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What You Need To Know
- ✔ You don't have to make a down payment, but it will save you money on your VA loan
- ✔ Not all sellers will agree to this, but having the seller pay your closing costs will save you a lot of money
- ✔ Refinancing is a great way to save, and the VA won't let you do so unless it makes financial sense
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Whether you’re purchasing a home with a traditional or VA loan, there are ways to save money. Some are immediate savings, while others save you money over time. If you’re able, we advise you to take advantage of these five ways to save money, even with a VA home loan.
Make a Down Payment on your VA Loan
It’s true, you don’t have to make a down payment on a VA home loan, that’s part of the attraction so many veterans have to using a VA guaranteed home loan. However, just because you don’t have to make a down payment doesn’t mean you shouldn’t take advantage of the opportunity—if you can afford it. Simply put, making a down payment on your loan saves you money, no matter what type of loan you have. This is because you’ve paid part of the principal on your loan, and that means you’re not paying as much interest. Again, this isn’t a requirement—unless you’ve exceeded your loan limit—but it can save you some money in the end.
Have the Seller Cover Closing Costs
Closing costs are not the same thing as a down payment or funding fee, and ultimately you are responsible for covering these fees. However, you don’t have to be responsible for closing costs if you can get the seller to pay them for you. Of course, the seller doesn’t have to agree to these terms, but depending on the circumstances, they may very well agree to cover the costs. And having the sellers pay your closing costs will save you upfront unless of course, you were planning to roll closing costs into your loan, then it will save you money over time because you would be paying interest on it.
Pay Discount Points
Paying discount points, also known as mortgage points isn’t for everyone. But, for some, it could end up saving you a lot of money, especially if you plan to pay on your house for a while. Basically, the longer you pay on the house, the more you could save by paying a discount point or two.
However, discount points aren’t free. For every point you pay, you have to pay upfront interest to the lender (1% of your mortgage for 1 point). So, if you have a $100,000 loan and want a discount point to help you save on long term interest, you would have to pay $1,000 to your lender. However, it is important to keep in mind how much you’ll save each month and over time because if you don’t keep the house until you break even, you’ve lost money.
For those who don’t have to worry about this, discount points can save you a lot of cash. But, you’ll need to pay the upfront fee to lower your APR, and that could be a large sum of money depending on your loan amount and how many points you want to buy.
Make Extra Payments
By making extra payments, even if it only adds up to one mortgage payment a year, you’ll be saving money at the end of your loan. This, of course, will only be the case if you’re making payments toward principal. By paying principal, you’ll lessen the number of months you owe on your home and you won’t have to pay as much in interest. However, before attempting to make extra payments so you can pay off your loan early, make sure you talk with your lender to see if they charge an early payoff fee. Unfortunately, many lenders want their interest payments, so they’ll charge you a fee to pay the loan off early. Luckily, this isn’t every lender, so make sure you ask.
Refinance your VA Loan
Refinancing your loan can be a great way to save money, especially if you’re able to get a lower interest rate because lower interest means lower payments. If you can’t get your interest rate lower, you might also be able to save money by changing from an adjustable rate to a fixed rate, which will ensure your interest rate never goes up.
A third reason for refinancing your loan to save money can be to go from a 30-year loan to a 15-year loan. Yes, you will be paying a higher mortgage payment, but your loan will be paid off sooner and you won’t be paying as much on interest. However, keep in mind your own personal finances when deciding to go from a 30-year loan to a 15-year loan. If your lender does not charge an early payoff fee, you can just as easily make payments on a 30-year loan like you would a 15-year loan. This gives you the ability to pay off the loan early without putting yourself in a financial bind with higher payments if something were to interrupt your current financial position.
At the end of the day, there are so many ways to help save money. Having a higher credit score can also bring your interest rate down. If this is something you’re struggling with, do some research on ways to improve your credit score. Things like the Veterans United Lighthouse program can point you in the right direction without being obligated to finance your VA loan through them. However, you can also talk with your bank’s advisor and get more information on paying off debt, improving credit history and credit score.
Because while you can typically get a VA loan for a lower interest rate than a conventional loan, that doesn’t mean your credit score won’t affect your interest. And it also doesn’t mean you shouldn’t try an improve it before you purchase your house. If home buying isn’t a necessity for you yet, do some things to help get you ready for that special day.
Yes, keep working on your credit score by keeping your debt low and not opening tons of new credit sources. But, also save money. We know you don’t have to put up a down payment, but if your finances allow it, you really should consider it. If you don’t want to use that money for the down payment, you might also consider using it for home improvement projects so you don’t have to take out a second or larger loan.
And of course, refinance when you can (typically after 6 months of paying your mortgage on time). When you refinance, make sure you shop around. You won’t always refinance with your current lender. So, new lenders will fight for you to get your new loan through them. However, keep an eye out because some lenders charge extra fees. They might tell you that the other guys have hidden fees and will spring one on you at closing, but it’s not always the case. And even if that does happen, you’re under no obligation to sign any documentation until you feel comfortable with the numbers.
Hagle a little and see what fees can magically disappear, I’ve seen it happen with my own loan. And if you have a disability rating, that might save you some money too, so make sure you talk with your lender about this. If you have a rating with the VA, you don’t have to pay the funding fee, which is required by all other veterans using a VA loan. Even if this is your second home (which only increased the amount of your fee) you don’t have to pay the funding fee with a disability rating.
And if for some reason you paid a funding fee but had a rating before closing, make sure you give the VA a call so they can give you a refund. And if you didn’t know this, purchasing a house gives you the chance to consolidate debt. So, if you have a credit card with a 17% interest rate and you’re getting a home with a 5% interest rate loan, you could save money by transferring your credit card debt to your home loan. While this isn’t a requirement and isn’t a good idea for everyone, it is a way to save money for many individuals or at least make life easier with one monthly payment toward all your debt.
No matter your financial status, remember, it’s your money and you’re under no obligation to make any payments until contracts are signed. Ask questions. Don’t be afraid to ask how you can save more money. And don’t be afraid to leave one lender for another because you aren’t getting what you want. Choosing a lender is like buying a car, especially when you’re looking to refinance. Don’t let anyone guilt-trip you into refinancing or getting a loan through them if it’s not what you want.