| Should
you try a VA home loan?
If you
need a home loan, you might consider hitting up your Uncle Sam. Department
of Veterans Affairs home loans -- VA loans for short -- are a popular option with
home buyers. In the past fiscal year alone, the government has guaranteed 300,000
VA loans totaling more than $38 billion. And with good reason.
The loans require no down payment and are available from most lenders. In addition,
the government limits the amount of closing costs and origination fees lenders
can charge, as well as the appraisal fees. In general, the loans are available
to some veterans, active service members, reservists and members of the Public
Health Service. Another big benefit to VA home loans -- no
private mortgage insurance. Not only does the VA not require PMI, it also prohibits
lenders from requiring it, says Bob Finneran, the VA's assistant director for
loan policy and valuation. "We're putting a guarantee
on the loan, so we're not expecting them to get other insurance and charge the
veteran for that," he says. On a $126,000 loan, PMI would
run approximately $40 to $64 a month for the first three to five years of a 30-year
loan, says Jeff Lubar, spokesman for the Mortgage Insurance Companies of America,
an industry trade group. Total savings: $1,440 to $3,840. Rates
generally follow the market, just like any other home loan, says Keith Pedigo,
the director of loan guaranty services at the VA. "Rates
are generally in line with conventional rates," he says. "The advantage
of going VA is that you do not have to make a down payment." And,
according to VA statistics, 91 percent of VA buyers skip the down payment. There
is one down side. Starting in 1982 Congress levied a one-time funding fee on VA
loans, says Pedigo. Fees range from 1 1/4 percent to 3 percent, depending on the
veteran's service and whether it's a first or subsequent loan. "The
typical fee is 2 percent," he says. The VA will lower
the fee if the borrower makes a down payment of at least 5 percent. For
refinancing loans, the fee ranges from a half percent to 3 percent, with a half-percent
being the usual fee, says Pedigo. Many buyers simply finance
the fee along with the home. But that can have a hidden cost. On a $126,000 mortgage
-- the average amount borrowed last year -- a 2-percent fee can bloom into $14,474
over the 30-year life of a 6-percent loan. The fact that buyers
can qualify for a VA loan doesn't mean they should automatically use one, says
Tim Doyle, a director in the government affairs office of the Mortgage Bankers
Association of America. "Prospective homeowners should
still shop around," says Doyle, who recommends that home buyers also evaluate
conventional and FHA options. "But if they don't have a down payment and
are offered as good an interest rate as what they would get elsewhere, it's a
good option." Article continued at
http://www.bankrate.com/brm/news/mortgages/20021030a.asp?prodtype=mtg | 
