Should you use a VA Loan?
There seems to be no limit to the choices you have to make when considering buying a home or refinancing a current mortgage. Do you want a conventional mortgage approved with loan terms established by mortgage giants Fannie Mae or Freddie Mac? What about an FHA loan and or should you take advantage of your VA home loan benefit? Or, do you want a 30 year fixed rate or a 15 year loan? What about an adjustable or a hybrid? Should you pay points to get a lower rate?
Your loan officer can help guide you through the decision making process but if you are in fact VA-loan eligible, when should you take a VA loan and when should you ignore it?
The primary benefit of the VA mortgage involves a zero down payment feature and reduced closing fees. If you have little money available for a down payment and closing costs, or simply wish not to use your funds to buy a house, then the VA loan is your best option.
A conventional loan doesn’t have a zero-down option but does have a low-money down option, with some programs allowing as little as 5 percent down for a Fannie Mae loan. And while conventional loans do offer programs with less than 20 percent down, both the interest rate as well as private mortgage insurance comes into play. This combination of higher rates and higher fees associated with a conventional loan mean the VA loan is your hands-down best choice. VA rates don’t go up based upon the amount of your down payment, nor requires expensive private mortgage insurance.
However, if you do have 20 percent down or more, then a conventional mortgage is probably your best choice and you can leave your VA home loan benefit aside for future use. Why? All VA loans have a unique fee called the Funding Fee. This fee can change based upon the type of loan and other factors, but a common funding fee amount is 2.15 percent of the loan amount. The funding fee can be paid out of pocket or rolled into the loan, but it’s still a fee.
Little or no money down? VA. 20 percent or more? Conventional. Talk to your loan officer to discuss all your options.