Down Payment for a VA Loan | 2022 Requirements
For qualifying veterans and active-duty service members, the VA loan can be a great deal.
One of the most significant benefits of a VA loan is the zero down payment requirement. Still, some VA borrowers choose to make down payments.
Let’s explore the requirements and practicalities of making a down payment for a VA loan.
What is a VA loan?
VA loans are backed by the U.S. Department of Veterans Affairs. Home buyers with qualifying military experience can access the many benefits of a VA loan, including no down payment requirement, lower interest rates and no private mortgage insurance. Existing homeowners with VA eligibility can also use the VA loan program to refinance and cash out home equity.
Is a down payment required for a VA loan?
VA loans generally don’t require a down payment. As long as you meet the VA’s military service requirements then you usually won’t have to make a down payment on the loan.
There are a couple exceptions, however. You may be required to make a down payment on a VA loan if you have an existing VA mortgage that’s not paid off or if you’re borrowing above conforming loan limits. In addition, someone buying with a non-VA-eligible partner may need to make a partial down payment. Your lender can help you understand the VA loan down payment requirements in these special circumstances.
Why make a down payment on a VA loan
Although a down payment isn’t required, some choose to make one anyway. Here are a couple of reasons some VA borrowers choose to make a down payment:
- Lower your one-time VA funding fee. The VA funding fee ranges from 0% to 3.6% of your loan amount. The fee can be paid upfront or rolled into the mortgage. Making a down payment reduces your loan amount and therefore lowers your funding fee.
- Lower your monthly mortgage payment. A down payment can lower the overall size of your home loan, which means smaller monthly payments.
An upfront down payment can be a challenge for any budget. But if a down payment is within your reach, it could give your future budget more flexibility.
Why VA loans don’t require a down payment
VA loans don’t require a down payment because the Department of Veterans Affairs insures a portion of every VA loan issued by private lenders. This level of insurance means that if the borrower defaults on the loan, the federal government will pay back an agreed-upon portion of the loss.
With this guarantee in place, lenders can confidently lend to approved borrowers without a down payment requirement.
Pros and cons of making a down payment on a VA loan
Every financial decision comes with advantages and disadvantages. Here are some of the points to consider when deciding whether to make a down payment for a VA loan.
Pros of a down payment for a VA loan
The pros of making a down payment for a VA loan include:
- Pay a lower funding fee. When you close on a VA loan, the funding fee can be a significant expense. If you make a down payment, then you can qualify for a lower funding fee.
- Lower your monthly costs. A larger down payment leads to a lower monthly mortgage bill. With a lower loan amount required to finalize your home purchase, you can save on interest costs and enjoy lower monthly payments throughout the life of the loan.
- Build home equity immediately. Although you can obtain a VA home loan without a down payment, that means you won’t have any equity immediately built in the home. It’s always a good idea to build equity in the property you call home.
Cons of a down payment for a VA loan
The cons of making a down payment for a VA loan include:
- Takes time to save up. Building up a down payment can take years. If you don’t have the funds available to make a down payment immediately, market changes could lead to a more expensive housing situation in the future.
- Homeownership often comes with other costs. A down payment is just one of the many costs that most new homeowners face. Keeping some cash on hand to pay for necessary home updates and moving expenses can come in handy.
- Sacrificing your emergency fund could put you in a difficult position. If you are considering using your emergency fund to cover a down payment, that puts your finances in a precarious position. If an emergency pops up, the lack of savings could derail your homeownership plans.
When do VA loans require a down payment?
Although it’s not the norm, the VA loan requires a down payment in some cases. Here’s when to expect this cost:
- The purchase price doesn’t match the appraisal price. If the home appraises for less than the agreed-upon purchase time, you’ll have to come up with the difference in cash at closing. Although it’s not technically a down payment, this is a large sum of cash you may need at closing.
- VA loan entitlement limitations. The VA loan entitlement indicates the amount that the government will guarantee for a borrower. So, VA lenders can receive up to this amount if the borrower defaults on the loan. If you only have a partial entitlement, then you might be required to make a down payment.
- Joint VA loans. When one of the co-borrowers for a joint VA loan is not a VA-eligible borrower, then they will need to provide a down portion for their half of the loan.
No down payment is one of the most significant VA loan benefits and it’s rare that you’ll need to make one — unless you want to.
Down payment for a VA loan FAQ
Do you need a down payment for a VA loan?
The VA home loan program doesn’t require a down payment for most loans. However, you’ll need to be a current or former military service member who has met the service requirements to tap into this no down payment loan.
What is the down payment for a VA loan?
There is no down payment requirement for a VA loan. Most VA borrowers can close on their new home purchase without making a down payment. However, keep in mind you’ll still have to cover upfront closing costs out of pocket unless the seller agrees to pay them for you.
Can I put 20% down on a VA loan?
Although there is no down payment requirement for a VA loan, you can make one if you choose to. Depending on your financial situation, you might decide to put 20% down on a VA loan.
But a VA loan is just one of many loan options. If you are able to put 20% down on your home purchase, conventional loans are another option to consider. The 20% down payment will eliminate any PMI obligations. Plus, you can avoid the VA funding fee.
Am I eligible for a VA-backed purchase loan?
If you are an active-duty service member or veteran, then you’ll need to meet specific service requirements to qualify for a VA-backed purchase loan.
Eligible VA homebuyers must have served 181 days of active duty during peacetime, 90 days of active duty during wartime, or six years in the Reserves or National Guard. Surviving spouses may also qualify for a VA loan if their military spouse was killed in the line of duty and they haven’t remarried since.
If you think you are eligible for a VA loan, you’ll need to obtain a Certificate of Eligibility (COE) from the Department of Veterans Affairs. With this documentation, you can pursue a VA mortgage loan through a lender.
Why might I want a VA-backed purchase loan?
A few reasons to pursue a VA home loan include the lack of down payment requirements, no private mortgage insurance (PMI) premiums, relatively lax credit score requirements, reasonable closing costs, and attractive mortgage rates.
Additionally, VA homeowners can pursue a cash-out refinance option in the future. As a first-time homebuyer, this ease of access to your home equity is another great feature.
Each of these reasons makes the VA purchase loan an attractive opportunity for eligible home buyers. But keep in mind that a VA loan is only available for eligible veterans seeking a primary residence.