Is the VA Loan Worth It?

Is a VA loan worth it?

Well, my answer would generally be yes, but there’s also a no – depending on certain situations – and we’ll get to that right out the gate.

I generally think the VA loan is, yes, very well worth it. Now, we’re not going to debate: is it worth it to buy or is it not worth it to rent, etc.?

We have some other videos on that, but let’s just assume you’ve decided it is worth it to buy. I want to buy real estate, I want to buy it to live in it, I want to buy it to maybe long-run invest, etc.

You decide you want to buy real estate. In that scenario, I do believe, yes, the VA loan is typically worth it if you’re looking to purchase real estate, especially when you’re comparing it to other loan types like a conventional loan that most folks would compare it to, or an FHA loan.

Why?

Because if you’re eligible for a VA loan, the VA loan offers you three major benefits that conventional loans or FHA loans really just don’t have altogether.

Number one, VA loans generally going to have more competitive interest rates.

Now, that depends on the lenders you’re working with, but ones like us who really focus on VA loans and have it down, your interest rates should be significantly better than on a conventional loan.

The only scenario where that might get close, and I’ll talk on that here in a little bit, is when all of a sudden, you’re putting a lot of money down, you have an extremely high credit score, that kind of stuff can get conventional competitive. But for the most part, VA loan is generally going to be the most competitive on interest rates.

Now, the other big benefit for VA loan is that you don’t get dinged with private mortgage insurance by putting less than 20% down on a VA loan.

So that’s your monthly cost that if you’re putting less than 20% down on a conventional loan, you’re typically going to have private mortgage insurance, another monthly ding that you have till you get up over 20%. Heck, on FHA loans, you’re going to have that pretty much for life of the loan, except in very unique scenarios. It’s just another monthly cost VA loans do not have it.

And then lastly, big plus of VA loan that makes it worth it, and this is where I’d say all things else equal, even if you got a conventional loan that is the same interest rate, similar closing costs, they’re very comparable at purchase.

The thing that makes a VA loan, I would say, very worth it, is the ability to do an Interest Rate Reduction Refinance Loan or a VA IRRRL.

Now, we’ve got a lot of videos on that one. I say it’s your favorite Uncle Earl. It’s the ability to come in and help save you money if interest rates have gone down.

The reason why it’s so powerful is really because you don’t have to do an appraisal or minimum income verification.

Your credit could technically even blow up, and you can still get it. We’ve still got to check it to make sure you made your payments, but it’s pretty powerful.

So that even if the world is ending for you, you have the chance to pull down your interest rate if interest rates have improved. The VA loan is the only one that just has that ability to do so.

FHA has their streamline refinance, which is close to it, but the VA loan, I mean, man, it’s just incredible having that ability, especially when you don’t have that private mortgage insurance or mortgage insurance premium. So in most scenarios, VA loan is very well worth it.

Now, there is one cost to that VA loan.

If you don’t have VA disability compensation – which if you do, you pay no VA funding fees, which is absolutely incredible – but if you don’t have that VA disability compensation, then you’re technically subject to what’s called a VA funding fee.

And that’s one of the costs at closing that the VA charges you directly and is rolled generally into the loan to be able to do a VA loan.

So I always say, some folks are like, ‘You don’t pay private mortgage insurance or you don’t pay mortgage insurance premium.’

That is true. That’s why I say it’s a big benefit, but upfront you do have a little cost to get access to that VA loan.

So, the VA charges you that VA funding fee, 2.15% with your first use of the VA loan, a little higher if it’s your subsequent use if you’re putting 0% down.

If you have VA disability, it goes out the window.

If you put at least 5% down on a VA loan – so which is why we’re uniquely big proponents of being able to put some money down on VA loans – they cut that funding fee to 1 and a half percent.

So now all of a sudden, it’s very comparable to traditional regular closing costs. The question is, is my better interest rate, is that ability to do that streamlined refi all worth it?

I would argue, yes.

So, the reason being is because we’ve seen a lot of clients use it, and that extra half a percent to a percent saving in interest rate really adds up quickly over just a few years, drastically offsetting that VA funding fee.

That ability to reduce your interest rate with a streamlined refinance, a VA IRRRL, without having to do the appraisal and go through the full process is just incredible.

That’s a benefit right there that can literally be worth tens of thousands of dollars, drastically offsetting that VA funding fee.

But there are some scenarios, as I mentioned in the beginning, where maybe the VA loan isn’t fully worth it. And remember, you’ve decided to buy in this scenario.

We’re not debating buying versus renting or buying – is the market good or bad. We’ve got some other good videos on that too.

But the deal here is that you’ve decided to buy.

There are scenarios where a conventional loan could edge out a VA loan.

And that’s where if you are putting a lot of money down, generally we see 20 to 25%, and you have a very high credit score over 800, and you are subject to the VA funding fee, meaning that you actually have to pay that VA funding fee, then in some of those scenarios, a conventional loan could be very competitive with a VA loan.

At those instances, we typically will start seeing interest rates get very close. And then at that point, the question really is, hey, is it worth it to pay that VA funding fee, which is depending on your down payment, 1 and a quarter to 3.3%?

Is it worth paying for that to get the streamlined refinance still, or would we rather go conventional, not have that cost, but then maybe have a little more cost in the future if we needed to do a refinance?

And that’s where it just kind of comes down to a personal preference at that point.

But the only way that we usually see that is if you put that large amount of money down, have that extremely high credit score, and are not subject to the funding fee.

Because remember, if you have VA disability compensation, 10% or greater, which are a lot of our clients – VA estimates that over half of veterans have access to or should have access to VA disability compensation – then you don’t even have that funding fee.

So, in those scenarios, the VA loan typically is just a no-brainer and I think worth it every single time. But if you are subject to that funding fee, sometimes that’s just a comparison that we got to make and decide at that time.

Another time is 15-year mortgages. Conventional loans typically on 15-year mortgages really give you a pretty big discount on the interest rate. VA, we just don’t see it as much.

So, if you’re going to do a 15-year mortgage, conventional can sometimes edge out VA even a little bit sooner than that. So, we just got to run the numbers again.

So, if you’re interested in doing a 15-year mortgage, which I fully understand, I’ve done those myself, sometimes conventional can beat out VA. You just got to run that scenario.

However, again, overall, is a VA loan worth it when I’ve decided to buy a home?

Yeah, my gut just always says about 85% of the time it’s the best solution for you. Maybe even a little bit higher, especially if you’re our prime demographic that we work for, active-duty military that are PCS and moving around the country, and you’re younger and you’re just starting off, you’re a new Soldier, Airman, Sailor, or you just got out of basic training or commissioned.

Those younger folks, it usually is the best deal, 90, 95% of the time.

But as you get older, you’ve either used up all your entitlement so you have minimal access to VA loan, or you got to bring a big down payment on the VA loan, which we have other videos on.

Or you have those funds and have that very high credit score, then in some of those scenarios, it might be worthwhile for conventional sale. We just got to run those numbers.

So, know that, yes, I think the VA loan is so worth it, hands down, just about every single time. And I’ve given you some of the caveats of when it may or may not be worthwhile.

So hopefully that helps you out. My name’s Evan Kaufman. Again, I’m your VA loan originator, and I’m just hoping this information helps you go out there and win a home with a VA loan. Take care.