Va loan or conventional for first time

[Anonymous]

My middle mortgage is 770. Hers is 670. I'm working on hers, but she has legit negatives that won't drop for a while. She is a veteran with no service related disabilities. My annual income is 225k and hers about 55k. We are looking in the 550k purchase price range. She has approximately 500 monthly debt (11% DTI) and I have both autos ($1,300 or 6.9% DTI). She is unnecessary for qualifying for 550k due to my income with either route, but is necessary for VA loan and no PMI.

On a conventional loan I will individually qualify for the 550k and a great rate. Through the VA we both do but at a higher rate (about .25% difference). I have 50k I am comfortable spending to get into the home. I would prefer minimal down so we could invest money into the house to make it ours so minimizing upfront costs has been at the forefront of my mind. Well I got to thinking about the 2.65% VA loan origination fee vs the 3-5% I would have to put down for conventional (and a better rate) and I started really thinking that maybe the smart choice is to pay the PMI monthly and capture the better rate with the small difference in DP requirements (2.65 vs 3%) and I am now stuck. 

Someone with better experience please help out.

[VALoanMaster]

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@Anonymous wrote:

My middle mortgage is 770. Hers is 670. I'm working on hers, but she has legit negatives that won't drop for a while. She is a veteran with no service related disabilities. My annual income is 225k and hers about 55k. We are looking in the 550k purchase price range. She has approximately 500 monthly debt (11% DTI) and I have both autos ($1,300 or 6.9% DTI). She is unnecessary for qualifying for 550k due to my income with either route, but is necessary for VA loan and no PMI.

On a conventional loan I will individually qualify for the 550k and a great rate. Through the VA we both do but at a higher rate (about .25% difference). I have 50k I am comfortable spending to get into the home. I would prefer minimal down so we could invest money into the house to make it ours so minimizing upfront costs has been at the forefront of my mind. Well I got to thinking about the 2.65% VA loan origination fee vs the 3-5% I would have to put down for conventional (and a better rate) and I started really thinking that maybe the smart choice is to pay the PMI monthly and capture the better rate with the small difference in DP requirements (2.65 vs 3%) and I am now stuck. 

Someone with better experience please help out.

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The interest rate on the VA loan should be as good if not slightly better than a conventional loan and that's with no money down and no PMI.

The 2.65% "fee" is not an origination fee, it's the VA funding fee which is financed into the loan.

The funding fee will depend on a couple of different things.

1) First time use: 

2.3% with less than 5% down.

1.65% with 5% or more down.

1.4% with 10% or more down.

2) After first use:

3.6% with less than 5%down.

1.65% with 5% or more down.

1.4% with 5% or more down.

Using $550,000 as the loan amount and 2.75 as the rate, here's the difference in the PI payment with zero down, 5% down and the difference in the funding fee.

1) Zero down: 550K @ 2.75 with a 2.3% funding fee= $2,296.97

2) 5% down: 550K @ 2.75 with a 1.65% funding fee = $2,168.25

3) Zero funding fee: 550K @ 2.75 = $2,245.33.

$2,296.97 - $2,245.33 = $51.64 - That's how much the funding fee would add to the PI payment at 550K.

PMI would add roughly $165 and that's with 5% down.

Now let's look at the difference between 1 and 2.

$2,296.97 - $2,168.25 = $128.72. So by putting $27,500 down, your payment goes down by $128.72.

Now lets take a look at how long it would take you to recoup your down payment by saving $128.72 each month.

$27,500/$128.72 = 213.64 months or 17.8 years!

[Anonymous]

Looks like I got a real pro here. Outstanding news for me. So, how does this play out with the differences in credit scores? I am 770 and she is 670. She is the veteran and the pathway to VA loan. I could do conventional without her, or VA with her. 

[MauiMan85297]

If you keep your loan amount under $548,250 unless you're buying in a county that has higher limits you should be at least a .250% lower than that conventional rate and that's no cost rate where I betcha that 2.75% CNV rate is with points.

[Anonymous]

VA Loan Master is incredibly helpful!

With a 670, a VA rate should still be good. PenFed offered me 2.25% when I was at a 680. I am now at an MMS of 708 and the rate is the same. 

[NC_Mtg_Loaner]

If you can obtain quotes from a lender simply compare the APRs between the two.....this gives you an apple to apple cost comparison 

you won't likely see too much difference between the two, so it really comes down to your own comfort level. 

Of course now, I'm going to suggest taking the VA loan and having your spouse on the loan with you jointly and then take the $55k (or 10% you were thinking of spending on the conventional loan) and invest it in a money market or mutual fund that's shown a 10yr ROR of 8-10% or greater and allow that money to compound year over year and on your 25th wedding anniversary or 25th anniversary of buying this home--use these funds to payoff the current loan... or something like that...

[VALoanMaster]

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@Anonymous wrote:

Looks like I got a real pro here. Outstanding news for me. So, how does this play out with the differences in credit scores? I am 770 and she is 670. She is the veteran and the pathway to VA loan. I could do conventional without her, or VA with her. 

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Lenders will use the lowest mid score of all borrowers so your wif'es mid score would be used. Like I said, a VA loan with a 670 score should end up with a rate lower than a conventional loan with a 770 score and 5% down.

I would go VA.