- The Washington Times - Thursday, August 19, 2010

Thousands of members of every branch of the military spend years and sometimes decades in the Washington area in locations such as Andrews Air Force Base, Fort George G. Meade, Fort Belvoir and Marine Corps Base Quantico.

Though some opt to rent if they know they will be in the area for a short time, others buy property in the region. Even those military members who know they will be in the area for just a few years sometimes choose to buy a home to make a financial investment, intending to rent out the property until they return to the area or decide to sell.

In many ways, military households are no different from any others choosing to buy a home. The main difference is that many, although not all, military members are transferred from one location to another with some regularity.

“One great thing about working with military customers is that nine times out of 10 they are a good credit risk,” says Michael Christofaro, vice president of Presidential Mortgage in Beltsville, Md. “Typically, military people are well-disciplined in all aspects of their lives, and they know that if anything gets out of hand in terms of credit problems, that information could get to their commanding officer.”

Beverly Frase, manager of the Military Family Housing Lender Education Program at USA Cares, a nonprofit organization dedicated to assisting military personnel, veterans and their families, says lenders need to recognize that military families often have a different lifestyle than other homebuyers and need specialized services.

“Military families are often transferred every two or three years, so they sometimes need to move faster than other families,” Mrs. Frase says.

“If they are moving to an area where there are a lot of military families moving in at the same time, such as Fort Bliss, Texas, they will need to get a fast prequalification. Some families will have only a weekend or so to find a home, so their financing needs to be arranged fast.”

Mrs. Frase developed the USA Cares Military Family Housing Lender Education Program to help lenders understand the unique circumstances of military buyers and to help them understand military terms, ranks and the pay system.

“Military families should be in appropriate, affordable loans, and we hope this program can help lenders make sure these families are in sustainable loan products,” Mrs. Frase says. “About 50 percent of our weekly spending at USA Cares goes to help military families with housing issues. The issue we have had to deal with a lot is that if the family takes on a mortgage loan at the top of their affordability scale, it doesn’t take much to tip over and find themselves in financial trouble.”

Mrs. Frase says USA Cares is careful to work out long-term solutions for military families and says the organization has saved 1,100 military family homes from foreclosure.

The lender education program covers such issues as the basic allowance for housing and what happens to pay rates if a military member is temporarily or permanently disabled. In addition to lenders, housing counselors and military families may take the course.

Mrs. Frase says lenders are also trained to recognize that VA loans may or may not be the best product for each individual military family.

Barbara Sheehan, assistant vice president of mortgage products for the Navy Federal Credit Union in Vienna, Va., says that for most military families, a Veterans Affairs loan often is still the best program available. VA mortgage financing has been available and updated regularly by Congress since World War II.

While the VA itself does not provide these loans, it guarantees them up to loan limits that vary by area, typically $417,000, but with higher limits in some areas. In Washington, D.C., and its close-in suburbs, the loan-guarantee limit is $768,750 until Dec. 31.

VA loans are available only for the purchase of property to be used as the principal residence for the military family member. The main benefit of VA loans is that in most cases, borrowers do not have to make a down payment.

“VA loans are usually preferred by those who can qualify because they offer 100 percent financing with a low interest rate and low fees,” Mr. Christofaro says. “The upfront mortgage fee is 2.15 points for the first VA loan and 3.3 points for other VA loans. This fee can be financed into the loan. Borrowers do not have to pay any additional mortgage insurance.”

Mr. Christofaro says veterans who want to make a large down payment may choose conventional financing instead of a VA loan to avoid the mortgage fee.

“VA borrowers can get into a home for $1 if they want to, since gifts are allowed for closing costs,” Mr. Christofaro says. “Buyers can even ask sellers to pay all the closing costs and they ask sellers as part of the negotiation to pay extra points to buy down the loan rate.”

Ms. Sheehan says the generous terms for seller concessions for VA loans should encourage VA borrowers to negotiate with sellers for closing-cost assistance.

“For instance, instead of asking for a lower price and then having to pay closing costs, VA borrowers should probably consider paying full price if they need to in order to have the seller pay all closing costs,” Ms. Sheehan says.

Mr. Christofaro says the most important step for homebuyers who want to use a VA loan is to obtain their Certificate of Eligibility (COE). The COE can be requested from a VA eligibility center and requires proof of military service. The requirements for military service vary according to when the service was performed and whether the applicants are National Guard members, reservists or active-duty military personnel.

Ms. Sheehan says military personnel may have an easier time qualifying for a VA loan than for conventional financing.

“Unlike conventional loans that require a separate ‘front-end’ ratio for the housing payment compared to the gross monthly income and a ‘back-end’ ratio for the overall debt-to-income ratio, VA loans have just one overall debt-to-income ratio requirement,” Ms. Sheehan says. “The guidelines recommend a debt-to-income ratio of 41 percent, but with compensating factors, lenders can go up to a 45 percent debt-to-income ratio.”

Compensating factors include significant cash reserves, a high credit score or evidence of long-term job stability.

“Some people feel that they need to pay off all their debts before applying for a mortgage loan, but if the borrowers can qualify for the loan with their current debt-to-income ratio, they may be better off keeping their cash in the bank for an emergency fund,” Ms. Sheehan says.

While VA loans do not have a minimum credit score requirement, Ms. Sheehan says credit scores in the high 600s usually are fine.

“If your credit score is in the 500s, we will usually look into this on a case-by-case basis to see why the score is low,” Ms. Sheehan says. “Borrowers should be able to provide an explanation and have documentation to show what happened with their credit.”

In addition to qualifying for a VA loan, many military personnel may qualify for the extended federal homebuyer tax credit.

The federal credit, while it has expired for most homebuyers, extends into 2011 for members of the military and other federal employees who have been or are currently serving overseas. Any person serving on qualified official extended-duty service outside of the U.S. for at least 90 days between Dec. 31, 2008, and before May 1, 2010, is eligible for the tax credit as long as they meet income and other qualifications. These buyers must have a home under contract by April 30, 2011, and go to settlement by June 30, 2011.

Military personnel are not immune from the difficulties of the recession, and many have experienced financial difficulties. Homeowners with a VA loan should contact their lender immediately if they have trouble making their mortgage payments. Veterans with VA-guaranteed loans also can call 877/827-3702 to reach the nearest regional loan guaranty office to discuss options for saving their home.

“Navy Federal is participating in the Treasury Department’s Home Affordable Modification Program (HAMP) and also has an in-house loss-mitigation program to [help] military and nonmilitary members avoid foreclosure,” Ms. Sheehan says. “The in-house program allows us to provide even lower rates than HAMP, and we can provide additional assistance with short-sale negotiations. The first step is to determine the ability of the member to make payments and their intent to stay in the property or not.”

In addition to loan modifications available from their lender and financial support from USA Cares, service members may be able to request relief under the Servicemembers Civil Relief Act (SCRA), formerly the Soldiers and Sailors.

The SCRA may be able to provide a lower interest rate for up to one year and provide forbearance or prevent foreclosure or eviction up to nine months after a period of military service. Go to www.homeloans.va.gov and www.usacares.org for more information.

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