The Actual Savings of a VA Home Loan

Home on a pile of cash next to a calculator, representing the savings of a VA home loan
VA home loans are as good as it gets for a mortgage. On average, you can save about $18,813.99!

With no down payments, reduced closing costs (or none at all), lenient qualifications, and lower interest rates, VA loans are very appealing. Of course, only veterans and current servicemembers are eligible for these great benefits, and why not? You’ve earned them.

We can always talk about how great VA loans are, but let’s do something else. Let’s go over just how the numbers break down. In this post, we’re going to take the national average in regards to:

  • Premium Mortgage Insurance (PMI)
  • Interest Rate (Conventional vs. VA)
  • Property Taxes*
  • Home Insurance*
  • Closing Costs
  • Down Payment
  • VA Funding Fee

Additionally, this post is geared towards first time homebuyers. Down payments and VA funding fees differ if you’re a repeat homebuyer.

*Property taxes and home insurance are determined by the state and county where you reside. The percentages and amounts used in this post are only used to illustrate an approximate monthly mortgage payment.

Monthly Payments: Conventional Loan vs. VA Loan

For this post, we took the national average VA loan amount ($254,870) and used it to compare both conventional loans and VA loans. You can find this amount by clicking on “FY 2017” on this site.

The tables below show how both a conventional and a VA monthly mortgage payment breaks down.

Monthly Charges for a 30-Year Conventional Loan of $254,870

Monthly Charges National Average Cost
Private Mortgage Insurance (PMI) 0.5% (until June 2026) $101.95
Interest Rate 4.32% + Monthly Principal $1,213.70
Property Taxes 1.25% $265.49
Home Insurance 0.35% $74.34
Total Monthly Mortgage Payment = $1,655.48

Monthly Charges for a 30-Year VA Loan of $254,870

Monthly Charges National Average Cost
Private Mortgage Insurance (PMI) N/A $0
Interest Rate 4.05% + Monthly Principal $1,224
Property Taxes 1.25% $265.49
Home Insurance 0.35% $74.34
Total = $1,563.83

The key number to look at here is the PMI. A VA loan does not require PMI so you’re saving $101.95 a month with your VA benefits. Also, notice what that PMI does in the long run. It’s estimated that the borrower is paying that PMI until June 2026, so let’s calculate how much they’re paying from January 2018 – June 2026.

  • $101.95 x 102 months = $10,398.90

Wow! That’s $10,398.90 that can be avoided with a VA loan.

One-Time Expenses: Conventional Loan vs. VA Loan

Now let’s look at the one-time expenses when you close on a loan.

One-Time Expenses for a 30-Year Conventional Loan of $254,870

Expenses National Average Cost
Closing Costs $3,700 $3,700
Down Payment 4% $10,194.80
Total in One-Time Expenses = $13,894.80

One-Time Expenses for a 30-Year VA Loan of $254,870

Expenses National Average Cost
Closing Costs N/A $0
Down Payment N/A $0
VA Funding Fee 2.15% $5,479.71
Total = $5,479.71

As you can see, closing out on a VA loan is very beneficial. With a conventional loan, you need to raise a lot of funds in order to get into your new home.

Let’s talk about closing costs. The Department of Veterans Affairs only allows certain closing costs to be charged to a veteran homebuyer. However, these closing costs can actually be covered by the seller. For this example, we’re assuming the closing costs are covered.

With the VA Funding Fee as the only expense, you can see the significant difference between a conventional loan and a VA loan. It’s a difference of $8,415.09 at closing, which is very beneficial for a first time homebuyer who may not have the funds for a down payment.

Hypothetical Closing Costs

For our example, we assumed the closing costs were paid by the seller, but what if in your case they aren’t?

The term itself, closing costs, is very broad. There are all kinds of fees that happen during the finalization process. But here’s the good news. The VA only allows certain closing costs, meaning the seller and lender are limited in what they can charge at closing.

Let’s take a look at what is allowed, assuming the seller doesn’t cover the closing costs:

  • Origination Charge – For processing, underwriting, and origination, the VA allows the lender to charge up to 1% of the loan amount.
  • Appraisal – An appraisal is required and the VA sets the appraisal, not the lender. Typically, this is around $525, but it depends on which state you live in.
  • Credit Report – A credit report may be charged by your lender for accessing your credit information, and this shouldn’t exceed $50.

Now, let’s run through these charges:

  • 1% of the $254,870 loan amount equals $2,548.70
  • An appraisal fee of $525
  • Credit report of $50
  • Total amount of $3,123.70

With the VA Funding Fee of $5,479.71 and the $3,123.70 in closing costs, your total amount comes to $8,603.41. This is still less than the $13,894.80 for the conventional loan—$5,291.39 less.

Resource

The example for this post was done so by using the U.S. Mortgage Calculator. Here you can crunch the numbers and see things for yourself. This calculator is great because it factors in taxes, insurance, and PMI.

Recap

With no PMI, no down payment, and reduced closing costs YOU COULD SAVE $18,813.99!

VA loans are the best on the market, and they make getting into a home a lot easier.

Are you ready to get started today? Even if you’re just curious about what we offer, contact us here at Low VA Rates. Explore our website or call us at 866-569-8272 to speak to a mortgage professional today.

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