It’s simply better …
- $0 Down payment
- Lower interest rates
- No monthly mortgage insurance
- Easier to get Approved (flexible)
- Lower monthly payments
(Read below or watch the video blog Here).
First of all, thanks for your service to our country. We honor and appreciate your sacrifice. In an effort to say thanks in a more tangible way, the U. S. Department of Veteran’s Affairs offers a variety of VA benefits to our servicemembers and their families. Among those benefits is the VA Home Loan.
- The interest rate for VA, Conventional & FHA loans is the same — 3.5% — on a 30 year fixed rate loan.
- Property tax is 1.25% annually.
- The hazard insurance premium is $720 annually.
- Our servicemember will be making the lowest acceptable down payment under each program.
- The servicemember has never used their VA Certificate of Eligibility before.
The numbers are reflected in the chart below. VA requires no down payment, versus $15,000 down to obtain Conventional financing, and $10,500 required for FHA.
| VA | Conventional | FHA | |
|---|---|---|---|
| Down Payment | $00 | $15,000.00 | $10,500.00 |
| Principal & Interest | $1,376.10 | $1,279.78 | $1,322.73 |
| Hazard Insurance | $60.00 | $60.00 | $60.00 |
| Property Taxes | $312.50 | $312.50 | $312.50 |
| Mortgage Insurance | $00 | $ 287.38 | $205.06 |
| Total | $1,748.60 | $1,939.66 | $1,900.29 |
In addition, the VA monthly payment is $1,748.60, as compared to the Conventional payment of $1,939.66, and the FHA payment of $1,900.29.
By selecting the VA loan, the servicemember saves $10,000 to $15,000 on down payment, and saves $150 to $200, per month. Again, that’s $10,000 to $15,000 saved on down payment, and another $150 to $200 savings, per month.
(Also note that if you currently have another type of mortgage, you can often refinance into a VA loan, and save hundreds of dollars each month, with a lower VA interest rate, and elimination of mortgage insurance).
Are there any downsides to obtaining a VA mortgage? I’m not sure downside would be the correct verbiage. Like all mortgage products, VA loans have certain fees and limitations. As stated earlier, VA charges an upfront Funding Fee of .50 to 3.3% depending on the type of VA loan, loan-to- value, whether the service member has used their VA eligibility before and whether the servicemember has a service connected disability. (This Funding Fee can be financed).
It’s also important to understand that VA does not make home loans,but guarantees loans that are made by private lenders. VA lenders cannot be more liberal than VA guidelines allow, but they may be more conservative. Simply stated, there a loans VA would guarantee on behalf of the servicemember, but private VA-authorized lenders will not make.
Based on your county and state, VA has loan limits. For example, in San Diego County, CA, as of this writing, the VA loan limit is $580,750. If a San Diego servicemember wants to exceed the $580,750 limit she may, but she’ll have to make a 25% down payment on any amount above $580,750—the VA county limit. That’s because VA guarantees the top 25% of the loan amount and the 25% down payment replaces the VA guarantee for loans above the VA county limit.
Finally, there are indeed instances where a VA loan may not be the best mortgage for the servicemember. Of course your Sidwell mortgage professional will always provide several alternatives. However, in the vast majority of cases, Sidwell’s VA mortgage offers the most powerful, cost-effective and accommodating option for VA families.
In the next entry we’ll discuss who’s eligible for VA financing.
