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Contributor

Searched and searched and could not find an answer elsewhere, probably due to my lack of knowledge on the subject.  I apologize but I know very little about home buying and this will be my first time buying a home.  My wife and I recently got out of the military and moved to WA, where we are renting.  We want to buy a house and our plan is to save up a decent amount for a down payment and eventually buy a place. 

 

Although the VA loan allows one to borrow 100% of the value of the home as opposed to the usual 80%, I'm not sure I like that idea.  The reason is that borrowing all of the value would raise the mortgage payment to much more than it would have been if borrowing 80%, correct?  The houses that fit our needs (3 kids) in the area we wish to move to are way out of our price range, monthly payment wise, without at least 20% down.   If the way a VA loan works somehow prevents the mortgage payment from going up significantly due to the extra 20% borrowed, I would love to know about it.  This is what I have had such a hard time finding any info online about. 

 

If I am right about the higher mortgage payment, it would seem that if one has the ability to save for a couple years and produce a respectable down payment toward a VA loan, he should.  In our case, we would need to do that to afford a place that meets our needs. 

 

Simply put, we are just trying to figure out if we do in fact need to wait a few years (and we would be fine with that), or if the VA loan would allow us to start shopping now and not worry about a much higher mortgage payment that we can't afford. 

 

Thank you for your help,

-Josh

5 REPLIES

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Hi Josh,

I have asked an expert here at USAA to help me answer your question! Be back soon with some details! Thank you!

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Got an answer!

 

The payment is based primarily on the rate and loan amount (insurance and tax escrows factor in but are the same regardless of loan amount). The VA will allow for 100% loan to value but your assumptions are correct, higher loan amount means higher payments.

 

I hope this helps! Thank you for commenting.

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Josh,
My understanding of mortgage loans is that if you don't put down at least 20%, then the bank requires you to purchase mortgage insurance (also known as PMI). This can add hundreds of dollars extra onto the monthly payment, depending on the size of the loan. The advantage of the VA loan is that if you don't put down the 20%, you are not required to purchase the PMI, because I think VA insures the loan for you. Thus the VA loan saves you money if your down payment is less than 20%. The banks LOVE the PMI because it protects THEM, in case you defaulted on the loan, and they LOVE the VA loans because the VA insures the loans. A friend once warned me that the VA loan stays with the house/bank, and if you sell the house you need to make sure your one and only VA loan comes with you, and doesn't stay with your old mortgage. My friend said the banks won't tell you this because they want your VA loan to stay with them. Hope this helps. Verify, because I'm not 100% sure if I'm correct.
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Thank you both for the responses.  That has  been helpful and answered my initial question.  The next part of my question is this: 

 

Lets say someone really wants to get into a home with a 20% down payment, but does not have the money yet.  In general, would it make any financial sense, given that person's desire, to borrow about 95% right off the bat, then refinance a few years later and put another 20% into the home to get those monthly payents down to a more reasonable number? is that even allowed? Probably depends on the lender. 

 

I've heard refinancing can be costly and therefore not always worth it.  Maybe the possibility of refinancing years down the road is not something a person should rely on when considering the purchase of a home, since things could change drastically years from now.

 

Is this way too complicated a question, with too many variables to answer, even in a general sense?

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hi Charly13243,

Talked to an expert again to answer your second question. Hope it helps! Here is what he had to say:

 

It can seem complicated but there are some constant factors that always affect whether or not refinancing is a good idea. After rate, the largest factor is the breakeven point. This is simple to calculate. Divide the total amount of closing costs by the difference in monthly payment. This will tell you how many months it will take before you are ahead of where you would have been had you not refinanced. Unless your receiving service related disability payments, you’ll always have the VA Funding Fee to pay (or roll into your loan amount) each time you originate a new VA loan. The funding fee can range from .5% to 3.3% of the loan amount. Some lenders and servicers will recast the payment based on the lower balance. They typically charge a fee for this. As always, it’s best to consult your financial advisor. The factors here certainly aren’t all inclusive.