Cost Comparison Part 2: VA Loans
Posted Tue, 2010-02-23 10:43 by Emily Caryl
This is the second of five posts discussing the costs of obtaining a low down payment mortgage. You can also read the entire post here.
Option 2: VA Loans
Mortgage loans insured by the VA are also an excellent option for those who qualify. Generally, a Borrower must be a current or honorably discharged member of the armed forces or the unmarried, surviving spouse of a qualified veteran.
The VA mortgage does not require a down payment, although the veteran may choose to make one. Interest rates on VA loans are comparable to other government insured loan programs. The VA requires an up-front Funding Fee which ranges from 1.25% to 3.30% depending on the type of veteran (regular military or reserves/national guard), down payment, and whether or not the veteran has previously obtained a VA insured mortgage. The Funding Fee may be financed into the loan. There is no monthly mortgage insurance requirement for VA mortgages.
Closing costs for VA loans may be paid by the veteran or by the seller of the property. Closing costs may not be financed on purchase transactions.
*Crunching The Numbers: All calculations presume a fixed rate mortgage with a 30 year term, purchase transaction, owner occupied, 700 credit score, single family detached residence, located in Jefferson County, Washington. USDA GRH example includes interest rate of 4.75%, APR of 5.088%, and guarantee fee of 2% financed into the loan. VA example includes interest rate of 4.75%, APR of 5.049%, and funding fee of 2.15% financed into the loan (the fee for regular military; first time use). FHA example includes interest rate of 4.75%, APR of 5.330%, up-front MIP of 2.25% financed into the loan and monthly MI of .55%. Conventional example includes interest rate of 5.125%, APR of 5.693%, and monthly MI of .98%. All examples include estimate of $600/year for hazard insurance and $2,400/year for property taxes. Cost comparison includes monthly MI payments for 60 months. Loan balance assumes all payments were made on time and no additional amounts were paid towards principal. Calculations do not include closing costs or pre-paids. All interest rates quoted were available on February 11, 2010.
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