I am so passionate about this because I was mis-advised when I was active duty. I did an FHA loan when I was 24 and got back from deployment, and put 3.5% down on a $330k home. As a result of not using my VA loan, I paid [very avoidable] Mortgage Insurance to the tune of $250/mo for FIVE YEARS, waiting for the equity in my home to build up so I could refinance to a conventional loan with 20% equity.
This was an avoidable loss of $15,000. FIFTEEN THOUSAND, and, because it’s mortgage insurance and not mortgage interest, it wasn’t even a tax writeoff 😓.
🌟The good stuff 🌟:
If you have no money to put down as a first time user of the VA loan, the *one-time* VA funding fee is 2.3% of the Purchase Price – $7500 for a $300k home.
So, let’s look at my scenario. I was paying $250/mo in mortgage insurance for a $330k loan. Let’s presume $200/mo in mortgage insurance for a $300k home with a 3.5% down conventional or government backed loan.
VA Funding Fee = one time fee of $7500.
Mortgage Insurance = an extra $200/mo on your loan *for the life of the loan*. After 37.5 payments, or about 3 years, you have *paid off* the VA funding fee for the same monthly payment, but with Mortgage Insurance, you’re going to keep paying that extra $200/mo, no matter what!
The VA funding fee is to the VA what Mortgage Insurance is to a conventional or government backed loan. So, if you have 20% to put down for a conventional loan, you will get the best rates and you will not need to pay mortgage insurance. Similarly, if you have 5-10% to put down for your first time purchase, your VA funding fee is reduced to 1.65%, so $4950 for a $300k Purchase Price. So *over the life of the loan* you save $2550 by putting down $15k if you wrap the funding fee into the loan. If you have 10% to put down your funding fee is reduced to 1.4%, so $4200 for a $300k loan. Source: https://www.benefits.va.gov/…/funding_fee_table_01012020.pdf
[NOTE: since my initial purchase, FHA rules have gotten even worse, so now on top of the monthly mortgage insurance, you have to pay an upfront mortgage insurance premium of 1.75% of the loan amount. Doesn’t this sound like a shi**y version of the VA loan to you?]
Weird Circumstances? If you were to find a non-QM loan (so a weird, non government backed loan where you could put, say, 5% down with no mortgage insurance), the lender has to get their money somehow, right? SO they do it by significantly raising your interest rate! For every 1% increase in interest rate you lose 10.75% of your purchasing power! So the same monthly payment is going toward paying interest, not toward paying down your principle. AND non-QM loans have all but disappeared with the current economic climate (that’s a whole ‘nother post or DM)
FINALLY. VA Interest Rates are BETTER than other rates. They are currently averaging .25 – .375% LOWER than conventional rates. They are historically averaging .5% *lower* (which if you remember from the paragraph above is substantial!) than conventional rates and are expected to reach that point again by the end of this week.
THANK YOU for asking this question, thank you everyone for giving me the opportunity to clear up some myths. PLEASE DM me if you have questions – someone else probably has them too and I would be glad to clear them up!! Share with your military friends and clients – I am not a lender so this is purely informational for y’all; I make no money from this. I just hate seeing fellow military misinformed about such a 🌟 valuable 🌟 benefit.