VA Loan Down Payment Requirements

The VA home loan is a unique option offered solely to Veterans and qualifying surviving spouses. The VA loan has lots of benefits to offer that differ from a traditional conventional or FHA loan.

VA loans do not typically require a down payment. In fact, according to the VA, around 80% of Veterans utilizing their VA loan benefits don't put any money down on their home.

If you wonder what happens if you have a down payment or how the VA loan can offer Veterans a $0 down option, we explore that in more detail below.

How the VA Loan Offers $0 Down

A common misconception in VA lending is that the VA acts as the lender in the VA mortgage process. In reality, private lenders, such as mortgage companies and banks, make the loans while the VA backs a portion against default.

This backing, known as the VA guaranty, provides lenders with a safety net against loss if a Veteran is unable to repay their VA loan.

In short, the VA loan doesn't require a down payment because the VA guarantees a portion of the loan, which protects the lender if the borrower defaults. This guaranty means the lender can offer more favorable terms, including no down payment.

Can I have a Down Payment with a VA Loan?

Having a down payment on your VA loan is perfectly acceptable. Veterans who put at least 5% down can reduce their VA funding fee. Those with 10% can reduce the funding fee even more.

It's important to note that disabled Veterans, Purple Heart recipients and surviving spouses are not required to pay the VA funding fee.

Another benefit of having a down payment is building up equity in your home. Equity is essentially how much of your home you truly own. If the property is worth more than the loan amount, then the Veteran has equity in the property.

Pros of Making a VA Loan Down Payment

While VA loan requirements usually do not require a down payment, putting money down can offer borrowers several benefits.

Lower VA Funding Fee

The VA funding fee is a one-time required cost with a VA loan. However, making a down payment can help offset the costs of the funding fee since you are technically borrowing less money. The larger the down payment, the lower the funding fee will be.

Take a look at the chart below to see how making a down payment can lower your VA funding fee.

Smaller Monthly Payments

Similar to the VA funding fee, monthly payments on the loan will be lower if a Veteran makes a down payment. You’ll be borrowing less money overall, so your total monthly payments will be smaller, and you’ll pay less interest over the life of the loan.

Build Equity Faster

A down payment on a VA loan will help you instantly build equity on your home. Home equity is the difference between what you owe on your mortgage and what your home is currently worth. Building home equity is a valuable asset for your future should you ever want to pursue a VA cash-out refinance, or make a profit when selling your home.

Potentially Increase Chances of VA Loan Approval

Making a down payment could also increase your chances of getting approved for a VA loan. This is because making a down payment can help offset some of the risks to lenders, and potentially increase your chances of VA loan approval.

It’s important to note that making a down payment is not necessary, and most VA loan borrowers do not put money down.

Cons of Making a VA Loan Down Payment

Although making a down payment can offer borrowers great benefits over time, it may not be the right financial choice for others.

Not Taking Advantage of $0 Down

One of the biggest benefits of the VA loan is the ability to put $0 down. When making a down payment, you forgo this awesome benefit.

Waste Time Saving Money

If you want to make a down payment but need more time to save up enough money, you’re losing precious time. The longer you wait, the greater chance you have of rates rising.

Since VA loans offer $0 down, moving in right away and not waiting to make a down payment could be more financially beneficial in the long term.

Little Money for Home Repairs

If you’re purchasing a fixer upper, making a down payment could dwindle your budget for much needed repairs. Having some extra money on hand when purchasing a home is always a smart move, as problems can arise after moving into your new home. In this instance, it would be best to not make a down payment and keep those funds set aside for any unexpected home repairs.

No Budget for an Emergency

Having a cash fund in case of emergencies is always a good idea. If you’re stretching your budget to make a down payment on a VA loan, you may be risking your emergency cash reserves. Instead of putting all your money towards a down payment, it’s probably better to keep this money for an emergency, like a medical expense or job loss.

When a Down Payment is Required

First-time users of the VA loan and those with full VA loan entitlement can purchase a home for as much as a lender is willing to lend without a down payment. However, if a Veteran has reduced entitlement, typically from a prior VA loan, VA loan limits come into play.

VA loan limits aren't a cap on how much a Veteran can borrow but a cap on how much a Veteran can borrow without a down payment. Determining what you can purchase without a down payment or what your down payment would be on a home is a bit math-heavy. You'll also need to know your remaining entitlement. However, a lender familiar with VA loans can help you obtain both figures quickly and easily.

If you're interested in calculating yourself, you can learn more about VA loan entitlement and see example calculations here.

Still Have Questions?

The VA loan program can unlock numerous benefits for Veterans. Let us know if you have any questions regarding VA loan benefits or eligibility. Contact Veterans United Home Loans at 855-870-8845.

If you'd like additional information on the VA mortgage process check out this helpful guide to the VA loan.