topic Re: VA or Conventional New Construction: Tons of questions! in Mortgage Loans

VA or Conventional New Construction: Tons of questions!

armywifelong03 — Wed, 13 Jun 2018 02:34:30 GMT

Hey all! We recently purchased 5 acres and are in the beginning stages of meeting w/ a builder to start our home process.

I have spoken w/ a local bank about what we need to do to get started and it is a LOT of information.

First of all, we have a VA loan currently. Because we won't be selling until our new home is closer to being done, we have to be able to carry our current mortgage and our new "mortgage" during the process. Not a big deal, totally doable. My one concern is that our current mortgage is tying up some of our VA entitlement and we won't have full entitlement. Does anyone understand that better than me that could shed some light on it?

Another option is going conventional, which is also doable. I don't want to do the 20% down to avoid PMI, though. Can we go conventional and do a VA refi when we sell our current home?

The last option is selling our home now and living in an apt which I do NOT want to do. It is our kiddo's senior year and I want all of the focus to be on him this year, not a hullabaloo of real estate junk.

Any best options up there??

Also, we are trying to figure out if we should go ahead and start or wait until we have some dti lowered. Our current bills are $3740 (current mortgage, cars, student loans and our last few credit cards) with $16,000 in income. I am high balling our new mortgage at $2200 (custom build) for a total of $5940.

We just don't know if we should aggressively hit our debt, or just start shoving money into savings.

Anyone have any more experience than us in this situation?

Thank you!!

Re: VA or Conventional New Construction: Tons of questions!

ShanetheMortgageMan — Wed, 13 Jun 2018 04:43:48 GMT

You should obtain your Certificate of Eligibility, which will tell you how much entitlement is being used up. At the bottom of https://www.benefits.va.gov/homeloans/purchaseco_certificate.asp is a link to obtain it online as a .pdf. The lender you apply with can also obtain it.

After you obtain it, it might say something like "THIS VETERAN'S BASIC ENTITLEMENT IS $0 and TOTAL ENTITLEMENT CHARGED TO PREVIOUS VA LOANS IS $37,938", and it'll list the VA loan number & date of loan that is currently active.

But first, let's go over what the entitlement figure means. Understand that there is basic entitlement and then also bonus/2nd tier entitlement. The amount of basic entitlement is $36,000 and the amount of bonus is the difference between 25% of the VA county loan limit and $36k. The VA county loan limit in most counties is $453,100. That means if a Veteran hasn't used any entitlement, they would have $36k of basic and $77,275 of bonus, which together equal 25% of $453,100.

Another item to be aware of is to use the bonus entitlement, the loan amount needs to be over $144k.

Lastly, in order to obtain 100% financing with a VA mortgage, the lender requires there is enough entitlement to cover 25% of the loan amount (which is why the total entitlement always starts out at 25% of the county loan limit). If there isn't enough entitlement, then a down payment of 25% of the difference between the amount your entitlement gets 100% financing for and the desired loan amount needed. So to make it simple, if you only had enough entitlement for $300k, but the sales price was $310k, then you'd need to put down $2,500 as $10k is the difference

So let's say, for example, you have used up $37,938 of entitlement (which is $36k of basic + $1,938 of bonus) and if you were buying in a county that has a VA loan limit of $453,100, so you would have $75,337 of bonus entitlement remaining. If the construction loan ends up having a cost basis of $350k, then you would need $87,500 of entitlement to obtain 100% financing. But in this example you only have $75,337 of entitlement which gets you 100% financing up to $301,348, so to obtain a VA loan you'd need to put down 25% of the difference between $301,348 and $350k, which is a $12,163 down payment.

Once you get your Certificate of Eligibility and find out how much the construction loan will be to build the home, you'll be able to determine how much of a down payment, if any, would be needed for the VA construction loan option.

If you go the conventional route, then yes, you can sell your current home and free up your VA entitlement, and then refinance your new home into a VA mortgage.

From the numbers you provided your DTI is just fine. I'd wait to see what the numbers look like for both VA & conventional construction loan options before you decide to do anything with your savings, such as pay off debt.

Re: VA or Conventional New Construction: Tons of questions!

armywifelong03 — Thu, 14 Jun 2018 21:25:41 GMT

Thank you! We were able to get an automated entitlement today and our entitlement stands at $267,100 and our max budget for our house is $300,000. So, $7,500 down is much more appealing than 5% with conventional. Thanks so much for the input!