VA Home Loan - Tips and Timeline?

[Skip]

PMI has always been a scam of epic proportions. The house is the collateral. If the risk is too high, the lender should not loan.

My grandparents actually got a refund of PMI premiums (late 60s I think). I guess very few of the Greatest Generation defaulted on their mortgages leaving a surplus in the insurance pool.

I don't think that happens anymore.

But yes, total scam.

The reason for PMI, and it's cutoff at 80% LTV on conventional loans, is that when the borrower defaults on the loan and the lender forecloses on the house, the lender then has to resell the house to get their money back. But, foreclosure sales usually only sell for 80% of their value; so the difference between the sale price and the defaulted loan amount is paid for by the PMI company. Essentially youre paying insurance to make sure the lender doesn't lose money in case you default on the loan. Typical insurance "scam", your money protects someone else. FHA loans are the same concept, but you pay PMI for the life of the loan. This is because FHA is usually used for borrowers with lower credit, etc.

[snip]

Yes, I know the stated reasons for PMI.

But these same banks will write unsecured credit card debt into the tens of thousands risking a lot of money that may never get back. So the question is not if the bank can completely recover on defaulted debt, but how much they get from debt consumers for the privilege of loaning our own money (0% Fed rate) back to us. And after 2007/08, turns out we back all those loans anyway (not just Freddie/Fannie).

If PMI were actually an insurance product, the homeowner would own the policy and be protected from a default/short sale. But banks still ding borrowers' credit for shorts and 1099 the difference, right (reverted back for TY2015)? So the bank is forcing the consumer to purchase an insurance product that doesn't mitigate a default for the borrower.

And if PMI does pay a claim to the banks, why are the banks issuing 1099s to deduct the losses? (I've always wondered that) They shouldn't be able to deduct an insured/paid loss, but the insurance company can. So are they acting as both?

It would be more honest of the banks to just add a few basis pts to a loan with > 80% LTV. Then it would be completely tax deductible for the borrower (up to the limits on mortgage interest).

[MarkCO]

Also, the PMI on conventional loans is based on the original LTV. So, when you buy a house, make improvements, markets increase, they won't drop the PMI in most cases without a lot of time and effort. On our first home, I refinanced at 1 year just to remove the PMI as the value had gone up 15%, but the bank would not drop the PMI even though we were at 72% LTV, so I just went with a different lender.

[Irving]

Also, the PMI on conventional loans is based on the original LTV. So, when you buy a house, make improvements, markets increase, they won't drop the PMI in most cases without a lot of time and effort. On our first home, I refinanced at 1 year just to remove the PMI as the value had gone up 15%, but the bank would not drop the PMI even though we were at 72% LTV, so I just went with a different lender.

I had no issue getting the bank to drop the PMI after a refinance. I had to get another home inspection and the market going up helped more than anything. Maybe I just got lucky though.

[MarkCO]

"after a refinance"...is the issue. When you are at 72% LTV and they won't drop PMI without a refi even though they would lend you 80% LTV with no PMI, that kind of spells racket.

[Irving]

Well, when I refinanced, I still wasn't quite at 80/20. During the process I made sure to let them know that the only reason I was refinancing with them was to get rid of the PMI, and if I couldn't do that, I was going to have to look elsewhere. They said it was no problem and to just notify them when I crossed the threshold. It was a few months after the refi and I just called them to let them know. They had me email or fax something (don't remember) and the PMI hasn't been showing up on the bill ever since. Like I said, I may have just gotten lucky with that credit union.

[Veritas]

Don't forget to factor in the VA funding fee. Usually 2-3% of purchase price. Its usually waved if you have any type for disability from you service. Also, I recently refinanced to VA from an FHA. Paint wasn't in such great shape so I had to paint the house before I could close. VA can be real picky sometimes about the condition of the house.

[brutal]

Don't forget to factor in the VA funding fee. Usually 2-3% of purchase price. Its usually waved if you have any type for disability from you service. Also, I recently refinanced to VA from an FHA. Paint wasn't in such great shape so I had to paint the house before I could close. VA can be real picky sometimes about the condition of the house.

Good point - I had forgotten about. Now that I recall, when I did my first and only VA loan, I was on 10% disability (back injury which they subsequently took away after 12 months) so I didn't have to pay the funding fee.

[Great-Kazoo]

Don't forget to factor in the VA funding fee. Usually 2-3% of purchase price. Its usually waved if you have any type for disability from you service. Also, I recently refinanced to VA from an FHA. Paint wasn't in such great shape so I had to paint the house before I could close. VA can be real picky sometimes about the condition of the house.

VA considers peeling paint, on houses older than X years old, to contain lead. Our current home was built in 1904 had peeling paint on 2 window frames. Even though the home has been repainted within a 15 year period. To them as they put it "potential for trace lead residual" was enough to warrant repainting. However, the only painting they required was to the 2 windows. Once done we closed.
While the VA is a great way to buy a home. Their quirkiness for repairs prior to approval is somewhat off.

[skoodge]

VA appraisals are the most strict in terms of requirements/guidelines on acceptability. But peeling paint is also an FHA issue depending where the paint is. The problem is peeling paint exposes bare wood which can then rot. That rot can then cause a safety/health hazard as the rot can eventually cause structural issues, etc.

But also, as the Great-kazoo said, interior paint can have lead based paint issues on houses built before 1978. FHA does has a disclosure that they require to be signed on houses built before this date such that the borrower is aware of the issue. I'm not sure if VA has this same requirement.

[Great-Kazoo]

VA appraisals are the most strict in terms of requirements/guidelines on acceptability. But peeling paint is also an FHA issue depending where the paint is. The problem is peeling paint exposes bare wood which can then rot. That rot can then cause a safety/health hazard as the rot can eventually cause structural issues, etc.

But also, as the Great-kazoo said, interior paint can have lead based paint issues on houses built before 1978. FHA does has a disclosure that they require to be signed on houses built before this date such that the borrower is aware of the issue. I'm not sure if VA has this same requirement.

Appreciate the date clarification. IF one is in a hurry avoid a VA or FHA loan. If you're a 1st time home buyer in CO there's a few options (or were) that offer low interest rates. Depending where they are in todays market