VA Loan Down Payment Requirements
In this article, we explore the VA loan down payment requirements. In most instances, Veterans do not need a down payment, but in some cases, it's required. Let's take a closer look.
Do VA Loans require a down payment?
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're interested in using your $0 down VA loan benefit, contact a home loan specialist here. 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.
| Down Payment | First Use | Second+ Uses |
|---|---|---|
| $0 Down | 2.3% | 1.65% |
| 5% or more | 1.65% | 1.65% |
| 10% or more | 1.4% | 1.4% |
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.
Talk to a home loan specialist to provide a clear picture of what a VA loan can do for you.
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.
Why $0 Down is Such a Great Benefit
Conventional loans typically require a minimum 5% down payment, and a borrower would need 20% down to avoid private mortgage insurance (PMI). FHA loans require a minimum of 3.5% down and have an upfront fee and monthly mortgage insurance. Conversely, VA loans do not have a down payment requirement or monthly mortgage insurance.
Let's take a look at an example. According to the Federal Reserve, the average sale price of a home in Q1 of 2022 was $507,800. A conventional borrower with 20% down would need $101,560 to avoid PMI. An FHA borrower would need $17,773 just to qualify.
Fortunately for VA buyers, the VA loan program does not require a down payment and buyers aren't charged mortgage insurance. In combination these two benefits can save homebuyers a significant amount of money. It's a benefit that military buyers love, and one that's tough to locate outside of the VA loan.
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.
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