Other Benefits Available When Financing With VA

There are several other benefits, besides no down payment, to VA financing.

The interest rate on a 30-year, fixed-rate loan guaranteed by the VA is generally one-half to one percentage point below the conventional rate. Fixed-rate loans are generally from 11% to 11 1/2%; the VA is 10 1/2%. The difference may bring down the monthly payment enough to tip the balance in your favor if you’re a borderline qualifier.

With the VA loan, you also save significantly on closing costs, since the VA has strict limitations on the costs to veterans. The buyer still has to pay the prorated interest and taxes, but the seller pays for the discount points.

That’s a major up-front savings to the buyer and not necessarily a drawback to the seller, since the amount can be negotiated into the sales price.

Since the VA requires that property taxes be included in the monthly payments, you also have to pay tax impounds of one month to six months of taxes, depending on which month you buy the property in.

There is a 1% funding fee that’s charged, but the veteran can add that to the mortgage amount. With the VA loan, there is no charge for mortgage insurance, which is often slapped on first-time buyers.

The only other significant costs are roughly $300 for the appraisal and $200 for title insurance. The first monthly payment is also due at closing, but since you need to have that money in the bank to qualify, that shouldn’t be a hitch.