VA Loan Rules On Down Payments
One of the things many first-time home buyers like about the VA loan program is the zero down payment option.
VA loans are available for “the full reasonable value” of a given property, so in general there is no down payment requirement unlike other government home loan programs such as FHA mortgages, which require 3.5% down at a minimum.
But some borrowers do find themselves in situations where a VA loan could require a down payment. According to the VA Lender’s Handbook, Chapter Three, “no downpayment is required by VA except in the following circumstances:
• If the purchase price exceeds the reasonable value of the property, a downpayment in the amount of the difference must be made in cash from the borrower’s own resources
• VA requires a downpayment on all Graduated Payment Mortgages.”
The VA rules also state that borrowers who do not have their full VA loan entitlement available for a new home loan may also have to put money down on a VA guaranteed mortgage. “If a veteran has less than full entitlement available, a lender may require a down payment in order to make the veteran a loan that meets GNMA or other secondary market requirements. The “rule of thumb” for GNMA is that the VA guaranty, or a combination of VA guaranty plus downpayment and/or equity, must cover at least 25 percent of the loan.”
Zero down payment VA loans would be for situations where the house has been appraised and has been valued at a price at or above the purchase price. The borrower is only permitted to borrow the lesser of the two amounts, plus any allowable additional costs included in the loan amount. The borrower cannot apply for a VA mortgage loan where the base loan amount is higher than the appraised value or sale price of the home, whichever is lower.
Borrowers do not have to exercise the zero down payment option–in fact, putting money down on a VA guaranteed mortgage loan can save money in funding fees and interest rate payments over the course of the loan–a good reason to consider money down if the borrower can afford it.
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