The Cost of Buying a Home Using a VA Loan
In September 2017, I bought my first home with a VA home loan. I’m a single mom of three kids (two of whom live with me full-time) who lives in one of the most expensive regions of the nation (metro DC), and who works for a non-profit making what I consider to be an average wage. I do not receive child support or any additional income. Had it not been for the VA home loan program, and my eligibility to take advantage of it (those 8.5 years in the Army Reserve paid off!), I feel confident declaring: I would never have owned a home.
Before we get into the details of the loan and the home, here’s a look at the figures used to generate a VA home loan approval for me:
Supported by supplying two most-recent pay stubs at the beginning and the end of the process.
Savings accounts ($1,057.56) + the earnest money deposit ($2,000) I made to the builder (discussed below).
Verification of assets was supported by bank statements provided at the beginning and the end of the process.
At the time I applied for my home loan I didn’t have any debt. To determine my debt-to-income (DTI) ratio, my mortgage company counted my monthly liabilities ($113) plus the estimate of my new mortgage payment ($1,767.41 (this ended up being lower)). My total DTI came out to 37.924 percent.
Verification of liabilities was supported by credit reports being pulled at the beginning and the end of the process.
Credit score: 755
My lender used the middle score of the three reporting bureaus.
Family size: 3
Me and my two kids who live with me full-time.
Details of the loan and the home
Down payment: $0
The most distinctive and attractive feature of a VA home loan is that it allows qualifying borrowers to buy a house with no money down. (Note that “no down payment” does not necessarily mean “no up-front, out-of-pocket costs.”) Most conventional home loans require a down payment of at least 3 percent of the purchase price, and if you want to avoid private mortgage insurance (PMI) on a conventional home loan lenders typically require 20 percent down (lulz yeah right).
If I’d been required to put 3 percent down, I would’ve needed $8,640 in cash (in addition to the earnest money deposit I put down with the builder). I don’t think I’ve ever had this much money in savings.
If I’d been required to put 20 percent down, I would’ve needed $57,598 in cash (in addition to the earnest money deposit I put down with the builder). I don’t think I’ll ever have this much money in savings.
Sales price: $287,990
The home I purchased is an interior townhouse. The original sales price of my home was $286,990, but I added a $1,000 upgrade: white kitchen and bathroom cabinets and lighter granite and marble countertops. Not having an end unit means no extra windows on the side of the home, and I knew I wouldn’t be able to stand the super dark cabinets and countertops that came standard in the home, so I upgraded to something light and bright. This $1,000 upgrade added about $5 to my monthly payment. I do not regret it.
Here’s what $287,990 got me:
- 2,296 square feet
- 3 bedrooms, 2 with walk-in closets
- 2.5 bathrooms
- Hardwood on main level
- Granite countertops in kitchen
- Stainless steel appliances in kitchen
- 8-foot-long granite countertop island in the kitchen
- Self-closing, non-slam drawers in kitchen
- Pull-out shelves in kitchen cabinets
- Marble countertops in bathrooms
- Ceramic tile floors in upstairs bathrooms (hardwood in half-bath on main level)
- Bay window in living room
- Finished basement (20′ x 20′)
- 1-car garage
- 2-car driveway
- 10′ x 10′ composite (v. wood) deck
- A backyard
- Central location: literally directly off the interstate (very important for my 52-miles-one-way commute) and within 4 miles of everywhere we frequent (aside from my job): my kids’ school, my gym, the library, Target, Costco, Wegmans, the dry cleaner, gas stations, the movie theater, the craft store, the historical downtown of the city in which I live, etc.
*Aside from upgrading to the lighter cabinets and countertops, everything listed above in my home came standard.
Interest rate: 4 percent; 0 points
You can use points to “buy down” your interest rate, which lowers your monthly payment. Because I didn’t have any cash to spare pre-closing, I opted to lock in a rate with 0 points. This means my monthly payment is slightly higher than it could have been, but only by a few dollars. I don’t plan on owning this home more than five years (perhaps not more than two, to be honest), so the potential savings in interest that could have come with buying down my rate just didn’t make sense.
Private mortgage insurance (PMI) is required on home loans when the balance exceeds 80 percent of the home’s value. A huge benefit of VA home loans is that they do not require PMI, no matter the loan-to-value ratio.
How much does no PMI save a homeowner? PMI varies by lender, but is usually between 0.5 percent and 1 percent of the entire loan amount. Assuming a 1 percent PMI fee: for every $100,000 borrowed, a homeowner is paying an additional $1,000 per year (until the loan is paid down to 80 percent of the property’s value), which comes out to an extra $83.33 owed each month… on top of a monthly mortgage payment. Again assuming a 1 percent PMI fee, not having PMI saves me $245.75 a month.
VA funding fee: $6,911.76
VA home loans don’t require PMI, but they do require a funding fee. The funding fee goes directly to the VA to help offset losses the agency incurs on VA loans that end up in default. For regular military, the VA funding fee on a first-use VA home loan is 2.15 percent of the sales price. For National Guardsmen and Reservists, like me, the VA funding fee on a first-use VA home loan is 2.4 percent of the sales price. My funding fee came out to $6,911.76.
The VA funding fee can be paid out-of-pocket at closing or rolled into your loan. I elected to have this fee rolled into my loan. Divided over the life of my loan (30 years, fixed), the VA funding fee accounts for roughly $23 of my monthly payment.
Total loan amount: $294,901
Sales price + funding fee.
Closing cost credit: ($5,000)
I received a $5,000 closing cost credit from the builder, which ended up getting me a bit of cash back at closing.
Cash back at closing: $85.71
I didn’t literally get this cash back at closing. It arrived in a check in the mail about a month later.
Pre-closing out-of-pocket costs: $2,450
I didn’t have to put any money down with my lender, but there were still out-of-pocket expenses I had to pay before closing.
Earnest money deposit: $2,000
While VA home loans don’t require any money down, a property’s seller may require an earnest money deposit (EMD). An earnest money deposit is an out-of-pocket expense required up front, and it assures the seller of the buyer’s good faith in following through with the transaction. Because I bought my home brand new, the seller was the builder.
My builder required a $2,000 earnest money deposit. They allowed me to make this in two separate payments over the course of a month, but I was required to make the first payment toward the EMD the day I signed the sales contract. Legally, I had 72 hours to change my mind about the purchase. If I had changed my mind in those first 72 hours I would have received a full refund of my EMD. If I had changed my mind and cancelled the transaction after 72 hours, I would have forfeited my entire $2,000 EMD (even if I had not paid it in full yet (I would have been required to)).
VA home loans require a VA appraisal, which is conducted by a VA-certified appraiser. It is not optional. The price of a VA appraisal is state-mandated and an out-of-pocket cost paid prior to closing. I paid $450 for my VA appraisal.
Post-closing costs: the necessities, $2,158.99
Here are all the things I’ve spent money on for my home since moving in. Some items, like the washer and dryer, were necessities. Others were clearly not.
I rented a U-Haul for one day. I saved money by returning it to the same location from which I picked it up. It cost me $92.76 total, including gas.
I bought a non-fancy base model GE washer and dryer for $1,293.27. This price included the additional parts I needed for installation (hoses, cables, etc.), as well as delivery and installation fees. I spent an additional $40 tipping the three gentlemen who carried both items up two stories and set everything up. In total, my washer and dryer cost $1,333.27.
FIOS installation: $164.99
I paid for three new jack installations (because of course the builder placed cable jacks in the weirdest, most impossible spots) and FIOS setup.
New driver’s license: $19
I had to pay for a new license after updating my address with the DMV.
Supplemental tax bill: $548.97
Property taxes for the remainder of 2017 were not included in my loan amount or escrow, so I was required to pay the prorated amount — from my closing date through December 31 — out-of-pocket.
Post-closing costs: the extras, $2,931.26
LG 43″ TV: $368.54
I bought a new TV for the second living room area. This purchase is paid in full.
I purchased a gorgeous mid-century credenza to (stylishly) hold my kids’ many art supplies and the new TV. This purchase is paid in full.
Beveled mirror: $105.06
For above the dining table. This purchase is paid in full.
Art print: $163.18
I’m not a big art person, but the piece I bought really grabbed me the first time I saw it, and the subject matter (addiction and recovery) is very personal to me so I went for it. This purchase is paid in full.
Custom framing: $89.40
Believe it or not, the nearly-$90 I paid for custom framing was the 70-percent-off price. LOL I know, ridiculous. Still, the art print I bought was A4 size and I couldn’t find a frame anywhere (including online) that I liked. So I paid for exactly the one I wanted. This purchase is paid in full.
Dining table: $892.03
In April a cross-country move that was supposed to happen fell through. Before the move fell apart I donated A LOT of my things, including my dining room table. So when I bought my house, I bought a new one. This purchase wasn’t completely necessary right away since we have a 4-person, 8′-long island in the kitchen. But I made it anyway. The purchase price included a delivery fee and a protection plan. I still owe $566 on this purchase, to be paid in full by April 2018 in order to avoid interest charges.
Bed frame: $466.39
I’ve never had a real bed, so when I bought my home I bought myself a headboard/footboard that I love. #adulting.
4 dining chairs & bookcase: $346.67
I also gave away my dining chairs and bookcases back in April, so I bought new ones when I bought my house. I bought these items together using a no-interest financing deal.Between this purchase and the bed frame, I owe $515.06, to be paid in full by April 2018 in order to avoid interest charges.
Of the $2,931.26 I spent on non-essential purchases for my new home, I still owe $1,081.06, to be paid in full by April 2018 in order to avoid interest charges. I expect to have this amount paid off by February.
Total pre- and post-closing out-of-pocket costs: $7,540.25
Between the money I paid pre-closing (earnest money deposit and appraisal), necessity purchases I made for my new home (like a washer and dryer) and non-essential purchases I made (like custom framing, a new TV, etc.), I’ve spent $7,540.25 out-of-pocket on my new home.
Upcoming expenses: approximately $4,000
There are still a couple expenses that I have yet to incur, but will need to at some point…probably soon…ish.
The quotes I’ve received to put blinds on all the windows in my house all hover around $3,000. Hahahahahaha, no. Not yet. I’ll likely start with regular curtains, probably from Target, as soon as I can find ones I like enough to spend money on. Ultimately, though, the goal is to get blinds on the windows.
All three bedrooms are pre-wired for ceiling fans, as is the living room. Floor and table lamps only do so much. Eventually I’ll need to fork out money for overhead lighting in those four rooms. The ceiling fans I like all hover around $200. I expect to (eventually) pay between $800 and $1,000 total for four ceiling fans.
Monthly cost: $1,167.41
So what does everything look like for me on a monthly basis?
Mortgage payment: $1,407.90
Principal + interest.
Taxes and insurance: $274.51
County taxes + homeowners insurance.
Total PITI: $1,682.41
PITI stands for principal, interest, taxes, and insurance. This is the full amount my mortgage servicer bills me each month, and ended up being slightly less than what was estimated at the beginning of the process.
My HOA fee includes use of the pool and the clubhouse (with a small “gym”), and trash/recycling services, as well as maintenance and upkeep of common areas. My HOA fee is due monthly but is not included in my PITI statement from my mortgage servicer; I pay this separately.
Total monthly housing expense: $1,767.41
PITI + HOA.
Minus rental income: $600
I rent my basement to a friend for a flat rate of $600. He gets full, private use of the basement and free range of the rest of the house. His rent includes utilities, including a FIOS hookup and DVR in the basement, and access to the pool and clubhouse.
Before I bought my house I paid $1,828.25 per month in rent. By owning and renting out my basement I’m paying $660.84 less each month as a homeowner than I was paying as a renter. Plus, I now have tax and equity benefits to (eventually) benefit from as well.
Kelsey McEvoy is a future award-winning and/or best-selling writer based just outside of Washington, D.C. She’s good at carbs, cussing and burning English muffins, and can be followed on Twitter @thekelseymcevoy.
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