What is the advantage of a VA Loan?

Question

I have $100,000 to put down on a $230,000 house so, I won't need the Private Mortgage Insurance. My credit history is good. Why should i consider a VA loan? Do they have extremely low interest rates?

Answer 1

I would also like to first thank you for your service to our country.

Next, I think it's important for you understand that a "VA Loan" is not a program whereby the (US) government lends you money; rather, it is simply a guarantee the (US) gov't makes to private lenders that they are protected against loss if the veteran fails to repay their loan obligation. Each lender will have their own requirements - within set gov't guidelines - for final approval of loans within their individual VA programs.

The first step in applying for a VA loan is to obtain a Certificate of Eligibility (using VA Form 26-1880). You can download it for review at www.homeloans.va.gov, but recommend using your lender's ACE program to expedite receipt. Given you'll have the opportunity to finance up to 100% of the loan (inclusive of funding fees & closing costs), while having $100K in purchasing power - 43% of purchase price - consider the value of the mortgage interest deduction on your taxes in relation to how much you want to spend on the down payment, and how much you want to keep as liquid assets. All depends upon your qualifying ratios and your long-term plans, i.e. how long you intend to hold the home.

Although interest rates are sometimes slightly higher with VA loans, note that seller contributions are sometimes REQUIRED under a lenders VA program. Typically limited to a range of 3 to 9 percent, depending on the loan program and other factors, these seller "concessions" help offset your closing costs (and possibly the amount of your loan, depending upon how you work the deal), For example, if a lender requires seller pay for buyer's closing costs such as appraisal, survey and title insurance and those benefits would be worth, say $2,000, that would negate the $1,625 funding fee that John correctly calculated (thanks, John!). Who knows - lender may require seller pay significantly more; I'm under contract for a Buyer/Client right now where the lender required a 4% seller contribution, immediately saving my Buyer $8K on the purchase price.

These requirements, while obviously a buyer benefit, can sometimes jeopardize a deal though. Most sellers will flat out reject offers that come in with too many concessions that detract from the purchase price, so it is important that both sides clearly understand what is required (seller's required contribution is <$x.xx or x%>, what is allowed (cannot exceed ) and what their obligations are before finalizing an offer.

But what if you could make a seller concession worth far more than its original cost, yet still not seem like a big deal or exceed conventional guidelines... While shopping mortgages, ask lenders about the ability to "buy down" their stated interest rates - whether you go the VA route or not - and if it's permissible to have seller contribution fund the "buy-down", A very powerful seller concession I pursue while negotiating on behalf of my Buyers is, rather than (or in addition to) paying cash at settlement to offset closing costs, seller pay points so that the buyer can get a lower rate. For example, if I can get $2,000 in seller concessions to "buy down" my Client's mortgage rate by 1 point, (maybe in addition to what VA requires ;-) that $2,000 would yield a potential buyer benefit of more than $20,000 in reduced interest charges on $100K loan.

This long-term benefit is worth far more than the reduced closing costs at settlement, and it's all good, as long as we remain within conventional guidelines. Make sure you have an experienced REALTOR Buyer's Agent advocate for your side of the transaction and ensure they specify adequate timelines for certain events in the Offer to Purchase & Contract.

PROS:
- VA prohibits lenders from charging PMI, given loans are guaranteed by the gov't
- gov't limits the type and amount of closing costs veteran can pay for
- "VA Escape Clause" form typically used, limiting buyer's risk if property appraises for less $$ than contract purchase price
- no down payment (unless required by the lender or purchase price is more than the reasonable value of the property)
- can finance the VA funding fee
- VA assistance to veteran borrowers in default due to temporary financial difficulty

CONS:
- some sellers wary of paying buyer closing costs
- lots of additional paperwork required.........lots.
- can take more time to receive report for VA appraisal
- can take more time to receive final loan commitment letter from lender

Good luck, and Semper Fi

Answer 2

first off, let me thank you for your service to our country. as bostonianinmo had stated, the VA rates are usually a touch higher than conventional mortgages but only by an 1/8 to 1/4. BUT the VA will also charge you the VA Funding Fee even though you are putting a huge down payment. the VA FF for 10% or more of a down payment is 1.25% of your mortgage amount (unless if you are 10% or more Service Connected disabled), so that would be $1,625.00 for your mortgage of 130k.

Answer 3

I wouldn't bother. VA loans have a slightly higher interest rate than conventional loans. The major advantage to a VA loan is the no down payment requirement and that's why the rate is usually slightly higher.

Save it for later, your entitlement never expires.

Answer 4

I have never used my VA loan because I have always found better deals. With that much down and if you have good credit I would check with USAA. If you can use a VA loan you should be able to work with them. I have used them many times for home loans and car loans. They always come out with the best deal. If you find one better they will probably try to beat it.

Answer 5

not true about them being higher..we are using our second va right now and the interest rate is an entire percent lower...its in the 5 area...check around with mortgage companies what everyone offers is different..why would you tie up 100,000 in a house..thats money thats tied in a house and you may not see it for a long long long time..any financial adviser would tell you thats not smart..check colonial mortgage and wells fargo companies to see what the interest rates are and what they can do for you

def not true about usaa..they cant even beat geico insurance rates right now for us and we have been with them for nine years they want double what geico does...its best to shop around and not go with what you think is offering you the best deal because you have been with them for a long time..they arent loyal to you...they want money...