August 3rd, 2017 8:43 AM by Joan Rusco
We’re starting with the NUMBER ONE IMPORTANT FACT: There is no monthly mortgage insurance payment with a VA loan unlike all other home loans. Using a conventional mortgage to purchase a home requires a 20% down payment. Anything less than that will require mortgage insurance. The cost is determined by the amount borrowed but it can easily be $150 an up. Another alternative is going with an FHA loan. These require a minimum down payment of 3.5%. A borrower purchasing a $200,000 home with 3.5% down would pay a monthly mortgage insurance payment of about $100. It decreases with the decrease in the loan amount. But that premium is for the life of the loan. These are reasons for any veteran to turn to the VA home loan benefit.
As we indicated there is NO monthly mortgage insurance payment even if you borrow 100% of a home purchase price. There is an initial funding fee. Let’s break that down in more detail.
For regular military, the fee for first time use of your VA loan benefit is 2.15% of the loan if you have no down payment. Put down 5% or more and that fee drops to 1.5%, 10% down reduces the fee to 1.25%.
For reserves and National Guard the funding fee for 100% of the purchase price is 2.4% for first time users. A 5% or more down payment reduces the fee to 1.75%, with 10% or more down the fee is 1.5%.
The above numbers are for first time use of the benefit. Subsequent use starts at 3.3% for a 100% loan. The rate remains the same as first time use for 5% or 10% down.
Here’s our SECOND IMPORTANT FACT: You can roll funding fee into the mortgage amount. You can borrow up to 103.3% of the purchase price. No upfront cash is needed. As we’ve stated, there’s no monthly mortgage insurance so you don’t have that added cost. Another huge benefit of using your VA loan benefit is the usually lower interest rates association with these mortgages.
Lenders like that the Veterans Administration is guaranteeing these loans. It reduces the risk to the lender. A reduced risk results in lower cost therefore you are likely to receive a rate lower than the 30-year conventional loan.
We’ve walked into the weeds a bit with this blog so if you’re not sure what it means to you give Brad a call at VALoansMN. He will gladly give you numbers based on your own need. VALoansMN and brad are there to serve those who have served or are serving now. It’s why we do what we do.