No Down Payment VA Loans
One of the most attractive features of the VA insured home loan is the option to get a mortgage without a down payment. The no money down VA home loan is one way first time home buyers, who are often facing tight budgets, can cut some of the up front costs.
Some borrowers choose to make a down payment in spite of the no money down option. Why?
One important reason to consider a down payment is because money down translates into lower VA loan funding fees. The fees get lower for those who put between five and ten percent down, and lower still for 10% down or more. The three VA loan funding fee brackets (0-5% down, 5-10% down, and 10% or more down) are subject to change based on legislation, but in general the fees go down with more money down based on the three funding fee brackets.
Another reason to consider saving for a VA loan down payment is that lenders are often willing to consider a higher loan amount in exchange for the down payment.
Consider what the VA advises new borrowers on its official site. “VA doesn’t specify a maximum loan amount. But the law does set limits on the amount of liability we can assume. This usually affects the amount of money an institution will lend you. The lender may be able to increase the size of the loan if you can make a down payment.”
One important factor to consider when it comes to VA home loans; the loan amount compared to the sales price of the home. If the VA loan amount is lower than the asking price and the buyer chooses to move forward with the purchase anyway, the difference must be paid out of pocket according to VA regulations.
The borrower’s options in such cases (aside from not buying the home at all) is to either pay the difference as required or try to renegotiate the purchase price with the seller. The no money down factor would not apply in this case because the VA won’t issue a loan above the market value of the home as determined by a VA appraisal.