VA home loans are available to veterans, active duty military service members and qualifying spouses. This loan offers different repayment options like other types of mortgages, including 15, 20 and 30-year terms, plus the option of a five-year adjustable-rate mortgage. But even if you’re eligible for a VA home loan, there’s no rule that says you have to take advantage of this program. You might shop around and research other loans, such as a conventional loan or an FHA home loan. Every loan program has attractive features, but if you’re looking to save thousands on your mortgage, a VA home loan maintains the upper hand.
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No money down option
A VA mortgage is one of the best programs around because these loans don’t require a down payment from borrowers, although you’re always free to give your lender cash toward the purchase. A down payment reduces the amount you need to finance and it can help you negotiate a better interest rate. Additionally, skipping a down payment can save you thousands of dollars when buying a home.
Take a conventional loan for example. If you were to purchase a $200,000 house with a conventional loan, you’re required to put down a minimum of 5%, which means you would need at least $10,000 for the purchase. An FHA home loan requires 3.5% down and you would need at least $7,000 for the same loan. Since there’s no down payment with a VA home loan, you can keep your cash reserve and put this money toward other uses, perhaps updating a home to your taste. And the fact that you don’t need a down payment means you can purchase a home sooner. This is an opportunity to take advantage of low mortgage rates and enjoy long-term savings.
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Fewer closing costs
There are expenses with every mortgage, and while a VA home loan doesn’t require a down payment, you may have to dip into your wallet to cover your own closing costs. The good news is that getting a VA home loan saves money because the VA limits how much lenders can charge borrowers. Loan origination fees are typical with a mortgage. In the case of VA financing, your lender cannot charge more than a 1% origination fee, and they’re not allowed to charge you for certain costs, such as a brokerage fee, a prepayment penalty, processing fees, a pest and termite inspection, and attorney fees.
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No private mortgage insurance
If you don’t mind paying a down payment and your primary concern is getting the lowest mortgage rate, after comparing loans you might find a conventional or FHA home loan with a cheaper rate than the one you were quoted for a VA home loan. However, before you decide to skip a VA loan and choose a different product, it’s important to remember that unless you put down a 20% down payment, you’ll have to pay mortgage insurance with both an FHA home loan and a conventional loan.
The VA doesn’t require mortgage insurance when borrowers purchase with no money down or less than 20% down. This insurance protects your lender in case of default. Annual premiums for private mortgage insurance with a conventional loan can be as much as 1% of the purchase price, and annual premiums are .85% of the purchase price with an FHA loan. Mortgage insurance can add $100-$200 to your mortgage payment every month, depending on your purchase price. If you can avoid this added expense, you can potentially save thousands every year.