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VA versus Conventional Mortgage
Old 09-12-2010, 10:59 AM   #1
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VA versus Conventional Mortgage

I'd like to consider myself "well versed" when it comes to financial instruments...however, I will admit that home mortgage advice is a subject I am in dire need of.

I'll be retiring from the Air Force next May (terminal leave in February) and would like to buy my FIRST home. I've been doing some research lately but wanted to get the board's advice on whether to apply for a VA loan or a conventional.

VA Loan (Pros)
- Backed by the US Gov/easier to qualify
- No money down
- No PMI

VA Loan (Cons)
- Higher interest rate
- 2 to 3% funding fee (different than origination fee and non-negotiable)

I have over $150,000 in investments and no debt. My retirement pay will be right around $2000 a month.

The mortgage I would be applying for would be in the $200,000 or so range. I have enough saved to put 20% down & have a FICO score of 803 (so I'm sure I can qualify for a conventional mortgage). However, after crunching the numbers (interest rate/APR, downpayment, points, etc...), it looks like I'll only be saving $200-300 per month going the conventional route. I guess the part I'm struggling with most is whether the "hit" to my savings is worth the increased cash flow. I can remember when they said that a downpayment was "instant equity"...maybe/maybe not in today's market.

FYI, I used PenFed's current interest rate numbers, which have a 1% origination fee for both VA and conventional.

Any advice would be greatly appreciated. Thanks!

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Old 09-12-2010, 12:28 PM   #2
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Do you or will you have a "service connected disability"? You would be eligible to have the va funding fee waived. Also, you may not have to come up with a 20% down payment using a traditional mortgage product. The loan amount to value of the property - Loan to Value (LTV) % may allow you to put less than 20% down.

VA Loans and Service Related Disability

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Old 09-13-2010, 12:42 PM   #3
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One of the biggest selling points for the VA mortgage used to be that it was assumable. I don't think I ever heard of anyone assuming one tho.

I think if you have enough $ to put down to avoid PMI, then you can do better with a private market loan since you don't have to pay the VA funding fee and jump thru the other VA hoops (well test, termite test, etc).
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