Two of the main benefits when you get a VA loan to buy a home vs. renting are; #1 when you buy, you get to deduct the VA loan interest + property taxes and pay less income tax. And #2 when you have a fully amortized VA mortgage, every month when you make your mortgage payment, you pay down part of the principle of the loan, so that one day you will own the house free and clear with no mortgage.
Let’s take a $350,000 VA mortgage with a 4.75% 30 year fixed rate loan on your home purchase for example. In the first year you would pay down $5,522.33 of principle of the VA mortgage loan balance. By year five you would have paid down $30,426.01 in VA mortgage principle. In year 10 you’ll have paid down $68,990.39 of the VA mortgage balance. As long as your total housing payment (minus the tax break for buying) is close to what rent is for a similar property, this is a really big advantage over renting because you are gaining equity in the property every month vs. when you rent the rent money just goes up in smoke and pays down the landlords mortgage.
Additionally, if you were to add a little extra to your mortgage payment every month, you could pay your VA mortgage in California off dramatically faster and pay a lot less interest over the life of the loan. So you are working towards one day having no mortgage on your property and an extremely low payment that is just property taxes and insurance. This helps you retire in style and have fun and do the things you enjoy doing with a very low housing cost overhead!
In terms of the tax benefits when you get a VA loan to buy, a $350,000 VA mortgage would result in $16,625 a year in mortgage interest and $4,000 in property taxes that can be taken as a deduction off your income taxes. A quick and rough estimate running the numbers shows this would save you $7,218 per year in income taxes you would pay if you were renting, that you now don’t have to pay because you are an owner. $7,218 works out to be an EXTRA $601/mo you put in your pocket vs. paying to the Government in income taxes.
You can also adjust your tax withholdings on your W-4 with your HR Dept once you buy because you have this large tax deduction and have them withhold less tax from your paycheck every month. This would allow you to see a much larger net income every month vs. waiting until the end of the year for your refund.
So the combination of the loan principle pay down + the mortgage interest and property tax write-off you get when you buy, give you a big advantage over renting if rent is close to your housing payment.
And a reminder of the great advantages of using your VA loan benefits to get a VA loan:
- VA loan credit scores do not have to be perfect, a 620 score can get you a top VA loan interest rate
- VA loan limits in California go up above $900,000 for 100% financing in certain counties. And many cities and counties such as Los Angeles, Orange County, San Diego, San Jose and San Francisco have very high VA loan limits
- VA homeloans have NO monthly mortgage insurance, a big advantage over FHA and conventional loans
- VA lending requires NO down payment, the loans are 100% financing
- Interest rates VA loan are still at close to 50 yea historical lows
- VA loan streamline refinance allows you to drop into a low interest rate easily if you already have a VA loan
- You can get a second VA loan if you have paid off your first VA loan, even a 3rd, 4th etc… But you can only have one VA loan at a time
Give me a call (858-922-7899) or email (homeloan8@gmail.com) if you have any questions or want to apply for a VA, FHA or conventional loan.
Warmest Regards,
Rob Chomentowski
Sr. Loan Officer (and VA specialist)
858-922-7899
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