter will do a careful inspection of your application.

You can still qualify if your residual income is at least 20% higher. Also, if your debt-to-income ratio is higher than allowed due to tax-free income.

The most common scenario with a high debt ratio is a higher residual income requirement. Residual income is the amount of money you have remaining each month after paying major expenses. When a borrower’s debt ratio exceeds 41%, the residual income requirement is raised by 20%.

Reducing Your Debt Ratio

If your debt ratio is right at 41%, you can reduce your ratio by paying down debt, lowering your house payment, or borrowing less. Increasing your income can also reduce your debt ratio. However, it’s difficult to earn extra income that will be counted by your lender. To reduce your debt, try these techniques:

Pay more than your minimum monthly payments to pay down debt faster.

  • Shop around for better rates on car insurance, internet, and cell phone service. This allows for more money to pay down your debt.
  • Eliminate unnecessary expenses such as subscriptions you do not use.

What is an Escrow Account?

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escrow accountWhen something is in escrow, it means it is held by a third party, and an escrow account is one set up to hold money, documents and other items related to a transaction. Escrow accounts are most common in real estate and they are used for a couple of different purposes.


At Sale and Closing

When you agree to buy a home, you usually are asked to put down a “good faith” deposit that shows you are serious about going through with the sale. This money will be held in an escrow account until the transaction closes. Also, any funds you have to contribute to the closing, such as real estate taxes, also will be held in escrow until the sale closes and all aspects are settled.

Mortgage Escrow

The type of escrow account with which most people are familiar is the escrow account related to your mortgage. Lenders prefer — and some require — an escrow account into which you pay a monthly amount toward your real estate taxes, homeowners insurance and mortgage insurance if you have it. A lender can legally require you to have an escrow account if you have less than 80 percent equity in your home. If your equity is 80% or more, then you can opt out of escrow. It is best to opt out when you get the loan, because it’s very difficult to do so later. However, your lender can charge a waiver fee or bump up your interest rate if you decide to opt out.

How Does It Work?

When you have an escrow account, your lender divides your home insurance premium, real estate tax bill and mortgage insurance premium by 12 and then adds those totals to your mortgage principal and interest payment so that you pay all those amounts in one payment each month. Then your lender is responsible for paying your taxes and insurance when they are due. Your lender also is responsible for adjusting your payment up or down to account for increases or decreases in your taxes and insurance.


There are big advantages to escrow accounts for both lenders and borrowers. For the lender, having an escrow account assures that the house is insured and that taxes are being paid so no liens are filed on the house. For the borrower, it offers the convenience of one monthly payment and not having to budget for big once- or twice-a-year tax payments.


There really is no disadvantage to the lender of having an escrow account, other than the time and expense needed to administer it. For borrowers, the one big drawback is the potential lost earnings on the money put into escrow. The federal government does not require lenders to pay interest on money put into escrow and only a handful of states do. That means you are missing out on some potential interest and investment returns on the money you put into escrow. However, many people are willing to give that up in exchange for the convenience.

VA Loan Homeowners Insurance Requirements

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Homeowners insurance requirementsMaking a home purchase can be a very exciting experience. But before a veteran begins looking for a home, it is important for him to know the homeowners insurance requirements. Mortgage companies and the VA have specific requirements on loans; before settlement the new homeowner must be aware of these regulations.

Homeowners Insurance Requirements: Protecting Your Property

Obtaining a loan through the VA means the VA approved lender has a guarantee for the payment of the loan in the event the borrower defaults on the mortgage. The purchase of insurance is one of the most important things new homeowners can do for themselves. A home is a large investment for anyone to make. And, as such, it is essential to protect your home from any accidents that might occur. Purchasing homeowners’ insurance is the best way to accomplish this.

All lenders require borrowers to obtain homeowners insurance requirements. To protect the home’s value and the lender’s investment in the property. Insurance ensures the homeowner that if anything happens that would lower the home’s value. The insurance would cover the cost to restore the property to whatever value was in existence. Prior to the incident that caused the devaluation.

Problems with Lack of Sufficient Insurance

Any homeowner who fails to purchase homeowner’s insurance coverage risks losing his or her investment. If the insurance coverage is not sufficient to cover the current value of the home. The proceeds will go to the mortgage company while the homeowner may not receive anything. This is the reason a homeowner must ensure the insurance coverage limits are sufficient. To cover the entire value of any property increases that have occurred within the real estate market.

In some areas, specifically those where natural disasters are quite common, additional insurance may be necessary. If the property falls under what is called “Special Flood Hazard Area,” both the mortgage company and the VA will require the purchase of flood insurance.

Protect Your Property from Disaster

Even if a home is paid-in-full, there is still a need for homeowners’ insurance because accidents do happen. Unfortunately, homeowners’ insurance has become more difficult to obtain, especially in states where things have happened that have resulted in an increase in the numbers of claims. Another problem is VA mortgages may necessitate special coverage that many companies are not willing to provide. For instance, many homeowners’ policies have a “vacancy clause” that comes into the picture if the homeowner is gone for a long time. What happens in this case is some of all the insurance coverage may not cover potential losses which might be incurred. What a specific homeowners’ policy deems as “vacancy” may vary, as will the length of time it covers, so the homeowner must be certain to know and understand the terms of the policy.

Some policies also fail to cover what they call “natural disasters” unless addendums to cover those items are defined specifically. This includes damage from military action, floods, hurricanes, tornadoes, and even lightning. The best protection a homeowner can provide is knowing the exact terms of insurance coverage on the property.

Can I Buy Land with My VA Loan Benefit?

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va-loan-benefitOne of the most common questions about VA loan benefit involves the purchasing of land. The answer to this question is “somehow.” This is because you have to show commitment to develop the piece of land that you want to purchase. This means that you have to get into a contract to prove that you require land to put a house on it. Most of the VA mortgages are set for condominiums and single family residences. However, the VA program is more flexible and not limited to only these types of properties.

For you to be eligible for VA financing, the property must be occupied by a veteran for some time. This doesn’t mean that the house has to be complete by the time of closing. VA laws allow you to purchase a piece of land and then construct your home. The type of home you construct can be a new one, a mobile home, a pre-fab or original construction.

The actual process of putting a house on a piece of land is trickier than it may seem. For new constructions, prefabs, modular and mobile homes, you will be required to go through a lot of red tape. This includes approval from VA officials through VA inspectors. This process is not only time consuming but also expensive, and most financiers tend not to get involved in such a process. In case you want to install a mobile home, it should have a permanent foundation.

To qualify for a VA loan to purchase land, the land can either have a house situated on it or you plan to have your home constructed there. However, you cannot use a VA loan to purchase land and wait for a long time before you construct your house. This means you cannot use the piece of land that you have acquired using your VA loan for commercial purposes.

Documents You Will Need if You Want to Construct a Prefab or Manufactured Home

  • The specifications of the foundation of the house and a plan similar to that of conventional homes.
  • You may also be required to have details of the line piers if you plan on constructing a double-wide home.
  • A plot of the foundation indicating the location of the supporting piers. Include all drawings of the anchor of the foundation.
  • Prepare a floor plan of the unit and the exterior elevation. It is also advisable to have photographs or drawings of the front and rear parts of the home unless the property is located on the site that is going to be appraised or if the appraiser can access the unit. You can get these documents in the manufacturer’s installation manual.
  • If the state requires that the underside of the property be enclosed, you will need to have all the details of the perimeter enclosure to indicate that you comply with the legal requirements as stated by the authorities.
  • Because site conditions differ from one location to another, provide any revision information on the manufacturer’s installation manual to comply with the local housing requirements.
  • Provide any other construction exhibits for other on-site improvements including decks, garages, enclosed patios and carports to get enough financing.

Keep in mind that your home should comply with the set minimum habitability requirements as stated by the state laws, including things like eating and sleeping areas, permanent cooking, plumbing and septic requirements. Therefore, if the home hasn’t been constructed yet, submit all the construction plans for your VA loan to be approved. You will also need to construct your home according to the building plans you submit.

Additional Requirements by Individual VA Lenders

Individual lenders may have different guidelines compared to federal requirements to approve your VA loan. These requirements are based on their own risk assessment and lending criteria, and some of them include:

  • The builder you choose should provide a 1-year warranty on the newly constructed house.
  • You cannot also construct your VA home on land that is not suitable or safe for a home.

It is possible to purchase land using your VA loan and then construct a home. However, take your time when shopping around for lenders to finance you. Keep in mind that you will find many willing lenders to finance the construction of a modular home than a prefabricated house. This is because prefabs depreciate much faster and this is the reason why most lenders are reluctant to finance them.


Ins and Outs of Assuming a VA Loan

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va loanVA loan assumption is a term that is quite unfamiliar to many people. Mortgage assumption is a purchase where the buyer takes over liability of a given mortgage loan from the seller. An assumption is common among people who desire to get out of liability.


VA Loan Assumption

With a normal transaction, the seller can sell off every liability associated with a mortgage loan. By the end of the deal, the buyer repays his or her mortgage in full. The seller then gets a new mortgage from a lender. Upon sale, the seller also has the option to restore the VA entitlement. However, with a VA assumption, the buyer takes over all the liabilities associated with the loan. The buyer continues to make all the payments as per the original agreement with the lender. For the assumption to take place, the lender must approve the deal.

Transfer of liability

In a VA assumption, the buyer does not obtain a new mortgage, but he or she continues with the mortgage obtained from the seller. Though there is transfer of ownership, the mortgage is still the same, and the buyer is answerable for any loan defaults. The buyer can only be off the hook if the seller issues a written release of liability. Furthermore, the seller‘s VA entitlement could still be linked together with the sold mortgage.


Benefits of VA assumptions

VA assumptions are beneficial if the following conditions exist;

  • When the interest rate of the mortgage sold is lower than the current rates in the market. The buyer will continue to pay using the initial rates.
  • If there are settlement charges, the two parties can avoid them.
  • The buyer has the chance to pay cash for any variation between the sales in the agreement and the current mortgage balance. This is a better option compared to taking a second mortgage, which might be at a higher rate.


VA Entitlement after Assumption

Most people wonder whether they can still use their VA entitlement after an assumption. This is possible as long as the buyer is willing to substitute his or her entitlement with the mortgage. This way, the seller’s entitlement can be free for another use. In case the entitlement is still linked with the VA assumption, the seller can contact a VA mortgage professional to help calculate and determine the entitlement that is remaining.

Should You Consider a VA assumption?

Though it can be convenient and cheap, it is sometimes risky. If a seller leaves an entitlement with the new buyer, his or her eligibility can be affected when a buyer makes poor decisions regarding the property. Also, when a buyer loses the property due to bankruptcy of foreclosure, the seller’s eligibility is affected. In case of a foreclosure, the VA will guarantee part of the loan. The VA will be at a loss whenever the mortgage forecloses. In order to restore the entitlement, the seller has to pay all the VA losses in full. Therefore, you should take time and weigh your options before you consider VA assumption.

How to Refinance Your VA Home Loan

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refinancing va loanVA loan is an alternative for men and woman who have served in the military. Qualifying spouses of military personnel can also use these loans. Refinancing can help those who have fallen on hard times. Refinancing is where you can rewrite your loan and throw out the other. It usually lowers the interest term and rate, which lowers the monthly amount you need to pay. If you or your spouse was military personnel, you have three options to refinance your home loan. Each of them can help you based on your individual needs.

Streamline Refinance Program

This program will benefit a veteran who already has a loan with the VA. The Streamline Refinance program allows you to reduce your monthly payment or lower the terms of your original loan. The advantages of this program include limited amounts of documentation, no credit checks and no appraisal. However, some lenders may still need you to verify all of these things before refinancing your loan. Another great advantage to this program is the fact that you will be paying a lower funding fee. For this loan, it is usually around five percent. The Streamline Refinance program is the lowest stress refinancing program available.


VA Cash-Out Financing

This program is mostly for veterans who have equity in their property. Using this method to refinance could mean that you could get money back from refinancing your loan. Again, this depends on your lender; some do not allow you to do this. This program will still allow you to have lower payments or lower the terms of your original loan document. With the equity already in your property, this could substantially change the amount you have to pay or the duration in which you have to pay for your home loan.

Refinance Your Conventional Loan

This program is best for people who do not have VA loans. The VA considers this a ‘Cash-Out refinance’ but you are unlikely to get any money back when you refinance. However, your money will not go to waste. The equity in your house will make your payments or term of payments that much shorter. One of the biggest advantages is that lenders are more than likely to cover the entire cost of your home loan. Another advantage would be that they would decide the amount of your funding fee based on your eligibility. The fee for this loan is generally between 2.5 and 3.3 percent. You do not have to pay this out-of-pocket. Many lenders will add this to the back of your loan.

Once you have chosen your program, you then need to submit your documentation in order to apply for that particular program. Choosing a program is half of the challenge of refinancing your home loan. While some of the advantages of the program are lender specific, refinancing can help you save money and lower the term of your interest. It is very advantageous to look at all your loan options before deciding on a certain program to use. To ensure that you are getting the best program, it is best to discuss all of your options with your lender.


VA Jumbo Loans: Do I Need One For San Diego?

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va jumbo loans

San Diego VA Jumbo Loans

San Diego has one of the most appealing and varied climates in the world. Within an hour’s drive of almost anywhere in the county, you can snow ski, water ski, four-wheel, spelunk, deep sea fish or dive, visit the zoo, museums including the aerospace museum, shop or visit street fairs, visit Mexico, or almost anything else your imagination can conceive.

The combination of climate and activity level make San Diego one of the most popular places to live in the world. For those who have retired, who are just starting out, or who are tired of the cold and snow in other areas, San Diego is the destination of choice for many.

The abundance of activities and the mild climate, as well as its proximity to Mexico, also make it an ideal tourist mecca requiring an abundance of temporary housing. Add an assortment of military bases located in the county and it’s easy to see why housing is at a premium in San Diego. Many military personnel and veterans opt to remain in the area for all the above reasons and more.

Home prices in San Diego are higher than they have been in almost a decade, with the median home price reaching $489,000 at the start of the second quarter of this year. Prices have risen more than 6 percent in the past year and show no sign of stabilization or decline.


Although there are home bargains available, they are scarce and therefore snapped up quickly. Particularly in the urban areas, housing costs tend to be higher than in the outlying areas. The somewhat lower price of the outlying areas can be appealing, but the rush hour commute can take hours to complete, which should be thoroughly considered before purchasing a home in a suburban or outlying area.

The VA considers San Diego to be a high cost-of-living area so the maximum guaranteed amount of a regular VA loan is higher than in most other areas, but a veteran may still want to take advantage of the VA jumbo loan if he or she has the working capital available. A jumbo VA loan can enable a veteran to purchase a higher-end home with less money down than a conventional loan would require and at a much better rate.

Jumbo VA loans are not available in all areas. And, while the interest rate for a jumbo may be somewhat higher than for a regular VA loan, it should still be lower than a conventional loan. To calculate the down payment necessary for a jumbo VA loan, first determine the guarantee cap for the area. Next, subtract the difference between the home desired and the amount the VA will guarantee. Twenty-five percent of that difference is the amount that will be needed for a down payment.

For those veterans who can afford a down payment, a VA jumbo loan can enable them to purchase a better home in San Diego than they might otherwise be able to afford. Either way, purchasing a home in San Diego, although expensive, should be a sound investment that will retain its value over time and/or appreciate substantially.

Documents Needed for Your VA Loan in San Diego

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san diego va loanFor most borrowers, they view applying for a loan as a daunting task. However, if you know what is required, you will have an easy time. For you to obtain a San Diego VA loan, you need to have with you some documents regarding your personal income and military service.

Documents You Need To Get A San Diego VA Loan

VA loans have lower credit scores and having your income verified is less strict as compared to other conventional loans. However, since the VA loans are some of the benefits that are bestowed upon servicepersons and military veterans, two documents are compulsory to obtain a VA loan and should be presented before closing. As a veteran, you should present the Certificate of Eligibility (COE) and Statement of Service or DD-214.

Certificate of Eligibility

This document is necessary to assure the financier that the borrower has met all the minimum standards to obtain a VA loan. There are two ways that you can acquire your Certificate of Eligibility. The first option is to file to the VA your Form 26-1880. The form requires you to fill in some basic information such as your name, your social security number, and your date of birth.

The other option is to ask your lender to fill the Certificate of Eligibility on your behalf. Some of the approved VA lenders can access these certificates in a matter of a few minutes and it will not cost you anything. Asking a VA-approved lender to fill the COE on your behalf does not mean you can only take a loan from them. The COE is portable and you can choose to work with other lenders.


This document contains all the details of your military service history and the terms of separation. This document is required if you served in the military but are not on active duty. Therefore, if you are no longer on duty, you should get the DD-214 after you depart from the armed service.

In case you are a U.S veteran and you cannot find your DD-214, you can get a duplicate from the National Personnel Records Center. In case you are unable to request for the duplicate, your lender can request the document on your behalf.

As an honorable veteran, your VA loan eligibility can never expire.

Statement of Service

If you are still an active service member, you do not need to present the DD-214 because this document is specified for veterans. However, you should provide evidence of your service duty, when you began your active duties and a signature from a senior officer or a senior assistant officer.

The statement of service document will have your full name, your date of birth, your social security number, your branch of service, and your rank. You will also have to indicate your last discharge if any and the type of discharge. In case you are a reservist, you should include a note that explains whether you are still an active reservist or if you are inactive.

Ensure You Write Your Statement Of Service On The Official Letterhead.

These are the most important documents you require for a VA loan and only in rare situations will you be asked to provide additional documents.