VA Loan Down Payment Facts Part Two
In recent blog posts we’ve discussed why a borrower might want to put a down payment on a no-money-down VA home loan. While it’s true that borrowers who are eligible for a no-down payment VA loan can save some money up front for use elsewhere, it can be a good idea to have a down payment in order to pay a smaller VA loan funding fee.
First time borrowers who have no down payment are required to pay a VA loan funding fee of 2.15%. A borrower who puts up to 10% of the loan down is only required to pay 1.5%. Paying more than 10% down reduces the VA loan funding fee to 1.25%.
For second-time VA borrowers, the VA loan funding fee increases, and the no-money-down option requires a payment of 3.3%.
A downpayment of 10% or less drops the funding fee to 1.5% and a down payment more than 10% requires a VA funding fee calculated at 1.25%. Some borrowers may consider the down payment option to be more of a financial burden and wonder why they should bother paying money down alongside a VA loan funding fee paid up front.
For those who need every cent they can save in order to afford to buy a home, a long term financial strategy that involves more money spent up front in exchange for long-term savings on the loan might not be as realistic. But for those who have priorities that include saving more money over the long term, the financial bite making a down payment and paying the VA loan funding fee up front may be worth the savings over the lifetime of the loan.
Putting money down reduces the principal, which means paying less in interest for the duration of the mortgage. Keep in mind that borrowers do have the option of rolling the VA loan funding fee into the cost of the loan, and by doing so you may alter the long-term cost of the VA mortgage.
Borrowers who provide a down payment and pay the VA loan funding fee up front may realize more savings than someone who takes a 30-year mortgage with a no-money-down VA insured loan with the VA funding fee included in the loan amount.
The best choice? It all depends on your goals, your financial needs both near and long-term, and your ability to cope with a down payment and VA loan funding fee paid at the same time.