I'm 30 with no dependents and currently looking into purchasing my first home within 6 to 12 months.

Financially, I'm in pretty good shape. I have $2800 in credit card debt on a 0% introductory rate card that I am aggressively paying down through July, after which I should be completely debt-free. (Being a geeky, overachieving nerd in high school and getting $50k in GI Bill money from Uncle Sam sure helps with the cost of education, and I've been driving the same paid off Honda since 1993. Oh, and I'm a tightwad, too.) I've been maxing out my IRA contributions (~$5000 in a traditional before the Roth was offered, and $22000 in a Roth) since I was 20 or so, and also started contributing the 15% max into my company's 401k last year.

I've scaled back my 401k contribution to 4% to get my max employer match (50% of the first 4% I contribute) and will be putting the extra 11% into a 3.25% interest savings account as a house buying fund for my closing costs/downpayment. Once I have my credit card paid off and can start chucking that money into my house fund, too, I expect to have around $5000 in non-retirement savings by the end of this year, and $10000 by next June. My FICO score is in the mid-700s from all three bureaus. I checked at LendingTree.com and was prequalified easily for 15 year (at 5.175%) and 30 year (at 5.875%) fixed rate mortgages at my target condo price of $85,000-$100,000. 5 and 7 year hybrid loan offers were even lower.

My question is: As a 4-year U.S. Army veteran, I am eligible for a VA home loan guaranty worth up to $36,000. If I read the VA FAQ correctly, this would allow me to forego the usual 20% downpayment and even get me out of paying for PMI as the VA is guaranteeing my mortgage. Should I still bother with a downpayment in this case, and if so, how much of one? Are there any negatives to using a VA loan vs. a regular mortgage loan?

This will most likely NOT be my permanent home; I will probably upgrade in about 5-7 years.

If anyone has had experience with this before, I'd appreciate any thoughts/suggestions.

- Maggie

Here's the best resource I've found for mortgage questions.

Click here. (http://creditboards.com/forums/index.php?showforum=9)

Thanks for the link! That board is full of good info. :claphigh:

If you are getting VA money that's great - do you pay that back or is that yours free?. If it's yours, then it's really up to you how much you want to pay up front. Obviously a big downpayment means smaller paymets or even shorter mortgage. And no PMI is a plus.

I'd look for the solution that gets you the shortest term with the least interest.

Good luck!

And by the way wow- condos for $85-100? Starting prices up here in the Twin Cities are about $165-$185,000.

this is my opinion. i just want to get that out before giving it. its really a personal decision based upon how you feel about debt. I would use the VA loan and keep your cash. The only reason to put down 20% is to eliminate PMI as you said. Put that cash away and keep it liquid for emergencies in an amount that you feel would pay your bills for four to six months. put the rest away in your Roth. did you know that you could take out your contributions from your roth at anytime? as long as you dont touch the earnings you are within the law. good luck. sounds like you are doing all the right things.

Hort--It isn't money per se--I still have to pay the full principle plus interest on the home, but the VA's guaranty basically lets me off the hook for private mortgage insurance and a downpayment. Newer 2 Bed/1 Bath condos in Orlando are in the $130k-$200k range, but there are some older units (built in the mid 70s through 80s) still under $100k.

badgolfer--The only negatives I can see with the VA loan are the 2% of loan value funding fee (reduced to 1.5% if I put down 5%, or 1.25% if I put down 10%) due on closing, and the somewhat nitpicky inspection requirement. The VA won't let you buy a "fixer-upper." :rolleyes:

I guess I'll just have to crunch some numbers when I'm closer to buying to see if VA or conventional will cost less in the long run.

I am a loan officer, and as far as a loan with greater than a 90% LTV (meaning you put down less than 10%) I would venture to say that VA loans are the best loan out there. I would recommend doing a 100% VA loan and keeping your liquid money to invest elsewhere, especially if you can comfortably make the monthly payment which it sounds like you will be able to. VA Interest rates are around 5.5% to 5.75% right now on a 30 year fixed. There are plenty of places you can invest money that will give you a better than 6% return. Also, in your area I am pretty sure the property values are increasing by 10% or more per year as well, so if you were to sell in a few years you wouldn't have to worry too much about the fact you did a 100% loan and might not have any equity to sell...The VA loans have comparable rates to a 95% conventional, they have no MI, and I look at the "picky inspections" as a good thing, because you know you are getting a quality home.

p.s. The inspections aren't at all as bad as they are made out to be, most of the time it is simple cosmetic repairs...VA wants to make sure that the home owner will not have any repair costs for the first 12 months of home ownership to cut down on foreclosures in the first year. But your are right....a "fixer upper" may not be the best route to go with a VA loan. :tu:

causticmuse, another thing to consider....since you said you plan on upgrading later, you can always wait and use your VA loan for that. I believe (you'll have to do more research) you can also use your VA loan more than once in some circumstances. It might be worth it to check out www.va.gov (http://www.va.gov) (if you haven't already) Good Luck.

Badgolfer and owachi are correct. Being in the financial planning arena, I often advise most clients to keep as much cash liquid and not locked up in a home as possible. The chance of losing your home to the bank is rare in your case with your good income (?) and solid asset base, however if the worst ever happens keep your money outside of the bank..believe it or not :p they will not give it back to you if you default on your loan payments. This is also the reason that I recommend people do not overpay their mortgage, but instead put that extra money someplace that is ERISA compliant...meaning in most/all cases in case of bankruptcy or financial trouble creditors cannot claim that money from you and it is protected from creditors. If you pay 200 extra dollars a month to the bank to pay off the home sooner, but then for some reason the home is reclaimed before the house is paid off, the bank will not say "ok well you overpaid 200 dollars a month for the last year so we are taking the home, but we will give you your 2400 dollars back" Nope, they take it all. The best thing to do would be to put that 200 a month someplace conservatively invested to grow and once it equals a great enough sum, then cash it out and pay off the home.

There are also a lot of no money down programs out there and also interest only loans that I recommend to a lot of clients. They are not always suitable for everyone so that is why it is important that you make sure you work with someone who can go over all the options available to you. I am in Chicago, but I have a branch office in FL as well with some great mortgage professionals they work with down there. PM me if you would like a referral to one of them.

Good luck on the homeshopping!

Im in the same boat. Looking on buying a house within 6-12 months and planning on using my Va Loan. Im glad i live here in TX, houses are alot cheaper. thanks for the link jkulp and good luck with your home buying experience caustic

I recommend people do not overpay their mortgage Not being in the financial profession, I'll have to bow to your opinion, but not without a few queries.

1 With the Fed. base rate running at about 1.5(ish)%, the rates quoted above seem very high to me. The Bank of England base rate is 4.75%, and even the standard bank rates are in the order of 6.5-7% here, and with discounted rates (ie mine) even lower. My current rate is about 5.5%, less than a point above base rate, whilst the rates mentioned are about 4% above base. Am I missing something, or are you being ripped off? Of note, my rate is only discounted for 2 years, but I'm not tied in after that, so can jump-ship to the next good rate.

2 I assume that you have to pay tax on your interest earned in savings accounts (except for tax-efficient vehicles) in the US. Based on that assumption, and assuming that getting money in and out of tax-efficient savings plans is penalised, then it dosen't make intuitive sense to me to not place your spare money into your mortgage. If I cut x amount from my mortgage, the overall cost of my mortgage goes down drastically in the long run. Also, since I get tax taken from my earned interest, I have to earn 40% MORE in savings just to break even (I'm in the higher rate of income tax), ie 5.5% x 1.4 = 7.7%, which isn't likely, given the low inflation, low interest rate environment (yes, even though our base rate is 3 times yours, it's still low. My parents remember paying 17.5% for a short time in the 80's).

3 High loan-to-value (typically >90%) charges are a killer. However, I'm sure there are companies who don't have them in the correct circumstances. One of the main reasons for my original mortgage being with the company I chose was that they weren't charging on 100% loans. It saved me 5k up-front deposit, and about 1.75k of a charge. Oddly, there would have been a charge from 90-95% LTV. A bit of searching might be very profitable.

4 How are your interest charges calculated in your mortgages? There is a very wide range of types of charges with deals here. Some calculate interest yearly (shafters), some monthly (not so bad), some daily (roughly equivalent to 13 monthly paments compared to 12 for a yearly calculated deal). Others combine more than one type of account. Ie your current (chequing?) account, savings account, personal loans and mortgage are all segments of the one account, rather than separate vehicles, and are charged the same rate of interest. These can get around the tax on interest problem I stated above.

5 I assume that repossession isn't common, so why advise people to bet against their own downfall?

6 Housing equity is one of the biggest growth areas in Britain. Within six months of me buying my house (deposit placed therefore price fixed in Dec 1999), I couldn't have afforded it. When I got the keys 6 months later it would have been above my means to get the mortgage. Buying, renovating and selling, will not only move you up the ladder, it can also remove your debt completely. There are numerous stories here of people cycling through 3-4 house moves, and at the end, having a palatial home, but the profit on the previous moves has paid off the mortgage.

7 Are credit scores such a big part of lending in the US?

8 If property prices are rising at 10% per year, is there any other way to go?

Andrew.

Not being in the financial profession, I'll have to bow to your opinion, but not without a few queries.

1 With the Fed. base rate running at about 1.5(ish)%, the rates quoted above seem very high to me. The Bank of England base rate is 4.75%, and even the standard bank rates are in the order of 6.5-7% here, and with discounted rates (ie mine) even lower. My current rate is about 5.5%, less than a point above base rate, whilst the rates mentioned are about 4% above base. Am I missing something, or are you being ripped off? Of note, my rate is only discounted for 2 years, but I'm not tied in after that, so can jump-ship to the next good rate.

2 I assume that you have to pay tax on your interest earned in savings accounts (except for tax-efficient vehicles) in the US. Based on that assumption, and assuming that getting money in and out of tax-efficient savings plans is penalised, then it dosen't make intuitive sense to me to not place your spare money into your mortgage. If I cut x amount from my mortgage, the overall cost of my mortgage goes down drastically in the long run. Also, since I get tax taken from my earned interest, I have to earn 40% MORE in savings just to break even (I'm in the higher rate of income tax), ie 5.5% x 1.4 = 7.7%, which isn't likely, given the low inflation, low interest rate environment (yes, even though our base rate is 3 times yours, it's still low. My parents remember paying 17.5% for a short time in the 80's).

3 High loan-to-value (typically >90%) charges are a killer. However, I'm sure there are companies who don't have them in the correct circumstances. One of the main reasons for my original mortgage being with the company I chose was that they weren't charging on 100% loans. It saved me 5k up-front deposit, and about 1.75k of a charge. Oddly, there would have been a charge from 90-95% LTV. A bit of searching might be very profitable.

4 How are your interest charges calculated in your mortgages? There is a very wide range of types of charges with deals here. Some calculate interest yearly (shafters), some monthly (not so bad), some daily (roughly equivalent to 13 monthly paments compared to 12 for a yearly calculated deal). Others combine more than one type of account. Ie your current (chequing?) account, savings account, personal loans and mortgage are all segments of the one account, rather than separate vehicles, and are charged the same rate of interest. These can get around the tax on interest problem I stated above.

5 I assume that repossession isn't common, so why advise people to bet against their own downfall?

6 Housing equity is one of the biggest growth areas in Britain. Within six months of me buying my house (deposit placed therefore price fixed in Dec 1999), I couldn't have afforded it. When I got the keys 6 months later it would have been above my means to get the mortgage. Buying, renovating and selling, will not only move you up the ladder, it can also remove your debt completely. There are numerous stories here of people cycling through 3-4 house moves, and at the end, having a palatial home, but the profit on the previous moves has paid off the mortgage.

7 Are credit scores such a big part of lending in the US?

8 If property prices are rising at 10% per year, is there any other way to go?

Andrew.

A lot of information to cover here....unfortunately I will not be able to go a deep into it as I would like due to lack of time...but I will hit on it.

1) Actually the Fed Rate is 2.75 currently. And it is rising almost monthly at this point in the game. Which is why I am currently recommending fixed rate mortgages to most of my clients. With the VA loan there is an ARM option, but with rates in the mid 5's, why chance it? You never know when the job market may go bust, sickness, whatever, it is not betting against yourself, to me it is just being smart. Interest rates are the lowest that they have been in 40+ years. They have no where to go but up from here. I personally don't want any of my clients coming back to me in 2-5 years wanting to refinance their 5% initial rate and 7.5% be the best I can give them. Thats just me.

2) Even given the low inflation market, there are still many places to earn more than 7%. Most people do not put money in savings accounts anymore, it has gotten much more sophisticated than that. With IRA's and even some bonds, and 401k accounts, you can modify your savings plan to give you earning power and safety in almost any type of market. In the U.S., the average homeowner keeps there home for only 3-5 years before either upgrading or moving to another area. That being said, the extra 200 dollars you put toward you mortgage will only add up to roughly 3600 to 5000 dollars over that course of time. That same 200 dollars could be earning you much more in an IRA or 401k and it will continue to do so until you retire. Also, in the case of an emergency, you could cash that out as liquid assets, and most IRA's and 401k's have a hardship clause that will allow you to take that money out in the case of an emergency without penalty. The only way to get the extra money out of your home once you pay it in is by paying more interest on it in the form of a home equity loan, or by selling the home, which could take months to do and even then you are still paying a penalty of sorts in the form of cost to sell.

3) Caustic has nothing to worry about with VA in regards to high fees for High LTV. The VA has no mortgage insurance, and typically have lower closing costs than other loan types. Someone did touch on the question of using your VA benefits more than once, and this was a good question. You can use it more than once, however you cannot have 2 homes financed at the same time with a VA loan. Your funding fee will increase each time you use your VA Entitlement, from roughly 2.2% the first time you use it for 100%, up to 3.3% for the next time and so on. You can reduce that cost of course by putting more down. However, with property values currently increasing as they are, you could probably easily have 20% down from the sell of your VA financed home to put toward your next home in 5 years or so, and not have any real reason to go VA at that point due to the fact that conventional loans have no MI below 80% LTV.

4) Interest is charged daily here for all Conventional loans. Government loans such as VA and FHA charge monthly. I don't know of any banks here that charge yearly, if you run across this stay away from it. There are way too many other banks out there that will lend you money.

5)As I touched on earlier, we are not betting against there downfall, instead we are betting on their success! That is why we recommend they put the money elsewhere. Unless you are a seasoned real estate investor, real estate can be a tricky business. Plus, if you can get a fixed rate under 10% it is almost always better to use someone else's money, and go invest your money somewhere else where it is safe and earning you an early retirement.

6) True, housing equity is one of the biggest growth areas, that is the reason everyone should own a home if they can. Owning a home is different from pouring all of your liquid assets into paying off the mortgage. Most of the people who have cycled through three or four homes and ended up owning a home free and clear did so because the property value went up, not because they paid down the mortgage. Dumping all of your extra cash into a home is similar to putting your eggs into one basket. It is risky. Better to diversify into savings accounts, life insurance, 401k, IRA's, bonds, and real estate if possible. The real estate market is experiencing the same kind of fanatical climate that the stock market did in the 90's. A lot of people put their life savings into stocks during that time, and lost everything. Real estate may end up the same way. While we may be experiencing 20% and even 30% property increases in some areas now, historically property value average out to closer to the 3-5% per year range. That mean that some "righting of the ship" is going to occur eventually. So better safe than sorry in my opinion. If not, then we have failed to learn anything from history.

7) Credit scores are a huge part of lending in the US, especially when you are competing for the best rate.

8) Even with property increasing at 10%/20%/30% there is always other ways to go. I am not saying don't buy, I am saying buy property and take advantage of these huge increases while they are there for the taking, but putting more money towards the mortgage instead of other areas is not going to have any effect on how fast the value of your home is going to go up. And it could end up hurting you in the long run as I touched on earlier.

Hope this helps! It seems there are some differences between lending in the US and in Europe. ;)

-Elijah-

Hope this helps! It seems there are some differences between lending in the US and in Europe.
Europe is different to Britain, in that the rates there are far lower. That shafted Ireland about 7 years ago. When they entered the Euro, their interest rates became adjusted on a multi-national basis, and approximately halved. Houses became astronomical, on a par with London in some cases, and London has some of the most expensive houses in the world (per sq. ft).

There do seem to be quite a few differences, the one I'm most glad about is the fact that we have (had) state sponsored university places. I left university (5 year course) with debts of only £9000 (about $16000), a car to show for it, and half of that debt was a student loan, interest fixed at the RPI. Had I been to university in the US, not only would my course have been longer (pre-med then med), but I would have had debts of what, 10 times that?

Andrew.

Who knew I'd be opening up a course on International Mortgages 101 when I started this thread? :lol:

Thank you all for your input. I feel better about going for a VA loan now. I think I was worried because it seemed like so many people who had torpedoed their credit scores were grasping at their VA benefit as a lifeline to a house. That board that Jkulp posted is full of posts along the lines of, "Filed BK twice in 5 years. FICO is only 531. Will VA still give me a loan?"

:d_eek:

I didn't know if there was some sort of stigma attached to VA loans that would cause lenders and sellers to have a negative view of someone bringing a VA offer to the table when the market is so hot in Orlando.

I'll be shopping with the aim of using the VA loan if I can, and going conventional as a last resort. Glad I kept my scores up! :tu:

Thank you all for your input. I feel better about going for a VA loan now. I think I was worried because it seemed like so many people who had torpedoed their credit scores were grasping at their VA benefit as a lifeline to a house. That board that Jkulp posted is full of posts along the lines of, "Filed BK twice in 5 years. FICO is only 531. Will VA still give me a loan?"

:d_eek:

:

LOL! Unfortunately I get that almost every day. Except usually it is followed by " I want 2000 sq ft and an acre of land. Don't want to spend more than 80,000 and I need my payments no higher than 400 a month." Loan Officer = Miracle Worker? Apparently!

I love it when someone takes the time to research what they are doing in purchasing a house, and takes care of their credit like you have. I am sure everything will go smoothly for you. Good Luck! And if you have any more questions don't hesitate to ask...If I don't know the answer, then I will find someone who will. :tu:

-Elijah