Understanding a VA Mortgage Loan

VA Mortgages are a benefit that those eligible should consider. Understanding what a VA Loan is and knowing how to use it is very important. First, understand that the VA is not giving you a loan. You will still get your mortgage loan from a mortgage lender such as SWBC. What VA does for the veteran is to guarantee the 20% portion of the loan for a down payment that would normally be required using a conventional loan.

The VA charges a funding fee for this. It is a onetime fee that can be added to the loan. Remember that you are adding this to your loan that is for 100% of the sales price of a home. This zero down feature has two values.

  • First time use is 2.15% of the loan
  • Subsequent use is 3.3% of the loan

Numbers for a home purchased for $150,000 would look like this:

  • First time use….                $150,000 + $3,225 = $153,225 for your loan
  • Subsequent use…              $150,000 + $4,950 + $154,950 for your loan

Homeowners should make an effort to get their loan paid down below the sales price as quickly as they can. It should be the goal for any homeowner to pay down their mortgage to 90% of their sales price in the first five years. In the example above, that would be $135,000. Money from tax returns is a good source for this.

You can get reduced VA funding fees by having a down payment. These numbers are:

  • 5% down payment has a 1.5% VA funding fee
  • 10% down payment has a 1.25% VA funding fee

Taking the above scenario and apply a down payment will look like this:

  • 5% down…          $150,000 – 5% ($7,500) $142,500 + $2.137.50 = $144,637.50 for your loan
  • 10% Down…       $150,000 – 10% ($15,000) $135,000 = $1,687.50 = $136,687.50 for your loan

You can see that making a down payment has a drastic impact on the loan. This will also reflect in your payment. For a 30 year fixed rate loan the principal and interest (P/I) will be

  • First time…                                       $822.54
  • Subsequent…                                    $831.81
  • 5% down payment…                        $766.44
  • 10% down payment…                     $733.77

(add insurance and taxes to these numbers)

Insurance is about $50.00 a month. Taxes are local and are usually based on a value given by county tax district. It is important to remember that the interest and taxes you pay are deductions for annual federal and state taxes.


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