Do VA loans require a down payment?

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The most compelling aspect of a VA loan for service members is that they rarely require a down payment. If you qualify for a VA loan, you don’t have to make any down payment as long as the home’s sale price isn't higher than its appraised value. 

Buying a home is the largest investment most people make in their lives, and taking out a mortgage is a major financial burden. With a regular conventional loan, the minimum down payment can be as low as 3.5%, but that still means you’d have to pay $14,000 on a $400,000 home. That’s not the easiest pill to swallow for most people. Fortunately VA loans don’t have a down payment requirement so you don’t have to worry about covering that cost upfront at closing.

Why don’t VA loans require a down payment?

The Department of Veteran Affairs (VA) offers a loan program for many active service members, veterans, National Guard members, Reserve members, and spouses. VA loans don’t require a down payment because the federal government insures a portion of every VA loan that private lenders close. (The VA doesn't extend the actual loan.)

If you default on a VA loan, the government will pay the lender back at least a portion of the amount it lost. This safety net lowers the risk for VA loan lenders and makes it much more palatable for them to do without any money upfront (i.e. the down payment.) 

But, just because you can get a home without a down payment with a VA loan, doesn’t mean you should unless you’re really short on liquid capital.

→ Learn about the pros and cons of VA loans

Pros of making a VA loan down payment

We’re listing a pros and cons section because not everyone will be able to make a down payment, but it is much preferred to still make one if you can. This is why:

Lower funding fee

The VA loan’s funding fee helps lower the program’s cost to taxpayers and is essential to consider. Without a down payment, or a down payment less than 5%, you can expect a funding fee of 2.3% of the total loan amount. If you make a down payment of 5% to 10%, the fee drops to 1.65%. A down payment greater than 10% drops the funding fee to the lowest available rate of 1.4%. If it’s your second time using the VA loan program, the funding fee jumps to 3.6% without a down payment.

Lower monthly payments

Your down payment goes towards the total cost of the home, giving you instant equity in the home that you would otherwise have to earn through monthly payments over time. As such, the total amount of your mortgage is lower so not only will you pay a lower principal, but you’ll also save on interest throughout the lifetime of your loan.

→ Use our mortgage calculator to see much house you can afford

Lower closing costs

In addition to lower monthly payments, another benefit of reducing the principal balance with a down payment is that it can lower your VA closing costs. Your lender, title insurer, and real estate attorney will all incur costs at the closing table that represent a percentage of your loan’s principal balance. The lower that balance, the lower the closing cost.

Build equity quicker

The more you’ve paid into the total cost of the home, the more of it you own, so to speak. Equity is an incredible financial asset: You can tap into it for a loan or line of credit if you ever need access to cash, and it will ensure you earn more of a profit if you eventually sell your home.

Better chance of approval

VA loans aren’t automatically approved. Requirements are more lenient, but you still need a minimum 580 credit score and a reasonable debt-to-income ratio (DTI). If you have a lot of debt  or a bad credit score, a down payment can encourage a lender to approve the loan.

→ Learn about VA loan credit score requirements

Better chance of the seller accepting your offer

Sometimes the housing market can be competitive, especially in popular areas to live. By putting some funds down as earnest money, it shows a seller that you’re a serious buyer. Earnest money is cash put in escrow to demonstrate your interest in a home. When there are multiple offers on the table, this form of down payment could be the difference between you and another buyer.

Cons of making a VA loan down payment

The pros of making a VA loan down payment outweigh the cons, but that doesn’t mean drawbacks don’t exist. You should still consider these drawbacks if you’re on the fence about whether or not to make a down payment.

Drains your savings

Making a down payment might require you dipping into cash reserves or an emergency fund. It’s not advisable for anybody to deplete their bank account to make such a huge long-term investment. Life is unpredictable and if your money is tied up in a home, it could cause serious issues if you have a big unexpected expense or you lose your job.

→ Learn how much you should to save to buy a house 

Messes up your timeline

If you don’t have funds for a VA loan down payment already, then you’ll have to start saving and that can take some time, especially if you have other debts. Budgeting and saving money is difficult and it may take a few months or even a year before you’re ready to make a down payment. Depending on what interest rates are like when you’re thinking of buying, saving up and waiting could be fine, but it could also force you into a higher interest rate.

Less flexibility

Unless you move into a brand new home, it’s likely you’ll want to make some changes or need to pay for maintenance or repairs. Maybe you just want some new furniture. A down payment limits the financial flexibility you have for these things.

Should you make a down payment on a VA loan?

While you don’t have to make a down payment on a VA loan, it’s a good idea if you have some financial flexibility. There are both short- and long-term financial benefits to putting some money down upfront. It could save you thousands of dollars over the lifetime of the loan.

Don’t make a down payment down if it means:

  • Depleting your emergency fund
  • Limiting your ability to pay for moving expenses or home maintenance
  • Forcing you to tap into retirement or college-savings funds

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