Mortgage Debt Rises For First Time Since RecessionLast week was relatively quiet concerning scheduled housing-related news, but the Federal Reserve's financial accounts report, released on Monday, indicated that mortgage debt in the U.S. had increased for the first time since the first quarter (Q1) of 2008.
The VA Home Loan program is without a doubt the best mortgage on the planet. Setting aside for a moment that this is a benefit afforded to those who have served our country in the military, there are other benefits that set this loan program apart from all others.
- The VA loan does not require a down payment. The Veterans Administration guarantees the loan up to 100% of the purchase price of the home, provided that the appraisal supports that price. We’ll talk more about the down payment in a moment, so stay tuned.
- The interest rates are lower than for conventional loans. Today’s 30-year fixed rate VA loan is about .25% lower in rate than for an equivalent conventional loan. [Click here to get an instant rate quote now]
- Qualifying for the loan is easier. VA loan guidelines allow a borrower to qualify with a higher debt-to-income ratio than for a conventional loan. This means that a veteran buyer who would only qualify for a $325,000 home with a 3% down payment and a conventional loan could buy a $400,000 home with no down payment at all. The credit score requirements are far more lenient for VA loans, too—as low as 580, where a conventional loan requires a 620 score to qualify.
- There is no mortgage insurance on a VA loan. For the buyer getting a 97% conventional loan, that would mean a monthly payment of nearly $200 per month for a $325,000 home. The VA actually guarantees the mortgage, eliminating the need for costly mortgage insurance.
There is the matter of the VA Funding Fee, however. This is a fee that is added to the loan as part of the guarantee. It is not an out-of-pocket cost, however. If a veteran buyer is getting a $400,000 loan, he or she will have a 2.15% funding fee added to the loan for the first use of the program. That means that the actual loan amount would be $408,600.
The funding fee changes for subsequent uses of the VA loan: using it a second time, the funding fee goes up to 3.3%—that means $13,200 added to the base $400,000 loan. It’s still a good deal—just a more expensive deal.
There is a helpful loophole, though: if you make a down payment of at least 5%, the funding fee drops to just 1.5%. That can save a great deal of money for a veteran using the program for the second or third time. For that same $400,000 purchase, making a down payment of just $20,000 would drop the funding fee to $6,000 from $13,200. That’s a reduction of $7,200.
The VA loan does have its limitations. The maximum loan amount is $417,000 (although it is higher in certain higher-cost areas). A buyer can still finance a more expensive property with a loan that exceeds the county loan limit. VA will guarantee a loan of the base amount plus 75% of the excess.
If the purchase price is $500,000 and the county limit is $417,000, the buyer would pay 25% of the $83,000 difference between $500,000 and $417,000—$20,750. The VA would guarantee a loan of $479,250. But it would make economic sense to make a larger down payment—$25,000 instead of the required $20,750. That would reduce the funding fee to 1.5%, saving nearly $7,000.
One last thing bears mentioning. For our veterans who have any sort of service-connected disability and for which they receive compensation from the VA—even as little as a 10% disability—the VA funding fee is waived entirely.
To all our veterans, wherever and whenever they served, we owe our respect and gratitude.