Is Buying Mortgage Points Possible with a VA Loan?
As a veteran or active military personnel, you may have heard about home buyers using conventional loans and buying mortgage points to reduce their interest rates. Is this possible with a VA loan?
The answer is yes. However, you should be familiar with the costs and when buying points is a good idea. Let’s look at how buying points work and when it makes sense to buy them.
How does buying points on a VA loan work?
VA loans give veterans and qualifying military members a unique proposition where you can buy a home without a down payment. This zero-down benefit lowers the upfront cost significantly because down payments can be pretty expensive.
Another often overlooked benefit is purchasing discount points to lower interest rates. When you buy discount points, it can lower your interest rate on your VA loan. You pay upfront and enjoy the benefit of paying less on interest payments. The points are optional and available from your lender if you buy them.
How much can you save when buying VA mortgage points?
A point can lower your interest rate by 0.25% and usually costs 1% of your loan amount. For example, if you have a $200,000 loan with a 3.5% fixed interest rate, a point will cost you $2,000, reducing your rate to 3.25%. You can opt to buy half a point which would cost $1,000, and it will lower your rate to 3.375%
Savings would depend on how long you’ll stay in the home and not refinancing for some time.
When is the right time to buy points?
The break-even point is a good starting point to know if you should buy discount points or not. If it takes seven years to reach your break-even point and you plan to transfer to another home in 5 years, buying points isn’t worth it.
Buying points are a good idea when you plan to stay in the home long after reaching your break-even point. You save more once you move forward past your break-even point.
Borrowers choose a VA loan due to the low upfront costs. If you can’t afford to buy points by paying upfront, it would be best to decline the idea of buying points.
Another scenario when buying points is not a good option is when prevailing interest rates are already low. After checking current market rates and seeing they are down, you can use the money for other house-related expenses instead of buying VA mortgage points.
If you feel like buying points is a good idea, you can inquire about our veteran loans in San Bernardino and get the best terms on your VA loan.
How to buy mortgage points?
You can buy VA mortgage points from your loan provider. How much you can buy would vary based on what your lender is offering. The VA does not limit discount points, but you should note that the more points you buy, the more you pay upfront. Inform your loan officer that you are interested in buying points to lower your rate.
Sometimes, you can ask your seller to help with buying points but remember that they are not obligated to help you. A seller sharing the cost for points is a concession you can negotiate as part of your home purchase agreement.
Your loan officer can also help you calculate cost and savings plus your break-even point. These calculations can help you determine if buying points fit your long-term plans and if you can get savings when you buy points.
Do you need help with getting the best out of your VA loan?
Buying points to lower your interest rate on your VA loan is a good idea, given the right circumstances. If you can’t decide if buying points is a good move or not, you can ask our loan officers for advice.
At Rancho Vista Mortgage, we analyze your financial situation and future plans and come up with the best recommendation on whether or not buying points is in your best interest.
For a free consultation, call or send us a message on our website. We would be glad to meet with you and discuss your options.
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.