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One of the biggest advantages to a VA home loan is the lack of monthly mortgage insurance which results in a lower monthly payment. Mortgage insurance is taken out by lenders to insure them against risk in the event that your loan defaults, it's not necessarily a bad thing but the lender passes that monthly payment on to you on top of your taxes and hazard insurance. Until this year, MI rates weren't too bad if you had a low credit score but today they are extremely high if you have a score under a 620. I've seen MI payments of over $300 per month and if you purchase a home in 2007 it's only tax deductible for this year. To be fair, the typical mortgage insurance payment for a $100,000 home is going to be $50-$100 per month. It doesn't sound like a lot but after five years or so that $50-$100 per month adds up to $3000 - $6000.
Here is where we talk about the VA Funding Fee, in some ways it is like upfront mortgage insurance. On a VA home loan you will pay 2.15% of your loan amount for the VA funding fee and it will be added to your loan balance at closing. In the case of a $100,000 home purchase, your funding fee would be $2150 but your monthly payment will be lower than a comparable 100% conventional loan by at least $50 to $100 per month. The funding fee is waived for disabled vets and in other situations as well though. This is typically where the "anti-VA" loan officers will point out that the funding fee raises the loan amount and what if you don't keep the house long enough to offset the difference? I say that this is a valid point, what I typically do is look at the veterans overall financial and personal situation and present them with ALL the options that they qualify. It's called a Total Cost Analysis and it shows the total cost of the home and the loan over time and helps the veteran make a more informed choice. In the end most still go with the VA loan because of their current situations. Here are some situations where I feel that a VA loan is normally a great solution. - First time homebuyers
- credit scores under 680
- Plan to stay in home 3+ years
- No or low down payment
- Disabled veterans
That is not to say that a second or third time homebuyer wouldn't be making a good choice with a VA home loan. A couple months ago, I helped a recently discharged Army doctor purchase his second home. When they bought their first home they used a conventional loan and put down a large down payment. When they came to me they were relocating, hadn't sold their first home, had little money for a down payment and needed the lowest possible payment on a fixed rate loan so they could afford both house payments. In the end they went with a VA loan because it fit their current situation better than anything else available. |
