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5 Tips for Getting the Best VA Loan Rate

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VA loans are a great benefit for eligible veterans, active duty service members, and their spouses. However, don’t take it as a given that you will be automatically offered the lowest rate just because you qualify for the program. Getting the best deal on your VA loan involves doing your due diligence and learning how to navigate the system.

Although the VA loan program offers favorable terms like no down payment and no private mortgage insurance (PMI) to those who qualify, the loans themselves are still issued through private financial institutions, just like any other mortgage. And while it is true VA loan rates are generally low compared to conventional mortgages, they will still fluctuate depending on your personal info and changes in the market.

With that in mind, here are a few tips to make sure you are saving money and making the most out of your well-deserved VA loan benefit.

1. Understand VA loan types

The VA benefit includes several loan options available for purchase, refinance or home improvements for those who meet the service requirements and have their certificate eligibility (COE).

Interest rates for VA loans can vary significantly depending on the type of loan you choose. That’s because most lenders have different eligibility requirements tied to fixed and adjustable rate loan products.

Like other home loan programs, refinance rates for VA loans generally tend to be higher than purchase loans. Your mortgage term, or the length of time you have to repay the loan, also influences your interest rate.

If you opt to repay your mortgage over a short period, with a 10- or 15-year mortgage, these terms often have a lower interest rate and overall cost. However, shorter term loans have higher monthly payments.

Meanwhile, a traditional 30-year loan may have lower monthly installments — but the overall cost and interest rate will be higher because the bank is taking on more risk.

Additionally, the VA has several other programs that may prove a better deal. Make sure to ask your lender about rates on the following items if you are interested and believe you qualify:

  • Energy Efficient Mortgage: allows qualified borrowers to bundle the cost of acceptable home energy improvements into their purchase, refinancing or VA streamline refi.
  • Native American Direct Loan: If you or your spouse is Native American, you can get a loan to buy, build, or improve a home on federal trust land.
  • Cash-Out Refinance: With a cash-out refi, you can replace your current VA loan with a new term and rate. You can also borrow against your home equity and use the cash to fulfill other financial goals.
  • Interest Rate Reduction Refinance (IRRRL): An IRRRL requires less paperwork than a cash-out refinance, and often doesn’t require an appraisal. This can save you underwriting fees and time, hence it being regularly referred to as a “streamline refinance.”

2. Lower your debt-to-income ratio

To calculate your VA loan rate, lenders will take a holistic look at your monthly expenses to determine your ability to repay a mortgage. Unlike other home loan programs, the VA considers your residual income, or your monthly income after taxes and debts are paid off.

Similarly, lenders in the VA home loan program also look at your debt-to-income ratio, which is your total debt divided by your gross income. Your DTI generally includes major installment debts such as mortgages, student loans, credit card debt, and car loans pulled from your credit report.

As a rule of thumb, the VA recommends a debt-to-income ratio of at most 41%, including your mortgage. However, lenders set their own maximum for DTI on VA loans and may be willing to accept a higher DTI in exchange for a higher interest rate. They may also have some guidelines in terms of credit scores they are willing to accept.

To lower your DTI, you can start by paying off debts such as your credit cards and minimizing expenses.

You can work on your credit by evaluating your credit report from the three major credit bureaus — Experian, TransUnion and Equifax. You can obtain a free copy of each bureau’s credit report annually at AnnualCreditReport.com. (Due to the COVID-19 pandemic, free reports will be available weekly until April 2022.) Having your credit report on hand can help you identify any errors or negative marks you can change and repair your credit, if need be.

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A low credit score can negatively impact your mortgage application and interest rate.

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3. Determine whether or not you should make a down payment

VA-backed loans don’t require a down payment. However, there are circumstances in which a down payment may be necessary or worthwhile.

  1. Lower your interest rate: A down payment could reduce your interest rate and save you money over the life of your loan. Subsequently, a lower interest rate will lessen your monthly mortgage payments.
  2. Reduce your VA funding fee: VA-backed loans require first-time home buyers to pay a funding fee between 1.4% and 2.3%. If you’re a second-time homebuyer, your VA funding fee could be up to 3.6% of the loan amount. Providing a downpayment can encourage your lender to reduce your funding fee amount.
  3. Start building home equity from day one: By making a down payment, you’ll start building home equity right off the bat. This can be a worthwhile investment if you’re interested in funding other financial goals through a cash-out refinance or home equity line of credit down in the future.
  4. Stand out in a competitive market: A down payment can let sellers know that you’re a serious buyer, and strengthen your offer. This can be an advantage worth having in a competitive housing market.
  5. Your lender requires it: You may have to offer a down payment if your home’s cost exceeds its appraised value, you didn’t get full entitlement, the home costs more than the conforming limit or you don’t qualify for a large enough loan.

Whether this is your first or subsequent time purchasing a home, your COE will show if you have full or remaining entitlement. Your VA entitlement is the amount the U.S. Department of Veterans Affairs guarantees on your loan, it will also determine if you need to provide a down payment.

Eligible borrowers with full entitlement no longer have to provide a down payment on loans over $144,000. In the case of default, the VA provides a federal guarantee that will reimburse the lender, 25% of the entire loan amount for those with full entitlement.

Borrowers that have less than full entitlement are subject to the conforming loan limits in their county. The VA guarantees 25% of the county loan limit for those with remaining entitlement as long as they purchase within the conforming loan limit for their county. However, if borrowers with less than full entitlement borrow above the county’s loan limit, they must provide a down payment.

4. Consider applying for state loan programs for veterans

In addition to the federal assistance available for eligible veterans to purchase homes, borrowers can apply to special home buying assistance programs in their state. These programs can provide rate discounts, down payment or closing cost assistance.

One example, Florida’s Salute Our Soldiers Military Loan Program, offers qualifying veterans or active military members 30-year fixed rate mortgage loans below market rate. The program includes several down payment assistance options that are available in all 67 counties throughout the state of Florida. These could include up to $10,000 in down payment or closing cost assistance.

Most states and counties provide similar state-run veteran home loan programs to help eligible VA borrowers purchase a home at an affordable rate.

5. Compare lender rates before settling on a VA home loan

A mortgage is one of the most expensive investments you’ll make in your life, as such it’s important to compare VA loan lenders and consider all options in order to get the best deal.

Before you begin shopping for rates, you should know the type of loan and length of term you want. You should also know the loan amount, the rate type (fixed or adjustable) you prefer, and if you are going to offer a down payment.

The next step is to contact several lenders you are considering and request a loan estimate. For a mortgage loan, requesting a pre approval letter from three or more lenders will give you a realistic report on what a lender is willing to loan you based on a thorough credit check and information regarding your finances.

Pre approval letters are generally valid for 30 to 60 days and include information regarding the type of loan, purchase price, qualified interest rate and loan amount you would get.

For a pre approval letter, you’ll need to provide the following information to your loan officer:

  • Your name
  • Your social security number (to be submitted for a credit check)
  • Your income (W-2 or 1099)
  • Proof of employment
  • Tax returns
  • Bank statements or assets
  • Monthly debts (or other court mandated payments, such as alimony or child support)
  • Bankruptcy discharge documents (VA loans are available two years after a Chapter 7 bankruptcy or foreclosure, and one year after filing for a Chapter 13)
  • The address of the property you plan to purchase
  • The property’s sale price
  • The loan amount you want

When shopping for a mortgage, multiple credit inquiries within a 14 to 45-day period will be reported as one single hard credit check on your credit report.

To narrow down your search, make sure to take into consideration upfront costs, origination fees, closing costs, interest rates, loan terms, eligibility requirements, and any products or discounts they may provide.

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Summary of Money’s 5 Tips for Getting the Best VA Loan Rates

VA loans feature lower interest rates and flexible credit requirements when compared to conventional loans. Here are Money’s main takeaways on how to get the best VA loan rate:

  1. Familiarize yourself with the types of VA loans available and their respective eligibility requirements
  2. Your credit score won’t dictate whether or not you’re approved for a VA loan, but a good score could still translate into a more favorable rate. Lowering your DTI and minimizing your debts can also improve your mortgage application.
  3. You can further lower your interest rate and closing expenses by offering a down payment on a VA loan.
  4. There are state programs that provide exclusive rate discounts and closing cost assistance to eligible veterans, military members and surviving spouses.
  5. VA loans are issued by private lenders. Like other home loan programs, it’s best to compare mortgage rates and shop around before settling on a lender.

To learn more about VA loans, check out Money’s 7 tips for getting a VA home loan

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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