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The VA home loan program comes with a large list of benefits, from purchasing with no money down and limits on what borrowers can pay in closing costs to incredibly competitive interest rates even for those with less than perfect credit.

But there’s another big advantage to purchasing or refinancing with a VA Loan, NO private mortgage insurance (PMI). Avoiding any kind of mortgage insurance saves VA homeowners from spending thousands of dollars in mortgage insurance over the  course of their mortgage term.

A Look at the Others

Private mortgage insurance is a staple of conventional home financing. Even loans backed by the Federal Housing Administration (FHA) have forms of both one-time and annual mortgage insurance.  In fact current FHA loans require monthly mortgage insurance for the life of the loan.

In the conventional world, homeowners who can’t save a 20-percent down payment are typically required to secure private mortgage insurance from a PMI company. This insurance helps insulate the home lender from loss if the borrower defaults. It usually ends when the borrower has over 20 percent equity in the home — that same 20 percent figure that lender wanted to see at the outset.

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The reality is a 20-percent down payment is difficult to save for the vast majority of home buyers. A borrower planning to purchase a $150,000 home would need $30,000 in cash in order to meet that threshold. Depending on your purchase price and down payment and other factors, PMI can easily run $150 to $200 per month.

FHA loans require a minimum down payment of 3.5 percent.  Buyers pay an up-front mortgage premium equal to 1.75 percent of their loan amount.  For that $150,000 home, that’s $2,625 due at closing or added to the loan balance.  FHA borrowers also pay an annual mortgage premium that’s as much as 1.35 percent of their loan amount, which would be in the neighborhood of $165 for this example loan amount. You’ll pay this annual fee for the life of the mortgage — as much as 30 years.

No PMI Required

VA borrowers don’t have to worry about coming up with a bundle of cash to close. In fact, borrowers in some cases can secure a home without spending a dime up front. One thing all VA borrowers have in common is they’re able to save money each month that other homeowners miss, allowing them to pay down debt, cover regular expenses or pay down their principal, which can shave years and thousands of dollars in interest from their mortgage.

Veterans who secured a VA loan last year will save $19 billion in private mortgage costs over the life of their loans, according to VA estimates.

The no-down payment mortgage will and should remain the VA Loan Guaranty program’s signature benefit. But it’s important that PMI doesn’t get lost in the shuffle. Something to remember when the time comes to evaluate your lending options.

You can talk with one of our loan specialist about getting prequalified for a home loan at 888-212-1958. Also remember that VA loan prequalification and preapproval are not binding steps, which allows veterans to compare lenders and make a decision that’s right for them.

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Explaining the VA’s Standard for Residual Income

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The Passion of Blog! Be Empowered! is an information forum of Todd McManigal, Branch Manager for American Mortgage & Equity Consultants.

Todd’s NMLS # 267557

Branch NMLS # 1224262

 

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