Down 20% VA or conventional loan?

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Would it be better to go to the VA loan and leave the money invested? or conventional, with 20% less per month than the benefits of a mortgage, equity, etc.? Can also go under the Offer the usual 20% better rates and conditions as VA? Thank you,

  1. Reply
    April 29, 2011 at 11:49 pm

    With the VA loan, you will pay more. It allows for 100% financing and the benefit of this is that you pay more for the loan (either in fees or in interest rate).

    I would go for a conventional loan with minimum 20% down and a 15 year note. You shouldn’t always want to be in debt and the faster you can pay down the home, the faster you can have that money to “play” with (investments, boat or other toys, etc).

    Before you decide, I suggest you read The Total Money makeover by Ramsey.

  2. Reply
    April 29, 2011 at 11:57 pm

    Without putting down 20% you may wind up paying mortgage insurance. The reasoning here is that a person that has paid so little to get into a house might walk away easier because they stand to lose so little of their own money. Most people don’t walk away from a house after they have dropped 20% of the payments to the lender. Also, the interest and points you pay for the loan could be more with less of a down payment.
    There are some other aspects of investing the 20% instead rolling it into the down payment. There is risk. Yes, you could invest the money. But, remember, you could lose money on that investment. Also, you are going to pay taxes on any of those capital gains. When you’ve chosen a house wisely, it should go up in value. That also is capital gains. But, you don’t have to pay taxes on house appreciation capital gains for a primary residence. Even it it stays the same value paying down the mortgage ASAP doesn’t hurt as you get the money back when you sell. Also, while you do get to itemized the mortgage interest for tax purposes, you do not get every dollar back. So, with less money down you will pay more mortgage interest. You get to claim that interest when you do your taxes each year. But, you do not get all of that interest back. You get a fraction of it back. That beats getting nothing back from renting an apartment. But, since you do not get all of it back then it still is best to pay as little interest as possible. On a side note, don’t let anyone tell you to get a big mortgage payment because the interest ins deductible for tax purposes. You never get dollar for dollar back on deductions. Therefore, it’s not a good idea to borrow to buy a house just for the tax break. It’s good to buy a house because you want one and they increase in value-generally. Getting back some of the interest each year due to the tax break is just icing on the cake.

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