Principles of California Real Estate

Principles of California Real Estate
Lesson 10: Applying for a Residential Loan

Applying for a Residential Loan
This lesson will cover four topics: choosing a lender the loan application process basic loan features residential financing programs

Choosing a Lender Types of lenders
Buyers may choose the type of lender they want, although most distinctions between mortgage lenders no longer exist.

Choosing a Lender Types of lenders
Buyers may choose the type of lender they want, although most distinctions between mortgage lenders no longer exist. The types of lenders include: savings and loans commercial banks savings banks credit unions mortgage companies

Types of Lenders Savings and loans
emphasize home purchase loans

Types of Lenders Savings and loans
emphasize home purchase loans get most of their loan funds from the savings of individuals

Types of Lenders Commercial banks
traditionally made short-term business loans

Types of Lenders Commercial banks
traditionally made short-term business loans now accept more long-term deposits and offer more long-term loans

Types of Lenders Savings banks
are owned by small depositors rather than stockholders

Types of Lenders Savings banks
are owned by small depositors rather than stockholders are relatively rare today

Types of lenders Credit unions
serve only members of a particular group

Types of lenders Credit unions
serve only members of a particular group specialize in small personal loans

Types of lenders Mortgage companies
are not depository institutions

are not depository institutions act as loan correspondents (an intermediary between an investor with money to lend and a home buyer looking for financing)

are not depository institutions act as loan correspondents (an intermediary between an investor with money to lend and a home buyer looking for financing) act on behalf of large investors

are not depository institutions act as loan correspondents (an intermediary between an investor with money to lend and a home buyer looking for financing) act on behalf of large investors make the most mortgage loans

sell their loans to investors on the secondary market

sell their loans to investors on the secondary market often service the loan for a fee

Mortgage company ≠ Mortgage broker

Mortgage company ≠ Mortgage broker A mortgage broker simply arranges loans, bringing borrowers and lenders together for a commission.

Types of Lenders Seller financing
Seller financing: When the seller extends credit to the buyer. (Most important source of private financing.)

Seller financing: When the seller extends credit to the buyer. (Most important source of private financing.) Seller financing is important when: buyer’s income is inadequate interest rates are high buyer has poor credit history

The buyer makes a downpayment and then gives the seller a mortgage, deed of trust, or land contract for the rest of the price.

The buyer makes a downpayment and then gives the seller a mortgage, deed of trust, or land contract for the rest of the price. Alternately, the buyer may finance much of the purchase price through an institutional lender and finance the rest through the seller (this is called secondary financing).

Summary Choosing a Lender: Types of Lenders
Savings and loans Commercial banks Savings banks Credit unions Mortgage companies Mortgage brokers Seller financing

Choosing a Lender Loan costs
Buyers also want to compare loan costs when choosing a lender.

Choosing a Lender Loan costs
Buyers also want to compare loan costs when choosing a lender. Loan costs include: interest charges origination fees discount points lock-in fees

Loan Costs Origination fees
Origination fee: An administrative charge for processing the loan.

Origination fee: An administrative charge for processing the loan. The fee is paid at closing.

Origination fee: An administrative charge for processing the loan. The fee is paid at closing. Also known as a loan fee, service fee, or administrative charge.

Loan Costs Discount points
Discount points: A fee paid to the lender at closing to increase the lender’s yield (or profit) on the loan.

Discount points: A fee paid to the lender at closing to increase the lender’s yield (or profit) on the loan. One point is equal to 1% of the loan amount. Two points are equal to 2% of the loan amount.

The more discount points a borrower pays, the lower the interest rate will be.

The more discount points a borrower pays, the lower the interest rate will be. The seller may choose to pay the buyer’s discount points to lower the buyer’s interest and make the loan more affordable.

The more discount points a borrower pays, the lower the interest rate will be. The seller may choose to pay the buyer’s discount points to lower the buyer’s interest and make the loan more affordable. This is known as a buydown.

Loan Costs Lock-ins Lock-in fee: A fee paid to the lender by the buyer to ensure that the interest rate will be guaranteed for a certain period.

Loan Costs Lock-ins Lock-in fee: A fee paid to the lender by the buyer to ensure that the interest rate will be guaranteed for a certain period. Without a lock-in, the lender may change the loan’s interest rate at any point before closing.

Loan Costs Truth in Lending Act
The Truth in Lending Act (TILA) is a federal consumer protection law that requires lenders to disclose the total cost of obtaining a loan.

The Truth in Lending Act (TILA) is a federal consumer protection law that requires lenders to disclose the total cost of obtaining a loan. TILA is implemented through Regulation Z, a Federal Reserve regulation.

TILA applies to consumer loans: used for personal, family, or household purposes

TILA applies to consumer loans: used for personal, family, or household purposes paid off in more than four installments or involving finance charges

TILA applies to consumer loans: used for personal, family, or household purposes paid off in more than four installments or involving finance charges for $25,000 or less or secured by real property

TILA does NOT apply to: loans made to corporations or organizations

TILA does NOT apply to: loans made to corporations or organizations loans made for business, commercial, or agricultural purposes

TILA does NOT apply to: loans made to corporations or organizations loans made for business, commercial, or agricultural purposes seller-financed transactions

If a loan is covered by TILA, the lender must disclose the loan’s: total finance charge

If a loan is covered by TILA, the lender must disclose the loan’s: total finance charge annual percentage rate (APR)

Total finance charge: The sum of all fees the borrower will have to pay, including interest, origination fees, discount points, service fees, mortgage insurance premiums.

Total finance charge: The sum of all fees the borrower will have to pay, including interest, origination fees, discount points, service fees, mortgage insurance premiums. The finance charge does NOT include seller-paid points, appraiser fees, or credit report fees.

Annual percentage rate (APR): The cost of the loan expressed as an annual percentage of the loan amount.

Annual percentage rate (APR): The cost of the loan expressed as an annual percentage of the loan amount. The APR (also called the effective interest rate) is a more accurate way to compare loan costs than by comparing nominal rates (the interest rates stated on the promissory notes).

TILA advertising rules: an advertisement can list the cash price or APR without triggering full disclosure requirements

TILA advertising rules: an advertisement can list the cash price or APR without triggering full disclosure requirements if an ad goes beyond those terms, it must also disclose: the required downpayment

TILA advertising rules: an advertisement can list the cash price or APR without triggering full disclosure requirements if an ad goes beyond those terms, it must also disclose: the required downpayment the points

TILA advertising rules: an advertisement can list the cash price or APR without triggering full disclosure requirements if an ad goes beyond those terms, it must also disclose: the required downpayment the points terms of repayment (i.e., loan balance and total number of payments)

TILA also: requires a good faith estimate of closing costs to be given to the borrower within three days of the loan application date

TILA also: requires a good faith estimate of closing costs to be given to the borrower within three days of the loan application date gives home equity borrowers a right of rescission

TILA also: requires a good faith estimate of closing costs to be given to the borrower within three days of the loan application date gives home equity borrowers a right of rescission The borrower has three days to change her mind after signing the loan agreement.

Loan Costs Mortgage Loan Broker Law
California’s Mortgage Loan Broker Law requires real estate agents who act as loan brokers to give borrowers a disclosure statement.

The disclosure statement must list: all costs involved in obtaining the loan

The disclosure statement must list: all costs involved in obtaining the loan the amount the borrower will actually receive after all costs have been deducted

The disclosure statement must be given to the borrower: before the borrower signs the loan papers, or

The disclosure statement must be given to the borrower: before the borrower signs the loan papers, or within three days of receiving the loan application, whichever is earlier.

The disclosure statement must be given to the borrower: before the borrower signs the loan papers, or within three days of receiving the loan application, whichever is earlier. The agent must keep a copy of the statement for three years.

The law also: prohibits balloon payments for certain loans

The law also: prohibits balloon payments for certain loans limits the size of commissions and fees that can be charged for: first deeds of trust for less than $30,000 junior deeds of trust for less than $20,000

Loan Costs Seller Financing Disclosure Law
California’s Seller Financing Disclosure Law applies to seller-financed loans if: the loan is for a residential property of up to four units

California’s Seller Financing Disclosure Law applies to seller-financed loans if: the loan is for a residential property of up to four units the financing calls for a finance charge or more than three payments

California’s Seller Financing Disclosure Law applies to seller-financed loans if: the loan is for a residential property of up to four units the financing calls for a finance charge or more than three payments an arranger of credit is involved in the transaction

Arranger of credit: A person who is involved in negotiating a credit agreement, such as a real estate agent who helps arrange seller financing.

The law requires the following disclosures to be made to the borrower: the terms of the note and security instrument

The law requires the following disclosures to be made to the borrower: the terms of the note and security instrument a description of any senior encumbrances

The law requires the following disclosures to be made to the borrower: the terms of the note and security instrument a description of any senior encumbrances whether a balloon payment is required

The law requires the following disclosures to be made to the borrower: the terms of the note and security instrument a description of any senior encumbrances whether a balloon payment is required employment, income, and credit information about the buyer

Summary Choosing a Lender: Loan Costs
Origination fee Discount points Lock-in Truth in Lending Act Total finance charge Annual percentage rate Mortgage Loan Broker Law Seller Financing Disclosure Law

Applying for a Residential Loan Loan application process

Loan Application Process
Once a lender is chosen, the buyer fills out the loan application. This may be done: after a property has been chosen

Loan Application Process
Once a lender is chosen, the buyer fills out the loan application. This may be done: after a property has been chosen before the buyer begins looking for a home (called prequalification)

Loan Application Process Required information
The buyer will need to give the lender the following: personal information (such as age and education) current monthly housing expenses employment information

Loan Application Process Required information
The buyer will need to give the lender the following: personal information (such as age and education) current monthly housing expenses employment information current income assets and liabilities type of loan sought

Loan Application Process Underwriting
The lender will evaluate the completed application according to the lender’s qualifying standards (called underwriting the loan).

The lender will evaluate the completed application according to the lender’s qualifying standards (called underwriting the loan). The loan underwriter will assess the degree of risk the loan would create and decide whether the loan should be approved.

Underwriters focus on three main considerations about the borrower: income net worth credit history

Underwriting Income The underwriter checks to see if the applicant has enough stable monthly income to make the loan payments.

Underwriting Income The underwriter checks to see if the applicant has enough stable monthly income to make the loan payments. She will consider the: quality quantity and durability of the applicant’s income

Underwriting Income Quality and durability of income:
income from a permanent job, or regular benefits such as Social Security, will be considered stable income

Underwriting Income Quality and durability of income:
income from a permanent job, or regular benefits such as Social Security, will be considered stable income earnings from a temporary job are not stable income

Underwriting Income Quantity of income:
The underwriter uses income ratios to determine whether the applicant’s income is enough.

Underwriting Income Quantity of income:
The underwriter uses income ratios to determine whether the applicant’s income is enough. There are two ratios: a housing expense to income ratio a debt service to income ratio

Underwriting Net worth
The borrower’s net worth is determined by subtracting her total liabilities from total assets.

Underwriting Net worth
The borrower’s net worth is determined by subtracting her total liabilities from total assets. An applicant must have enough funds to pay for the downpayment and closing costs while retaining at least several months’ reserves.

Underwriting Credit history
The underwriter will also consider the applicant’s credit history, including factors such as: late payments on debts bankruptcies foreclosures

Underwriters typically use credit scores to evaluate the borrower’s likelihood of defaulting on a loan.

Underwriters typically use credit scores to evaluate the borrower’s likelihood of defaulting on a loan. Credit scores are issued by credit reporting agencies.

Underwriters typically use credit scores to evaluate the borrower’s likelihood of defaulting on a loan. Credit scores are issued by credit reporting agencies. California law entitles consumers to receive a copy of their credit information upon request.

Underwriting Qualifying the property
The underwriter also evaluates the property, to make sure it provides adequate security for the loan amount.

Underwriting Qualifying the property
The underwriter also evaluates the property, to make sure it provides adequate security for the loan amount. The underwriter does this with an appraisal report.

Summary Loan Application Process
Prequalifying Loan application Stable monthly income Income ratios Net worth Credit history

Applying for a Residential Loan Basic loan features

Basic Loan Features Basic loan features include: the loan term
amortization loan-to-value ratios secondary financing fixed or adjustable interest rates

Basic Loan Features Loan term
Loan term: How long a borrower has to repay a loan (also called repayment period).

Loan term: How long a borrower has to repay a loan (also called repayment period). The loan term affects the amount of the monthly payment and the amount of interest paid over the life of the loan.

Common loan terms: 30-year: Main advantage is smaller monthly payment. (Most loans have a 30-year term.)

Common loan terms: 30-year: Main advantage is smaller monthly payment. (Most loans have a 30-year term.) 15-year: Bigger monthly payment, but borrowers get a lower interest rate, pay off the loan in half the time, and pay much less interest overall.

Basic Loan Features Amortization
Amortized loan: A loan that requires regular installment payments of both principal and interest.

Amortized loan: A loan that requires regular installment payments of both principal and interest. Fully amortized loan: The monthly payments will pay off the entire debt at the end of the loan term.

Amortized loan: A loan that requires regular installment payments of both principal and interest. Fully amortized loan: The monthly payments will pay off the entire debt at the end of the loan term. Partially amortized loan: The monthly payments won’t be enough to pay off the entire debt; the borrower will owe a balloon payment at the end of the term.

Basic Loan Features Loan-to-value ratios
Loan-to-value ratio (LTV): The relationship between the loan amount and the value of the security property, expressed as a percentage.

Loan-to-value ratio (LTV): The relationship between the loan amount and the value of the security property, expressed as a percentage. An $80,000 loan on a property worth $100,000 would have an 80% LTV.

The lower the LTV, the greater the buyer’s equity in the property.

The lower the LTV, the greater the buyer’s equity in the property. Equity is the difference between the property’s value and any liens against it.

Lenders prefer a lower loan-to-value ratio because: the borrower makes a larger investment and will try harder to avoid foreclosure

Lenders prefer a lower loan-to-value ratio because: the borrower makes a larger investment and will try harder to avoid foreclosure in there is a foreclosure sale, the lender is likelier to be able to recover the entire debt

Basic Loan Features Secondary financing
Buyer may take out a second mortgage loan to pay for part of the downpayment and closing costs.

Basic Loan Features Secondary financing
Buyer may take out a second mortgage loan to pay for part of the downpayment and closing costs. The source of secondary financing can be: an institutional lender the property seller a private investor

Basic Loan Features Interest rates
The interest rate for a loan can be either fixed or adjustable.

The interest rate for a loan can be either fixed or adjustable. Fixed-rate: the interest rate remains the same throughout the loan term.

The interest rate for a loan can be either fixed or adjustable. Fixed-rate: the interest rate remains the same throughout the loan term. Adjustable-rate: the interest rate is adjusted periodically throughout the loan term to reflect current market interest rates.

Interest Rates Adjustable-rate Mortgages (ARMs)
With ARMs, the borrower rather than the lender bears the risk of market rate fluctuations.

Interest Rates Adjustable-rate Mortgages (ARMs)
With ARMs, the borrower rather than the lender bears the risk of market rate fluctuations. Because of this risk, ARMs have lower initial interest rates than fixed-rate loans.

ARMs Elements Elements of an ARM include the: index margin
adjustment periods caps possibility of negative amortization

Elements of an ARM Index
Index: A published statistical report that indicates changes in the cost of money.

Index: A published statistical report that indicates changes in the cost of money. An ARM’s interest rate is initially set according to market rates at the time the loan begins.

Index: A published statistical report that indicates changes in the cost of money. An ARM’s interest rate is initially set according to market rates at the time the loan begins. The rate is then adjusted periodically according to the selected index.

Elements of an ARM Margin
Margin: The difference between the index rate and the interest rate charged to the borrower.

Margin: The difference between the index rate and the interest rate charged to the borrower. The lender adds a margin (i.e., 2 percentage points) to the index rate to cover the lender’s expenses and profit.

Margin: The difference between the index rate and the interest rate charged to the borrower. The lender adds a margin (i.e., 2 percentage points) to the index rate to cover the lender’s expenses and profit. The margin stays the same throughout the loan term.

Elements of an ARM Adjustment periods
ARMs have two adjustment periods. Rate adjustment period: This determines how often the interest rate of an ARM can change.

Elements of an ARM Adjustment periods
ARMs have two adjustment periods. Rate adjustment period: This determines how often the interest rate of an ARM can change. Payment adjustment period: This determines how often the monthly payment may change.

Elements of an ARM Caps Lenders use caps to avoid large payment increases that might force a borrower into default.

Elements of an ARM Caps Lenders use caps to avoid large payment increases that might force a borrower into default. Interest rate cap: Limits the amount the interest rate may go up over a year, or over the loan term.

Elements of an ARM Caps Lenders use caps to avoid large payment increases that might force a borrower into default. Interest rate cap: Limits the amount the interest rate may go up over a year, or over the loan term. Payment cap: Limits the amount the lender can raise the monthly payment amount.

Elements of an ARM Negative amortization
Some ARMs (not many) permit negative amortization: causes a loan’s principal balance to go up rather than down, as unpaid interest is added to the balance

Elements of an ARM Negative amortization
Some ARMs (not many) permit negative amortization: causes a loan’s principal balance to go up rather than down, as unpaid interest is added to the balance occurs if increases in the monthly payment amount don’t keep up with increases in the loan’s interest rate

Summary Basic Loan Features
Loan term Amortization Loan-to-value ratio Secondary financing Fixed-rate mortgage Adjustable-rate mortgage Index Margin Rate and payment adjustment periods Rate and payment caps Negative amortization

Applying for a Residential Loan Basic loan features

Residential Financing Programs
The major types of residential financing include: conventional loans FHA-insured loans VA-guaranteed loans Cal-Vet loans

Residential Financing Programs Conventional loans
Conventional loan: Any institutional mortgage not backed by a government program.

Conventional loan: Any institutional mortgage not backed by a government program. Lenders can make conventional loans according to their own rules, but most follow Fannie Mae and Freddie Mac standards so the loans can be sold on the secondary market.

Nonconforming loan: A loan that doesn’t meet Fannie Mae or Freddie Mac standards.

Nonconforming loan: A loan that doesn’t meet Fannie Mae or Freddie Mac standards. A lender can make a nonconforming loan, but will have to keep it in its own portfolio.

Conventional Loans Loan-to-value ratios
Conventional loans are divided into 80%, 90%, and 95% loans.

Conventional loans are divided into 80%, 90%, and 95% loans. If a loan falls between these percentages, round up to determine which kind it is.

Conventional loans are divided into 80%, 90%, and 95% loans. If a loan falls between these percentages, round up to determine which kind it is. A loan with an 81% LTV, for instance, is a 90% loan.

The standard LTV is 80% for conventional loans.

The standard LTV is 80% for conventional loans. Loans with 90% or 95% LTVs represent added risk for the lender, and will require the borrower to pay private mortgage insurance.

Conventional Loans Private mortgage insurance
Private mortgage insurance covers only a portion of the loan, typically 20% to 25% of the loan amount.

Private mortgage insurance covers only a portion of the loan, typically 20% to 25% of the loan amount. If a borrower defaults on a loan with PMI, the lender can: sell the property, or

Private mortgage insurance covers only a portion of the loan, typically 20% to 25% of the loan amount. If a borrower defaults on a loan with PMI, the lender can: sell the property, or relinquish the property to the insurer and file a claim for any losses suffered, up to the policy amount

Conventional Loans Owner-occupancy
A conventional lender usually requires the borrower to live in the house rather than renting it to others.

Conventional Loans Owner-occupancy
A conventional lender usually requires the borrower to live in the house rather than renting it to others. Exception: when the downpayment is 25% or more.

Conventional Loans Qualifying standards
Fannie Mae and Freddie Mac set underwriting standards for conventional loans.

Fannie Mae and Freddie Mac set underwriting standards for conventional loans. Their standards include both a maximum housing expense to income ratio and a maximum total debt service ratio.

Fannie Mae and Freddie Mac set underwriting standards for conventional loans. Their standards include both a maximum housing expense to income ratio and a maximum total debt service ratio. The applicant must meet standards under both these tests.

Conventional Loans Assumption
Most conventional loans contain an alienation clause.

Conventional Loans Assumption
Most conventional loans contain an alienation clause. This prevents the borrower from selling the loan and having the buyer assume the loan without lender’s permission.

Summary Conventional Loans
Nonconforming loan Conventional LTVs Owner-occupancy Private mortgage insurance Qualifying standards

Residential Financing Programs FHA-insured loans
The Federal Housing Administration (FHA) was created in 1934 to promote home sales and financing for low- and middle-income homebuyers.

Residential Financing Programs FHA-insured loans
The Federal Housing Administration (FHA) was created in 1934 to promote home sales and financing for low- and middle-income homebuyers. The FHA’s main activity is insuring mortgage loans through the Mutual Mortgage Insurance Plan.

Residential Financing Programs FHA-insured Loans
The FHA does not accept loan applications directly from borrowers.

Residential Financing Programs FHA-insured Loans
The FHA does not accept loan applications directly from borrowers. Borrowers should apply to a lender that has been approved to make FHA-insured loans.

FHA-insured Loans Key characteristics
Key characteristics of FHA loans: Typically 30-year loans, although they may be shorter.

Key characteristics of FHA loans: Typically 30-year loans, although they may be shorter. Property must be owner-occupied, with 1-4 units. Lender will charge a 1% origination fee.

Key characteristics of FHA loans: Typically 30-year loans, although they may be shorter. Property must be owner-occupied, with 1-4 units. Lender will charge a 1% origination fee. Qualifying standards are less stringent than conventional loans. FHA loan may have a lower interest rate than a conventional loan.

FHA loans require a low downpayment, often less than 3% of the loan amount. Mortgage insurance is required for every FHA loan for the duration of the loan term.

FHA loans require a low downpayment, often less than 3% of the loan amount. Mortgage insurance is required for every FHA loan for the duration of the loan term. Maximum FHA loan amount varies from area to area. Loan limits in areas with expensive housing are higher than those in areas of inexpensive housing.

FHA-insured Loans Qualifying standards
The maximum income ratios are higher for FHA borrowers than conventional borrowers.

The maximum income ratios are higher for FHA borrowers than conventional borrowers. An FHA borrower’s mortgage payments can be a higher percentage of his income than a conventional borrower.

The FHA program doesn’t have maximum income limits.

The FHA program doesn’t have maximum income limits. A buyer at any income level could qualify for an FHA loan so long as the loan amount didn’t exceed the maximum allowed for the area.

FHA loans require both: a one-time mortgage insurance premium (paid at closing), and

FHA loans require both: a one-time mortgage insurance premium (paid at closing), and annual mortgage insurance premiums (usually paid each month).

FHA-insured Loans Assumption
FHA loans that closed before 1990 may be freely assumed.

FHA loans that closed before 1990 may be freely assumed. Newer loans may be assumed only if the buyer: meets FHA underwriting standards

FHA loans that closed before 1990 may be freely assumed. Newer loans may be assumed only if the buyer: meets FHA underwriting standards intends to occupy the home as a primary residence

Summary FHA-insured Loans
Federal Housing Administration Owner-occupancy Maximum loan amount Minimum cash investment FHA qualifying standards

Residential Financing Programs VA-guaranteed loans
VA loans: Loans guaranteed by the government, meaning that if the borrower defaults, the Department of Veterans Affairs will reimburse the lender for all or part of its loss.

VA-Guaranteed Loans Eligibility
To be eligible for a VA loan, a borrower must have served a period of active duty in the U.S. armed forces.

VA-Guaranteed Loans Eligibility
To be eligible for a VA loan, a borrower must have served a period of active duty in the U.S. armed forces. Spouses of deceased or missing veterans, and long-term national guard or reserves members, are also eligible.

VA-guaranteed Loans Loan process
An eligible veteran will be issued a Certificate of Eligibility by the VA.

An eligible veteran will be issued a Certificate of Eligibility by the VA. The veteran will apply to a lender, not the VA.

An eligible veteran will be issued a Certificate of Eligibility by the VA. The veteran will apply to a lender, not the VA. The property must be appraised according to VA guidelines. The appraised value will be set forth on a Certificate of Reasonable Value.

VA-guaranteed Loans Characteristics
Key characteristics of VA loans: VA loans don’t require a downpayment or have a maximum loan amount.

Key characteristics of VA loans: VA loans don’t require a downpayment or have a maximum loan amount. VA qualifying standards are even less strict than FHA standards.

Key characteristics of VA loans: VA loans don’t require a downpayment or have a maximum loan amount. VA qualifying standards are even less strict than FHA standards. VA loans do not require mortgage insurance.

A VA loan applicant must intend to occupy the property being purchased.

A VA loan applicant must intend to occupy the property being purchased. VA loans are usually fixed-rate 30-year loans.

A VA loan applicant must intend to occupy the property being purchased. VA loans are usually fixed-rate 30-year loans. VA borrowers may opt to pay discount points on a loan.

VA-guaranteed Loans VA guaranty
Although there is no maximum VA loan amount, the VA sets a maximum guaranty amount.

VA-guaranteed Loans VA guaranty
Although there is no maximum VA loan amount, the VA sets a maximum guaranty amount. For a large loan, the lender may require a downpayment if the purchase price exceeds the maximum guaranty amount.

VA-guaranteed Loans Restoration of entitlement
If a veteran pays off a VA loan: his or her full guarantee entitlement is restored

If a veteran pays off a VA loan: his or her full guarantee entitlement is restored he or she can obtain another VA loan with the maximum guaranty

If a VA loan is assumed, in order for the seller’s entitlement to be restored, the buyer must be an eligible veteran willing to substitute his entitlement.

VA-guaranteed Loans Qualifying standards
A VA loan underwriter will apply only one ratio, a total debt to income ratio.

A VA loan underwriter will apply only one ratio, a total debt to income ratio. The underwriter must also consider minimum residual income requirements.

A VA loan underwriter will apply only one ratio, a total debt to income ratio. The underwriter must also consider minimum residual income requirements. The borrower must have a certain amount of income left after meeting all monthly debt obligations.

Residential Financing Programs Cal-Vet Loans
Veterans in California may also obtain a home loan through the California Veterans Farm and Home Purchase Program. These are called Cal-Vet loans.

The state Department of Veterans Affairs processes, originates, and services the loans.

The state Department of Veterans Affairs processes, originates, and services the loans. The state purchases and takes title to the property, and then sells it to the veteran through a land contract.

Key characteristics of Cal-Vet loans. To be eligible, a veteran must have served on active duty during a wartime period.

Key characteristics of Cal-Vet loans. To be eligible, a veteran must have served on active duty during a wartime period. Maximum loan amounts vary from county to county.

Key characteristics of Cal-Vet loans. To be eligible, a veteran must have served on active duty during a wartime period. Maximum loan amounts vary from county to county. A small downpayment is required, but LTVs of 95% to 97% are common.

A Cal-Vet borrower pays a funding fee and application fee, but cannot pay discount points.

A Cal-Vet borrower pays a funding fee and application fee, but cannot pay discount points. The home or farm must be owner-occupied.

A Cal-Vet borrower pays a funding fee and application fee, but cannot pay discount points. The home or farm must be owner-occupied. New Cal-Vet borrowers must purchase life insurance through the Cal-Vet program.

Summary VA-guaranteed and Cal-Vet Loans
VA-guaranteed loan VA eligibility Certificate of Reasonable Value VA guaranty Restoration of entitlement VA qualifying standards Cal-Vet loan Cal-Vet eligibility

Principles of California Real Estate

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