VA Loan Limits from August 6, 2012 to December 31, 2012

VA has issued Circular 26-12-7 increasing loan limits for VA loans closed through the end of the year in the following Washington state counties:

King, Pierce and Snohomish: $498,750

San Juan: $470,000

All other counties remain at $417,000

This means that in King County, a qualified Veteran can finance a home with zero down with a sales price up to $498,750.  With that said, some lenders are still reviewing this recent change and are evaluating whether or not they will recognize the new increase or keep loan limits are their current level. 

Any sales price/loan amount above this amount is considered a “VA Jumbo”.  VA does not have a loan limit for VA jumbos, however most lenders have “overlays” limiting loan amounts for VA Jumbos.  VA Jumbos allow the Vet to buy a home with reduced down payment. A simple formula to estimate the minimum down payment required is sales price minus loan amount x 25% = minimum down payment.

Right now, as of publishing this post, I’m quoting 3.375% for a sales price of $400,000 (apr 3.557) with zero down payment. The seller can pay closing cost and prepaids up to 4% of the sales price. There is no mortgage insurance, however VA loans do have a funding fee which can be financed.

If you are selling a home, please consider buyers who are preapproved for VA financing. It’s a great program benefiting those who have served our country.

VA Funding Fees…what briefly goes down, must quickly come back up.

Well the lower funding fees we thought we had were officially taken away when the President signed HR 674 raising the funding fees effective for VA loans closed November 22, 2011 through September 30, 2016.  The following is per Circular 26-11-19.

VA Funding Fees for Veterans 

First Time Use

Downpayment:

  • Less than 5%*:  2.15%
  • 5% but less than 10%:  1.50%
  • 10% or more:  1.25%    

Second and Subsequent Use

Downpayment:

  • Less than 5%*:  3.30%
  • 5% but less than 10%:  1.50%
  • 10% or more:  1.25%

VA Funding Fees for Reservist/National Guard 

First Time Use

Downpayment:

  • Less than 5%*:  2.40%
  • 5% but less than 10%:  1.75%
  • 10% or more:  1.50%    

Second and Subsequent Use

Downpayment:

  • Less than 5%*:  3.30%
  • 5% but less than 10%:  1.75%
  • 10% or more:  1.50%

Interest Rate Reductions (IRRL) are remaining at 0.50%.

I am happy to help you with your VA loan for your home located anywhere in Washington State.  A heartfelt thank you to those who have served our country.

Refinancing Your Seattle Area “High Balance” Mortgage Over $506,000

If you obtained a high balance mortgage over the current limit ($506,000 in King, Pierce and Snohomish Counties) and missed the opportunity to refinance before the loan amounts were reduced, you may still have some options worth checking out. Especially with Fannie Mae hinting that loan limits may be reduced further in just a few months, effective January 1, 2012. FHA loan limits may be further reduced in 2012 as well. We typically learn what 2012 limits will be in November.  The gap between yesterday's higher loan limits and conforming/FHA loan limits may actually widen in a few months making most of these scenarios tougher to obtain in 2012.

Conventional Financing

Consider a Jumbo/Non-Conforming Mortgage. Fixed rates or adjustable rate mortgages may be worth your consideration depending on your financial plans. Non-conforming mortgages are for well qualified borrowers and require a minimum credit score of 720 and a maximum loan to value of 80%. Loan amounts of $506,001 and higher are now considered a jumbo in King County as well as Snohomish and Pierce.

Cash In Refinance. Not happy with how your investments are doing in the stock market? Some home owners are electing to use their savings or investments in to bring their principal balance down to the conforming loan limit.

Piggy Back Second Mortgage.  We currently are able to go up to 85% of the appraised value with a second mortgage.  The loan amounts can be structured to keep the first mortgage at 80% of the loan to value and/or at the county high balance conforming limit. Home owners need to be well qualified with credit scores of 720 or higher.  HELOCs and amortized fixed rates are available.

FHA Loans. If your existing mortgage is an FHA loan, you may be in luck. Although FHA loan limits were reduced on October 1, they are allowing streamline refinances of the former temporary higher loan limits.  UPDATE: FHA LOAN LIMITS FROM NOV 18, 2011 – DECEMBER 2012 ARE $567,500 IN KING, PIERCE AND SNOHOMISH COUNTY.

VA Mortgage Loans. Unlike conforming and FHA loans, VA elected to not reduce their loan limits (technically the guarantee) for the remainder of 2011.  

With mortgage rates at a historic lows, it may be worth your time to contact a licensed mortgage originator to review your options. Whether or not you should refinance depends on your personal goals and financial scenario.  If your home is located anywhere in Washington, I'm happy to provide you detailed written rate quotes with no obligation.

How much can Sellers contribute towards Closing Cost?

If negotiated in your purchase and sales agreement, a Seller may agree to chip in towards some or all of your bona fide closing costs, prepaids and reserves.  They cannot contribute towards your down payment.  The amount the seller can contribute varies depending on the program type and the amount of home buyer’s down payment. The percentage is based on the sales price and if the credit exceeds the closing cost, the mortgage originator can often use it towards discount points to buy down the interest rate.

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How Much Do I Need for Down Payment to Buy a Home?

When you buy a home, most loans require a down payment.  A “down payment” is the difference between the loan amount (what is being financed) and the sales price.   Down payment percentages are based on the sales price.  Be prepared for every dollar that is used for your down payment to be documented or sourced (including large deposits reflected on your statements).  In addition to the down payment, there may be closing costs and reserves.  

Closing costs can be paid by lender credit (via an increase in interest rate) and sometimes the seller can contribute to closing costs.  If the seller is paying for closing costs, there may be restrictions based on the program type and the amount of down payment you are making.  If the seller is paying your closing costs, it needs to be negotiated in the purchase and sales agreement.   Reserves are the savings the lender wants you to have in your account after closing typically measured by months of your proposed mortgage payments.   It’s safe to plan on at least two months of proposed mortgage payments to be in your bank after closing for “reserves” whether your lender or loan program requries it or not. 

Some home buyers select their mortgage based on down payment requirements.  Here are some different programs beginning zero down payment options for homes that are owner occupied/primary residence.

VA Loans.  If you served our country, thank you.  You may qualify for a VA loan which allows zero down payment and the seller is permitted to pay 100% of your closing costs.   Zero down payment is available up to the VA loan limit, which in King, Pierce and Snohomish county is currently $481,250.   If your loan amount is above the current VA loan limit, your required down payment is 25% of difference between the loan limit and the sales price.   There is no mortgage insurance, however VA loans do have a one time funding fee.

USDA loans.  Homebuyers who are willing to live in a rural area and who meet income guidelines can also buy with zero down payment.  Like VA loans, there is no mortgage insurance and there is a one time funding fee.  Again, USDA loans have income and geographic restrictions.

FHA.  Currently FHA will allow a down payment as low as 3.5%.  Current FHA loan limits in the greater Seattle area is $567,500.  FHA loans do have mortgage insurance (upfront and monthly).  Sellers can currently contribute up to 6% of closing costs and prepaids, however this (and possibly the down payment) guideline are expected to change.  A family member can gift the down payment requirement of 3.5% which would effective make an FHA loan “zero down” for the home buyer.

Conventional.  Conventional programs are Fannie Mae and Freddie Mac programs.  If you’re putting down 20% or more, you avoid private mortgage insurance.   Any purchase with less than 20% down payment will most likely have private mortgage insurance.  Seller contributions towards closing costs and gifts from parents vary depending on your amount of down payment.

Private mortgage insurance rates and guidelines vary based on the loan to value (the amount of your down payment), credit scores and programs.  The lower your down payment, the more expensive the cost and the tougher the guidelines are because the loan is more risk for the private mortgage insurance company.

Fannie Mae Homepath.  Fannie Mae’s Homepath allows home buyers to purchase a foreclosed home owned by Fannie Mae with as little as 3% down payment, with no private mortgage insurance and no appraisal.  Fannie Mae often offers additional “special” incentive programs, including contributing towards closing cost.  This program is limited to specific homes that Fannie Mae currently owns.

Non-conforming/Jumbo loans. In the Seattle/King County area, any loan that is over $567,500 is a “jumbo loan”.   The loan limit varies depending on what county the home is located in.  For homes that are not in a designted ”high cost” area, a non-conforming loan amount is any loan $417,001 or higher. 

Plan on at least 20% down payment and having roughly six months reserves after closing depending on how many properties you currently own.  

I do have other resources that will allow a lower down payment of 10% down with a loan limit of $600,000 and “self insurance” (slightly higher rate in lieu of private mortgage insurance). 

What happened to piggy-back mortgages?   Every once in a while I’m contacted by a borrower who is interested in an 80-10-10 which would allow a borrower to put 10% down payment, using a second mortgage to make up for the difference between the first (primary) mortgage and the down payment.   Currently, most lenders are offering a maximum loan to value of 75 or 80% 85% which rules out the 80/10/10 scenario.  UPDATE August 25, 2011: Some of the lenders we work with are offering second mortgages up to 85% loan to value to well qualifed borrowers.

If you are considering buying a home located in Washington state, I’m happy to review your down payment options with you and help you develop your home purchasing plan.

Related post:

How to Buy a Home with $10,000

How Much Home Can I Afford?