Buying a Home with a VA Loan: What Are Points?
If you’re buying a home with a VA loan, you’re able to take advantage of unique benefits only offered to veterans and current qualifying military members. Most often, people using these loans think about the lower interest rates and ability to buy a house without a down payment as the main benefits, but they’re by no means the only ones provided by the program. When you take out a VA loan, your lender will ask if you want to buy discount points on that loan. This is yet another unique benefit, but there’s a lot of confusion about how the points system works. Here’s what you need to know.
Points Lower Your Mortgage Payments
Discount points are a way to lower the interest rate on your VA home loan. You pay cash upfront to the lender who then decreases the interest on your loan. The lower your interest rate is, the less money you’ll have to pay each month and the more money you’ll save over the life of your loan. The points are optional and serve as nothing more than an option to lower your out-of-pocket expenses each month until the loan gets repaid.
Should You Buy Points?
In most cases, buying points isn’t in your best interest. The savings you’ll see on your mortgage payments will likely be minimal unless the average interest rates are high. The best way to decide if you should buy discount points is to look at the interest rate you’re paying for the life of your loan. Variable rates will change with the market and buying discount points might not make much of a difference over the life of loan. However, if you have a fixed-rate VA loan and that interest rate is higher than you’d like, buying points may help you lower your costs.
It all comes down to a central question: do you want to pay anything out-of-pocket when buying a house with a VA loan? If you have money saved up, it may be better to use that money as a down payment to reduce the total amount you borrow. The lower your principal amount is, the less interest you’ll pay over the life of the loan.
If you’re interested in buying points to lower your interest rate when buying a home with a VA loan, discuss your options with your lender. They’ll be able to help you decide if it’s in your best interest or if you’re better off not spending your savings on a lower interest rate. For more information about the points system, reach out to our team.