The VA loan allows a Veteran to utilize his/her VA loan multiple times with various combinations depending on military history, service connected disability, down payment, and prior VA loan history. I must preface my topic: Why Put 5% down on a VA Home Loan? with a basic answer to another question: What is a VA funding fee?: The VA funding fee is added as a dollar amount calculated by a percentage to the purchase price of the home you are buying. The VA funding fee guarantees to the lender that if a Veteran fails to repay the loan the lender is protected for $36000 up to $144,000 and additional entitlement up to an amount equal to 25% of the allowed county loan limit for a single family home may be available… My discussion is why put down 5% on my VA Home Loan?? When a Veteran with active duty service (which is nearly everyone including reserves these days due to active duty service in multiple theatres of war) the VA funding fee is set at 2.15% for first time use of the VA benefit and subsequent use ( new purchase, cash-out refinance) is set by the VA at 3.3%. The Veterans who are reserves with no overseas service in Iraq or Afghanistan for example (on active duty ) will have slightly higher fees, and for the purpose of this discussion I will focus on Active Duty and Active Duty Reserves. Here is where we finally get to the meat of it! If you put down 5% on a VA loan your funding fee no matter how many times you have used your VA Home Loan benefit the funding fee drops to 1.5% which is a huge savings for an average 250k home, second use. The VA funding fee for the 250k home at 3.3%, second, subsequent use would be $8250, but if you put down 5% the loan amount is now $237,500 and funding fee drops to $3562.50 a savings of $4687.50! With a first time purchase you still save a substantial amount of money as well. The funding fee on our example 250k home would drop from $5375 to $3562 so a saving of $1813, less savings than the first example however still a good savings and a lower amount to finance which will provide for a lower monthly payment. There is no other loan on the planet that even comes close to your VA Home Loan Benefit…All other loans require some type of mortgage insurance paid monthly when there is less than a 20% equity position. Here is something more to share (resisted saying wait there is more). On a VA Home Loan the seller can pay 4%( based on the purchase price of the home) towards your VA Non-Allowables (fees the Veteran can’t pay),closing costs and pre-paid fees, so lets use our 250k home as an example. On our 250k home lets say the VA Non-allowables, closing costs and pre-paid fees come up to $5000, your VA realtor can make an offer of 250k with seller paying up to $5000 in VA non-allowables, closing costs and pre-paids. This 250k offer as written will net the seller $245,000. So, think of this, rather than paying for some of your closing costs you can use all of your money towards the 5% down since you don’t have to pay the va non-allowables,closing costs or pre-paids. Also if you put down 10% your VA funding fee will drop to 1.25% which to is a limited return for the additional funds required however your choice so had to let you know this option on down payment benefit. Feel free to contact any of us for more information on your VA Home Loan Benefits!
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