It’s far and away one of the VA loan program’s most notable benefits: VA loans do not require a down payment.
But it’s also a perk that arouses skepticism. “What’s the catch?” “How much is that going to cost me?”
Let’s put those suspicions to rest with a thorough discussion of the VA loan program, and an explanation of why VA loans do not require a down payment.
VA loans are made by private lenders. Banks, mortgage companies, and other lenders are the ones who put up funds for service members to purchase a home.
But a portion of every VA loan is backed by the federal government. As long as lenders follow VA guidelines, a piece of every VA loan is guarded by a federal safety net. If a service member defaults on a loan, the federal government agrees to pay the lender back for at least a portion of the loss. This backing is known as the “VA Loan Guaranty.”
Lenders typically require a down payment as a safety deposit. It’s a tidy sum that a lender can hold onto in case a buyer goes into default. But on VA loans, the federal guaranty takes the place of the down payment. Since a portion of the loan is backed by the government, there’s no need for an additional down payment.
The VA loan guaranty has a limit, which varies based on location. For a look at the limit for your area, check with the Department of Veterans Affairs.
The VA loan program was part of the sweeping reform encompassed by the G.I. Bill of 1944. This bill introduced numerous benefits to the millions of service members returning from World War II.
Fortunately for military members, those benefits aren’t watered down into a mediocre financing option. As FDR stated, our veterans are “entitled to definite action” and “special benefits.” The VA loan program truly delivers on that promise, with flexible credit standards, low closing costs, and no-down-payment financing.
It’s a special loan option restricted to some of the country’s most selfless citizens: active duty service members and veterans.
Especially when compared to the flexibility of a VA loan, the conventional loan market is tough. The average down payment on a conventional loan in June 2012 was 20 percent of the loan amount, according to mortgage software provider Ellie Mae.
Want to know how that 20 percent translates into actual dollars? Relying on average figures from the Mortgage Bankers Association, the average U.S. buyer put down $48,179 to purchase a home in June.
Fortunately for military buyers who may be short on cash, the VA loan program does not require a down payment. It’s a benefit that military buyers love, and one that’s tough to locate outside of this exclusive financing program.
The VA loan program can unlock numerous benefits for military buyers, but it can be a complex program to navigate. Let us know if you have any questions regarding VA loan benefits or eligibility. Contact Veterans United Home Loans at 888-212-1958 or Veterans United Realty at 800-985-5723.