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.
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|
|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.
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.
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.
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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