Author Topic: VA Home Loan vs. Conventional  (Read 2600 times)

MrMoneyMaxwell

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VA Home Loan vs. Conventional
« on: August 25, 2015, 12:35:35 PM »
Hi,

We're currently renting and planning on purchasing a home next summer. I'm debating between the merits of a conventional or a VA home loan. My rates will be about 0.5% lower with the VA loan.

My main question, which I am unable to get a straight answer on from the internet because my google-fu is at a low point today, is with terminology. VA websites say that the loan can be taken over by someone qualified to have a VA loan. Does this play any part into me selling the home later on?

We live in a suburb of Denver, and I'm told that VA Loans are harder for buyers to accept in competitive markets like what we're seeing here.

Thanks.

jhess002

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Re: VA Home Loan vs. Conventional
« Reply #1 on: August 25, 2015, 01:00:12 PM »
I have used a VA home loan, and think they are really good.   

A downside is the funding fee that is around 1% of the loan unless you are a service connected disabled veteran or a surviving spouse.  But the funding fee can be financed.  http://www.benefits.va.gov/homeloans/purchaseco_loan_fee.asp  Also, there are VA loan limits that vary by county.  http://www.benefits.va.gov/HOMELOANS/purchaseco_loan_limits.asp  In high COL areas, the VA loan is far outpaced by the cost of housing. 

The upsides are - usually lower interest rates; you can refinance easier through an interest rate reduction (http://www.benefits.va.gov/homeloans/irrrl.asp) or cash out (same process as a purchase loan).  There are certain consumer protections built into VA loans as well (e.g. no late fee until after the 15th day of each month). 

As far as sellers accepting them - it depends.  You have to use a VA approved home appraiser, and they may force certain fixes no matter how small (e.g. for my loan a banister had to be installed on an exterior staircase for the loan to go through).  Some sellers/real estate agents think VA appraisers will make too many demands, and these cannot be waived by you unless you drop the VA loan and go conventional.     

Regarding someone taking over your loan - I have never heard of anyone doing this and I think it would be a complicated transaction.  Would they take out a second loan to pay you extra for appreciation, and take over your current loan?  Since the person taking over the loan would need to be a qualifying veteran, this would only be possible in an area that has a large military population.  You can re-use your VA home loan entitlement when it is fully refunded, meaning when you sell your house and repay your loan with the proceeds. 

I would use it if you can, and if a seller baulks then you can negotiate something in return for giving up your VA loan for a conventional loan. 

PencilThinStache

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Re: VA Home Loan vs. Conventional
« Reply #2 on: August 25, 2015, 01:10:10 PM »
Regarding your question, I secured my loan through CapitalOne, who transferred my loan to Wells Fargo. They did this because they do not service VA Loans. I'm not sure of the precise details as to why, but it was seamless on my end. I just got a notice from WF saying they'd taken over the loan, and my mortgage payments started going to them instead of Cap One.

My VA loan experience was a good one, and I think it's a fantastic benefit. I do wish that I could have avoided the funding fee. As mentioned, it's extended to service connected disabled veterans, which is a much larger group than it sounds. I know so many vets who have service connected "disabilities" which don't amount to much more than normal symptoms of aging - slight hearing loss, rickety knees, sore back, sleep problems, carpal tunnel (Air Force), etc..

MrMoneyMaxwell

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Re: VA Home Loan vs. Conventional
« Reply #3 on: August 25, 2015, 01:20:32 PM »
I guess I was confused about the terminology of "taking over the loan." In my mind that meant selling the house, but I see what it means now.

Did you put a down payment on your VA loan?

jhess002

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Re: VA Home Loan vs. Conventional
« Reply #4 on: August 26, 2015, 09:34:48 AM »
I needed a down payment for my VA loan only because my income/debt ratio did not qualify for the full cost of the house.  However, when I refinanced (at a lower interest rate) and cashed out a year later, the margin was smaller (or my income went up).  So I was able to not only get a large percentage of the appreciation but some of my down payment back as well. 

If your income to debt ratio is fine, you would only need a down payment if you need to make up for the difference between the VA loan limit and the cost of the house.  For the difference, you need to make a 25% down payment.  For example, the house costs $500,000, the VA loan limit is $400,000 for your county.  So you would need to come up with 25% of $100,000 (i.e. $25,000) for your down payment if this applies.

Also, I forgot to mention the headache with VA loans and non-VA approved condos (I went through it). I assume because you are in the suburbs, you are not looking at condos.  If you are looking at condos, let me know and I can walk you through that process.   

Another Reader

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Re: VA Home Loan vs. Conventional
« Reply #5 on: August 26, 2015, 09:48:03 AM »
In a really hot market, cash usually wins.  Second to cash is high down payment conventional financing with the buyer fully approved and few or no contingencies.  Sellers in hot markets don't generally consider VA loans because of all the hassles. 

NorCal

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Re: VA Home Loan vs. Conventional
« Reply #6 on: September 01, 2015, 10:08:34 PM »
I tried a VA loan in the SF Bay Area about 3-4 years ago.  It was totally out-of-market, and no seller would accept it.

Our market was going to all-cash, no contingency offers, which the VA loan just wasn't competitive against.

Every market is different though.  Talk to your real estate agent about what's competitive in the local market.  They'll have a pretty good sense of how competitive the VA loans are.

If you're mostly looking at houses with no other offers, I imagine the VA loan would be fine.  However, if you're in a market with multiple bidders, you either need to come in with more competitive financing, or offer more money than the other guy.