With our spiraling economic conditions, many homeowners’ are looking to refinance their homes, in hopes to reduce costs. Some consumers purchased homes using an ARM (adjustable rate mortgage) to find out when the loan resets their homeownership dream becomes a nightmare. In most cases, the ARM lasts for two to three years, but some ARM”S are longer and some are shorter. Reviewing an ARM”S promissory note, the details are specific, no mumble-jumble. A consumer has to understand the financing terms and know what they are looking for, to project the new rate. In all my years of consulting consumers with ARM loans, none understood the math equation that determine the new interest rate or the date their interest rate would change (reset period).

Even the most educated client, was in shock finding out how their ARM really worked. Bottom line is this, when the loan resets for the first time, this could have a huge and negative impact on your interest rate. In many cases, this rate change increases the monthly payment by $100 to $200 dollars per month. The first change is critical, and generally greater than any other six-month or annual reset period. When interest rates go up, payments go up, and homeownership goes down due to foreclosures.

The purpose of the ARM was to get the new buyer(s) into a home, with the least payment, to make them qualify. Lenders and mortgage originators used this product to their own advantage, putting the new homeowner at risk, if the interest rate went up. Keep in mind that mortgage payments annually go up a couple of dollars when the real estate taxes and homeowners insurance come due each year.

Quickly Save Money With a VA Refinance

Why were ARM”S used, when fixed rates were so low? If the applicant(s) credit score was below the minimum scoring required for the low fixed rates, the buyer(s) fell into the category of sub-prime, and most sub-prime Lenders pushed the ARM loan product. The Lender offered a teaser rate, and told the consumer in two years they could refinance.

It was the loan originator’s duty at that time to explain the credit issues, and then review the work-around, so their customers could refinance in two years, to a fixed rate loan. The work-around is this; consulting the buyer(s) to refrain from getting credit cards, car loans, any type of financing, plus pay all creditors on time. They don’t have to pay more than the minimum required payment. Paying down revolving credit to fifty percent of the credit limit, will increase the credit score. In two years, the credit rating would be significantly better, due to the new home loan, low credit card balances and all the other credit being paid on time. Refinancing would be a breeze.

Unfortunately, with the depression, and it is a depression, many homeowner’s lost their jobs, overtime was eliminated, employers reduced job hours or they scheduled employees to work every other week. Other roadblocks took place like, unexpected medical issues, surgery, a new family member, death of a borrower, divorce or any other unforeseen life-changing event. With these changes, the homeowner(s) financial picture turned red, and the bruised credit turned into a credit disaster.

If your credit is black and blue, but you are an honorably discharged veteran, having a DD214 and discharge papers; you may be eligible for a VA (Veteran Affairs) guaranteed home loan. It doesn’t matter if your current home loan is not a VA loan, you can still refinance using your VA entitlement. If your home loan is paid-as-agreed, but the credit cards have late pays, and there are a few outstanding medical bills, you should apply for a refinance. Once you are credit approved, then do the appraisal. If you are turned down, talk to the originator and ask how you can make things better in-order to qualify in the future.

The loan originator should ask the applicants why they have late pays, and then tell them to write a LOX. There is nothing fishy about a LOX. That is the acronym for a “Letter of Explanation”. Your letter should be extremely detailed giving the time of layoffs, short hours, medical leave or permanent disability. These dates should match up with the lates showing up on the credit report. Once you detail the problem(s) for the bruising, then you will need to tell the underwriter what has financially changed, here is the solution(s) and why it will not happen again. Specify to the underwriter when you went back to work, when overtime hours were restored, if you are working a new job, or there is new income in the family. Long and short, state what happened, and how you are able to get back on track. The underwriter only sees a black and white file. It is up to you to provide the gray area.

Don’t let a lender tell you that VA loans are hard to get. This is typically an excuse when the lender or mortgage broker (know your broker) are not qualified to do a VA loan. VA loans do not have a monthly mortgage insurance premium calculated into the house payment. If you are currently paying mortgage insurance, by going VA, you will save that money. Already your payment is lower!

Mortgage insurance is the price consumers’ pay when they don’t have twenty percent to put down on a home, or they don’t have twenty percent equity in the property. Equity is determined by dividing the loan balance by the appraised value. Tax value is not used. If one of the homeowners is or were in the Reserves or National Guard, this could make them eligible for a VA home loan. Do an internet search, and one can easily find the qualifications to qualify for a VA loan.

Are there any other benefits for a veteran to go from an arm to a VA home loan? Yes! I have already saved you money by eliminating mortgage insurance, but there are more reasons to go VA. Credit qualifications are more liberal. There is more room to negotiate credit issues by using the LOX. The VA interest rates are fixed and sometimes lower than other standard fixed rate loans. The VA backs the loan if it goes into default, so the Lender is more secure in their financing. There are special opportunities given to Veterans with service-related injuries.

It doesn’t matter how old you are because age discrimination is a violation of Federal Regulations. I had the opportunity to finance a home for a seventy-seven year old Veteran. It was his first home. If you are, a Veteran, and misplaced your DD214, or discharge paper, this is not a problem. The VA expedites and surrenders the new paperwork to veterans, so they can apply for a VA loan. Good luck in refinancing your ARM to a VA, a quick money-saving solution! Here is a big salute to all the veterans who fight for our country’s freedom, happiness, and safety. Thank you!