Financing in 91915>Question Details

Jameskerry41, Home Buyer in San Diego, CA

do i put a large dn payment on a house or go with VA no dn (with higher mortgage)?

Asked by Jameskerry41, San Diego, CA Sat Jan 7, 2012

I know this may seem like a silly question but if you had a home loan for $350K and $100K saved, does prudence dictate a lower monthly payment (and lower savings); or higher monthly payments and money in the bank? My brother told me common sense dictates if for any reason I would lose the house, I'd lose the money. A lender suggest keeping at least 6 mos payments in the bank, use the rest on dn payment. Excuse my ignorance in advance please!

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I have always contended that the VA loan is one of the best loans around because there is no mortgage insurance and it has several built in features that can benefit you into the future.

For example, the VA loan is assumable, meaning later on down the road when interest rates go up, you can market your home with an assumable low rate which would make your property more marketable.

Also, the VA loan has the Interest Rate Reduction Feature (IRRL). That will allow the veteran to capture future lower rates without requalifying or re-appraisng the property. This is a huge benefit because you are able to act on significant rate decreases.

That being said, the only drawback is that the VA has a funding fee on all of their loans of up to 3.3% depending on your particular scenario. There are some exceptions to the funding fee. If you have a service connected disability, the funding fee is waived. If that is the case with you, no brainer, take the VA loan.

Also, there is nothing that says you cannot put down more of a down payment on a VA loan. If you put down say 5% or 10%, the funding fee is reduced. So you keep some cash in your account, take a slight funding fee but still have all of the benefits of the VA loan in the future.

I have attached a link to a blog post I wrote about the VA loan and its benefits. I do a lot of VA loans and am able to complete them in CA as well. I would be happy to talk more about it with you.

Feel free to call or email.

Your mortgage partner for life,

Rey Gallegos ( NMLS ID 557038)
Loan Officer | Branch Manager
W.J. Bradley Mortgage Capital LLC ( NV License # 504)
702.808.8328 Direct
702.446.6591 Fax
702.800.5077 Office
Rey.Gallegos@WJBradley.com
http://www.mywjb.com/rey-gallegos
2200 Paseo Verde Pkwy. Ste. 100
Henderson, NV 89052
1 vote Thank Flag Link Sun Jan 8, 2012
Hello Jameskerry41,

Honestly, your scenario comes down to a preference. If you feel more comfortable having at least 6 months of reserves in the bank, then you should go this route and minimize your down payment. It would be best to compare all your options of VA, FHA and conventional loans for your purchase so you can see what your total payments would be and what you feel comfortable with. VA will allow for zero down payment if you have enough entitlement from your certificate of eligibility. However, the funding fee is going to be slightly higher than if you were to put down any amount of down payment. FHA will allow for a minimum of 3.5% down payment, but will have an up front mortgage premium of 1.0% financed into the loan and a monthly mortgage insurance, required for the first five years of the loan. For conventional, you can go as low as 5% down payment on a loan amount up to 417K, but you will have mortgage insurance as well. That payment can vary, depending on the rate quote obtained by an approved mortgage insurance company.

If you'd like to discuss your scenario further and see all the options written out so you can see what makes sense for you, please feel free to give me a call or send me an email. Best of luck to you.

Michael Abram
First Capital Mortgage
NMLS #235060
Direct: (310) 434-1718
Cell: (310) 995-0975
mabram@firstcapitalmtg.com
1 vote Thank Flag Link Sun Jan 8, 2012
There is no right or wrong answer on this and it really depends on how stable you see your job and your future as well as other financial goals you may have. Some people put the most money they can down, others sleep better knowing they have a large reserve in the bank in case of an emergency or a rainy day. However if you use a mortgage calculator you will see that you will save about 170,000 throughout the life of the loan if you put the money down. Talk to your cpa to see what is better for your scenario as this is not a black or white answer and everyone has different financial goals.
1 vote Thank Flag Link Sun Jan 8, 2012
Jameskerry41,

I agree with everyone else that it is completely up to you. I use finance specific programs to develop side by side comparisons so my clients can make educated decisions with actual numbers at their disposal. I have always found that people can make their own decisions about what is best for them once they have all of the pertinent data. I would be happy to provide you a sample of the program if you would like to contact me via my profile. No obligation, of course. Best to you!
0 votes Thank Flag Link Mon Jan 16, 2012
Hi Again!
As stated below, it is completely a matter of preference and what home you want to purchase. Obviously putting more down will get you a lower payment. I would think about what monthly payment suits you, what the price of the home or homes you are interested is and work the numbers from there. If you need any specific assistance, please contact me directly.

Thanks!
Sinead McAllister
858-205-5215
brokermcallister@gmail.com
0 votes Thank Flag Link Mon Jan 9, 2012
Hi James,
I agree with your Lender. If you can afford the higher payment, it's better. You can always pay more to the principal and cut down the years. During these trying times, it's a good idea to have money in the bank
Call me to discuss further. We can make a plan that best fits your specific Real Estate needs.
Thank You
0 votes Thank Flag Link Mon Jan 9, 2012
Hi James,

You can break each scenario down on a spreadsheet. I do this for all of my buyers, so they can see what their monthly payments would be whi8chever way they bought.

If you put down 20%, of course you'd have 20% to lose for whatever reason (price settling, foreclosure, for example), but you'd be able to buy more house, if that's important to you. If it's not, and if you can easily afford the monthly payments with a 0% down loan, and the homes you're seeing fit your needs for now and into the future, why invest your own money? Just my opinion. A VA loan is a really good benefit.

You can also pay down your loan later if you want to, or make an extra payment to help pay down your interest. I'd advise talking to your lender about this, and also for a different perspective, your accountant.

Warm Regards,
Cory
0 votes Thank Flag Link Mon Jan 9, 2012
Hello James,
It depends on how long you want to keep the house. Is it long term or short term? If you want the house on a long term I would put larger down payment so you can have a lower monthly mortgage and no MI (mortgage insurance). When you have a bigger down payment, you eliminate this added monthly fee on your mortgage payment, in addition, your monthly payment is lower due to a lower principal balance. If you are buying a house on short term and not keep it for a long time, I would use VA no money down, two or three years later, you can sell or rent it out.
Your brother is right, you'll end up losing your down payment you put in the house if you ever get your house in foreclosure. It is also wise to keep saved up money in the bank just in case you temporarily lose a job or whatever circumstances, you'll have money to cover the mortgage payments until you find another job.
Let me know if you need my help in finding houses. We also have a lending partner who is expert in VA loans, and all types of mortgage loans.
Feel free to email me at Maria@whisselrealty.com
Thanks,
Maria
0 votes Thank Flag Link Sun Jan 8, 2012
What does your accountant say. Besides the monthly payment difference, there is a tax consequence. I have been doing mortgages for 25 years, but I alwys speak to my accountant to discuss what a mortgage means to me.
0 votes Thank Flag Link Sun Jan 8, 2012
Hi, James:

These are great (and critical) questions to ask.

What I do for my own investments is compare different scenarios side-by-side in a spreadsheet (like Excel).

Also, though you are buying this home for yourself, it is important to see if the property would also work as a rental. Why? Things in your life could change and it's good to know if income from the property could cover the carrying costs (principle, interest, taxes, insurance, repairs, HOA, etc.)

Be sure that any property you purchase has the widest possible appeal to other buyers should you need to sell it in the future.

I am happy to email you a sample investment analysis spreadsheet. (No cost to you; not selling anything; just something I do to help people out). You can contact me at Allison@allisongaynor.com.

Good luck to you!

Allison Gaynor
0 votes Thank Flag Link Sun Jan 8, 2012
James,

Many financial advisors advise paying off your debt to not be unencumbered by debt. Also, advisors suggest building reserves of at least 6 months up to a year since it is taking longer to find a job in today’s economy. Some financial experts recommend putting 20% down payment when buying a home. With today’s lower interest rates, you may want to consider a 15 year loan so loan will pay off sooner.

Thanks,
Carol Perdew
Prudential California Realty
(209) 239-7979
Carol@PerdewHomes.com
http://www.CentralValleyHomes.com
DRE 985176
0 votes Thank Flag Link Sun Jan 8, 2012
I wouldn't recommend looking for an existing formula such as 6 months payments in the bank or some common principle regarding borrowing vs. saving. I'd recommend that you establish your comfortable monthly payment (not what you'd qualify for as they would likely be uncomfortable) and then work backwards from that monthly payment into a mortgage that's a good fit for you.

That might end up being a VA loan or a conventional Fannie Mae backed loan with single premium mortgage insurance (so you won't have monthly mortgage insurance). In short, make your mortgage decision more based on "you centric" variables rather than rules of thumb.

Charles Dailey
Loan Officer
NMLS ID 79048
0 votes Thank Flag Link Sun Jan 8, 2012
Hi James....I stand corrected. VA loans do not have mortgage insurance but usually have a funding fee included in the loan. Not a huge deal but some people dont like paying the roughly 1%. FHA loans have mortgage insurance. Depending on the loan you are hoping to get and the property of interest, you could try and do a conventional loan with less down. Like I mentioned earlier, there are a ton of different options out there for you and your lender should present them all and help you pick the one that suits you best. If you would like to speak with my husband feel free to contact him (info on the other blog) or shoot me an email and I will put you two in touch. You have no obligation to work with him...he can just give you more detailed info on your options.

Kara
kara@karawatkins.com
619-708-8276
Web Reference: http://www.KaraWatkins.com
0 votes Thank Flag Link Sun Jan 8, 2012
Hi Kara; many have told me with a VA loan mortgage insurance isn't required at all; is this true or what? thanks in adv
0 votes Thank Flag Link Sun Jan 8, 2012
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