6 Tips for Saving Money On Your VA Loan
Every home buyer wants to save money on their mortgage. With all the expenses associated with buying a home, removing just a few costs or fees can end up saving you a lot of money upfront or in the long run.
Because the VA loan program is unique, there are specific ways you can save money with the mortgage program that you can’t with others. Depending on your current financial needs, you can either reduce your costs at closing or cut your expected monthly payments, saving you money over the course of the mortgage.
Here are some of the things to know to save money on your VA loan:
1. Make a larger downpayment…or don’t make one at all
If your goal is to save money on your monthly payments, then a larger downpayment is the way to go. The more you put down on your home purchase, the lower your monthly mortgage payments will be. This is because your down payment goes toward the principal of the house, so the accumulated interest costs over the course of the mortgage will be lower.
But not all home buyers want to make a larger downpayment, and some aren’t able to at all. The other option is to make a smaller downpayment – or no downpayment at all. Because VA loans are guaranteed by the Department of Veterans Affairs, these loans don’t require a down payment. However, making a down payment means you’ll make smaller monthly payments over the loan term.
Whether you choose to save money upfront or over the course of the mortgage depends entirely on your unique financial situation.
2. Have the seller cover closing costs
Having the seller cover some of your closing costs isn’t unique to VA loans. These are called concessions, and both parties can agree that the current homeowner covers some of the costs. The goal is to make the process easier for both parties and make the sale go faster.
You can’t have the homeowner cover every cost at closing, but they can cover your VA funding fee, tax prepayments and discount points. They can also agree to leave appliances like a refrigerator or dishwasher in the new home, essentially making it part of the home sale, included in the purchase price.
With a VA loan, total concessions are not allowed to exceed four percent of the total home value. But when you’re purchasing a home and getting a loan for $250,000, four percent is $10,000. That’s a sizable saving.
3. Pay discount points
VA loans already have the lowest mortgage rates, but there’s a way to get even an even lower mortgage rate.
Discount points are an additional fee you can pay at closing. By paying the fee, your lender will reduce your mortgage rate by a set amount. You’re essentially paying some of the interest upfront so your lender will reduce your rate to match what you’ve paid. Also, discount points can be tax-deductible, saving you money when April comes around.
Discount points are entirely optional, but if you have enough cash on hand, you can end up saving a decent amount over the life of the loan. Ask your VA lender how much you can save by paying one discount point before deciding whether or not to pay.
4. Make extra payments
Borrowers are allowed to make extra payments on your mortgage loan. By making extra payments, you’ll start chipping away at your loan principal that much sooner. Extra payments can usually be made at any time so if you come into some extra cash, it’s not a bad way to save on your VA loan.
Before you make an extra payment, check with your mortgage lender to make sure you won’t incur any prepayment penalties.
5. Finance your funding fee
The VA funding fee is a flat fee that you have to pay at closing. Funding fees range depending on how large your downpayment is, if you were active duty or national guard, how many times you’ve used a VA loan, and what type of loan program you’re using through the VA.
As an example, a first-time home buying veteran making a downpayment worth 10% of the home will pay a funding fee worth 1.25% of the loan amount.
For VA home buyers that don’t want to pay the fee, there is the option to finance it at closing. This will roll the fee into your mortgage, saving you money upfront. However, this will also increase your monthly payments. Like choosing the size of your downpayment, the choice depends on your personal situation.
6. Refinance to lower your mortgage rate
If you already have a VA loan, there’s a chance that you can save money through an Interest Rate Reduction Refinance Loan (IRRRL). The IRRRL — also sometimes called a VA Streamline Refinance — is a VA refinance that is designed specifically to reduce the mortgage rate on your loan.
Unlike the VA loan, IRRRLs don’t require a new VA appraisal, and the process tends to go quicker than the home buying process. Refinancing can be an excellent way to save money – however, to be eligible you do need to be able to get a lower interest rate than you currently have.
VA home loan eligibility
VA loans are one of the best mortgage products on the market, designed to help military service members become homeowners. VA loan benefits can help active-duty service members and veterans to save lots of money over the life of their home loans.
VA loan benefits
The VA loan program will give you access to a zero down payment loan program with no private mortgage insurance (PMI) and some of the lowest interest rates available.
Who is eligible for a VA loan?
VA loans are available to active military members, veterans and certain other individuals, including surviving spouses.
For more information on determining your VA loan eligibility, read the service requirements here.
Requesting your Certificate of Eligibility
A lender can help you request your certificate of eligibility (COE) to confirm your eligibility and determine your entitlement for a VA loan guaranteed by the federal government.
Save on your VA home loan today
There are many ways to save money both upfront and over the life of the loan, even if you already have a VA loan. Begin your homeownership journey today!