VA loans

VA Loan Rules On Down Payments

June 14, 2012


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.

Do you have a question about VA home loans? Ask us in the comments section.

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  1. Peter Williams

    I have a a current Cal Vet loan on a home I want to short sale, but I also have prequalified to purchase a home for $230,000 even with my current Cal Vet loan. Can I get a VA loan for this home and then short sale my home with the Cal Vet loan after escrow closes. I have made all my payments on time and have excellent credit. My current lender is very vague about whether I can get a VA loan and wants to push me toward using an FHA loan.

    • Joe Wallace

      Two things--if your current home loan is guaranteed by the VA and not refinanced with an IRRRL, you must abide by the occupancy agreement you signed to obtain the loan. In any case, if you qualify for the second loan under the VA home loan program you must certify that the home will be your primary residence and a condition of loan approval. The occupancy issue would apply for a single family FHA loan as well. Short sales result in negative consequences on your credit and most lenders require a three-year waiting period before you may apply for a new mortgage loan. Any loan you apply for today would factor in your current debt-to-income ratio including your mortgage payments on the first loan.

  2. Beverly

    I applyed for a VA loan and the lender said they only give 90% of the value of the house is this normal for refinancing.

    • Joe Wallace

      Which type of refinancing loan did you apply for?

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