There are compelling reasons to choose short-term mortgages and long-term loans. Nevertheless, the best way to decide is to consult with a WA State home finance and real estate professional.
Summary: VA loans are highly beneficial to veterans who qualify, mainly because of the option to put no money down. This is a big attraction to these loans, but some may be worried that sellers may not be open to negotiating with buyers who are financing the purchase with a VA-backed loan. Here are some reasons why they’re wrong.
In a previous blog post, we covered what is arguably the biggest benefit of VA loans in Washington State — the zero down payment option. But that’s not the only advantage this military-oriented program has to offer. It can also help home buyers save money over the long term, by securing a lower mortgage rate.
On average, VA loans tend to have lower interest rates than other loan programs. That’s partly because they have a lower rate of default and foreclosure, and therefore a lower overall risk level.
VA Mortgage Rates Lower than FHA and Conventional, on Average
In Washington, VA loans typically have lower rates than FHA and conventional mortgage loans (with all other things being equal). Industry reports have shown this to be the case, and for a long period of time.
To find evidence of this, we can look to the monthly “Origination Insight Reports” published by Ellie Mae. This company provides software for the mortgage industry. Their insight reports are based on “application data from a robust sampling of approximately 80 percent of all mortgage applications” processed through their software platforms. So they’re a pretty good indicator of industry-wide trends.
Their latest report (covering March 2020) included the average mortgage rates assigned to 30-year home loans in three different categories — FHA, conventional and VA. Here were the average rates among borrowers in those three groups:
- FHA: 3.65%
- Conventional: 4.04%
- VA: 3.45%
The numbers themselves will have changed by the time you read this report. It’s the difference between the loan categories that’s more important. One of the things you’ll notice right off the bat is that the average rate assigned to VA loans was significantly lower than the average for FHA and conventional.
This has long been the case. In fact, based on Ellie Mae’s data, VA loans have had lower average interest rates than the other products for several years in a row.
Low Default Rate Among VA Borrowers
Historically, VA borrowers in Washington and nationwide have had lower default and foreclosure rates than their FHA and conventional counterparts. A “default” occurs when a homeowner stops making payments on a mortgage loan, for whatever reason.
Additionally, the VA program is backed by the financial and institutional strength of the U.S. Department of Veterans Affairs. So, generally speaking, there is less risk involved with VA loans when compared to other mortgage products.
As a result, VA-guaranteed home loans typically have lower mortgage rates. And that can be a real money-saver over time. It’s just one of several benefits to this program.
Did you know? The VA loan program that we know of today got its start during World War II, with the passage of the Servicemen’s Readjustment Act (also known as the “G.I. Bill”).
No Down Payment, Regardless of Loan Limit
Home buyers in Washington State who use a VA loan can often avoid making a down payment. That’s because the program offers financing up to 100% of the purchase price. And as of January 1, 2020, veterans who qualify do not have to worry about going over any price caps in order to take advantage of a zero down payment because VA loan limits have been removed this year.
Previously, those who borrow more than the county loan limit might have to make a down payment. Before the 1st of January, 2020, veterans purchasing in expensive areas like Seattle and Bellevue were at risk of going over zero-down VA loan limits. But that’s no longer the case. Now, they have much more purchasing power and do not have to worry about exceeding loan limits in order to take advantage of the zero down payment option. But with the new rules put in place as a result of the recently passed Blue Water Navy Vietnam Veterans Act of 2019, eligible veterans and military members can now take out the highest loan amount they’re qualified for without putting any money down.
It is important to note, however, that any vetreran who has more than one active VA loan or has defaulted on a VA loan in the past may still be subject to a down payment on a loan over a certain amount.
Further, even though VA loan limits have been removed, VA funding fees have increased. The amount that is required to be paid depends on the amount of the down payment and whether or not you’ve previously taken out a VA loan. This fee can be paid upfront or can be rolled into the cost of the mortgage.
No Mortgage Insurance
Mortgage insurance is another key consideration. Usually, when a home buyer makes a low down payment on a loan, mortgage insurance is required. But the typical borrower who uses a VA-guaranteed home loan could avoid the extra cost of mortgage insurance — and possibly secure a lower rate as well.
Interested in Applying For a Home Loan?
At Sammamish Mortgage, we have been providing many mortgage programs to borrowers all throughout the Pacific Northwest since 1992, including Washington State, Colorado, Idaho, and Oregon. We are a family-run business and work hard to help borrowers realize their dreams of owning a home. Contact us today if you have questions about applying for a home loan or are ready to apply today.