As a veteran and a loan officer for over 15 years, I love VA loans and helping my fellow vets use this awesome benefit when buying a home. There are, however, a few essential considerations when you choose this loan type, so after years of originating VA loans, I thought I'd share my top three to help you compare your options:
This one is obvious, and it's the factor that most people know to look at when comparing mortgages. In fact, for many people, this is the only thing they know to look for when comparing VA lenders. The interest rate is obviously important, but as we’ll see below, it is definitely not the only crucial factor to consider.
Closing costs are a two-part comparison. First, what are the lender fees? All lenders charge some flat fees for making a loan. Sometimes they are called setup fees, underwriting fees, doc preparation fees and so on (Need help identifying which is the lender fee? Contact me.). Also, some lenders charge what are known as points. Points are extra closing costs expressed as a percentage of your loan amount. For example, if your loan amount is $300,000, and a lender is charging you one point, that would equal $3,000 in additional closing costs. There are two kinds of points: discount points and origination points. Discount points are fees you pay to buy yourself a lower interest rate. Origination points are just extra fees the lender may charge to create the loan. Take caution: many lenders (even some well-known military focused companies) quote low rates online, but when you read the fine print, they are charging you origination points, which significantly increases the cost of your loan.
The second part of closing costs that needs to be considered are non-lender related fees. These are things like transfer and recordation taxes or title insurance. These fees will be the same regardless of what lender you choose. However, the amount of these fees and the way they are charged vary from area to area, and out-of-state loan officers might not understand the differences. For example, here in Maryland where my office is located, the transfer and recordation taxes can be high, but are customarily split between buyer and seller. Out-of-state lenders usually don’t know this, and they typically assume the buyer pays all of them, which leads an overestimation of closing costs by thousands or tens of thousands of dollars. Knowing accurate closing costs could affect how you make an offer on a home, or if you even think you can afford a home. I recommend that you always get a quote from a locally-based lender who knows the market where you are buying to make sure you are getting an accurate estimate of closing costs.
Is your lender aware of — and do they offer — all of the programs available to you? For example, many states now offer something called a Mortgage Credit Certificate, which can dramatically increase the tax benefits of owning a home. Not all lenders know about these programs, and not all lenders can offer them. In Maryland, the mortgage credit certificate must be applied for through a lender on the state’s approved list. If your lender isn’t on that list, the lost tax savings could far outweigh the benefit of a lower rate.
I hope this helps you save some money on your loan! Have questions, or simply want to get started with the mortgage process? Click below to contact me.