subject: Save BIG with VA Jumbo Loans [print this page] Save BIG with VA Jumbo Loans Save BIG with VA Jumbo Loans
The Department of Veterans Affairs (VA) guarantees 25% of your VA home loan up to $417K with no down payment. Above $417K, your loan becomes a VA "jumbo" loan and the VA requires you, the veteran, to put down 25% of the amount over $417K. So if the sales price is $517K, and assuming all of your previously used VA entitlement has been restored, VA will require a minimum down payment of $25K (25% of the $100K overage). Even though you are putting down less than 5% on a $517K house, it is still a VA loan and you will still not have any mortgage insurance.
So how can you save BIG with VA jumbo loans? First, you need to know that interest rates jump when Conventional (non-VA) loans go over $417K, but that is not the case for VA loans. For instance, if you have a Conventional loan under $417K at a rate of 5.00%, the jumbo rate could easily be 5.75% when you go over $417K. On a $500K Conventional loan at 5.75%, that higher "jumbo" rate will cost you $234 per month, or over $2,800 more per year for the life of your loan. With VA, your rate will be pretty much the same over or under $417K, leading to BIG savings. A veteran with a great credit score, buying an $800K home and putting down 20% might not even think about using his VA loan. After all, he is already putting down 20%, so he won't have mortgage insurance. But what he has overlooked is the interest rate advantage to going VA. If he uses a VA jumbo loan instead of a Conventional jumbo loan, he could easily save $300 per month, assuming the same 20% down payment. Going VA would also give that same veteran the option of putting down just $95,750, keeping $64,250 in his pocket, and his VA payment would still be very close to putting 20% down on a Conventional jumbo loan.
But what about the VA funding fee? Surely that would wipe out any benefits to going VA. Nope not even close. The VA funding fee ranges from 0% to 3.30% of the loan amount and is almost always rolled into the VA loan. Veterans with a VA disability rating of 10% or greater are completely exempt from the funding fee, so many veterans pay no fee at all. For the rest of us, the funding fee can go as high as 3.30%; however, 5% down drops the fee to 1.50%, and 10% down drops it to 1.25%. A veteran using a VA jumbo loan will always have a minimum down payment of close to 5% anyhow, so the highest fee you usually see on a VA jumbo is 1.50%. Using our example above with the $800K sales price, the VA funding fee would be 1.25%, adding about $48 per month to his payment when rolled into his VA loan. Would you pay $48 per month to save over $300 per month? I hope so.
Ask your VA lender to show you the comparison of a Conventional jumbo loan versus a VA jumbo loan for your specific situation. It won't cost you anything to ask, but it could cost you a small fortune if you don't!
