If you’re a U.S. military service member, veteran, or qualifying family member, a VA loan is a smart move if you’re looking to buy a home without a hefty down payment.
VA loans stand out because they often don’t require a down payment at all, giving you the freedom to purchase a home without the upfront financial burden.
Zero down payment is a huge relief, letting you keep your savings intact for other needs or unexpected expenses.
Whether buying your first home or looking to move, understanding VA loan down payment requirements could be your first step towards homeownership with less financial strain.
Sponsored
- Available in AZ, CA, CO, FL, GA, MO, NC, TN, TX, & WA
- Fast and Easy Application
- Flexible Loan Options
- Expert Guidance
- Dedicated Support
What is a VA loan?
A VA loan is a mortgage option private lenders provide and is partially backed by the Department of Veterans Affairs.
This type of loan is designed to offer long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry).
The key appeal of a VA loan is that it allows borrowers to purchase a home without a down payment and without the need for private mortgage insurance (PMI), which is a requirement for other types of loans when the down payment is below 20%.
Eligibility criteria for VA Loans
According to the Veterans Benefits Administration (VBA), to qualify for a VA loan, individuals must meet one or more of the following criteria:
- Service members and veterans: Eligibility is based on service durations which vary depending on when and where the service was conducted. Typically, veterans and active duty service personnel must have served for a specified minimum period unless discharged for reasons other than dishonorable.
- Reservists and National Guard members: Members of the Reserve and National Guard must typically have at least six years of service, but can also qualify earlier if they were called to active duty.
- Spouses: Some spouses of service members who died in the line of duty or as a result of a service-related disability may be eligible.
Obtaining a Certificate of Eligibility (COE)
The first step in applying for a VA loan is to obtain a Certificate of Eligibility (COE).
This document proves to lenders that the applicant meets the minimum service requirements to qualify for a VA loan.
Veterans can apply for a COE through the VA’s eBenefits portal, by mail, or sometimes lenders can obtain it directly through the VA’s online system.
The process involves submitting specific documentation, which varies depending on the nature of the veteran’s service and discharge.
Do VA loans require a down payment?
No, VA loans do not require a down payment, making them highly beneficial for eligible veterans, active service members, and some surviving spouses.
This is the key feature that sets VA loans apart from most other mortgage options, making homeownership more accessible to those who have served in the military.
Situations where a down payment might be beneficial for a VA loan
Although not required, making a down payment on a VA loan can be advantageous in certain situations.
To reduce the VA funding fee
The VA funding fee, which helps fund the VA loan program, varies depending on whether it’s the borrower’s first VA loan and the size of the down payment.
For example, the funding fee for first-time use without a down payment is 2.3% of the loan amount.
If a down payment of 5% is made, the fee drops to 1.65%. With a 10% down payment, it further reduces to 1.4%. Making a down payment can significantly reduce this fee.
To lower monthly payments
By putting money down, you decrease the total loan amount, which in turn reduces the monthly mortgage payment.
For instance, on a $200,000 home, a 5% down payment reduces the borrowing amount to $190,000, lowering monthly payments and the total interest paid over the life of the loan.
To gain equity sooner
A down payment increases home equity right off the bat. Equity is beneficial for potentially taking out future home equity loans or lines of credit and increases financial stability by providing a larger buffer if home prices decline.
The VA funding fee explained
The VA funding fee is a one-time payment that borrowers must pay on a VA loan to help offset the cost to taxpayers.
This fee is unique to VA loans and does not apply to other types of mortgages. Its purpose is to fund the VA home loan program, ensuring its viability for future veterans.
How it’s calculated
The amount of the VA funding fee depends on several factors including the nature of the borrower’s service, whether the borrower has used a VA loan before, and the size of the down payment.
Here are the specific percentages based on down payment size for first-time users:
- No down payment: 2.3% of the loan amount
- Down payment of 5% to 9.99%: 1.65% of the loan amount
- Down payment of 10% or more: 1.4% of the loan amount
For those using the VA loan benefits a second time, the fees are slightly higher if no down payment is made, typically around 3.6% of the loan amount. However, similar reductions apply if the borrower makes a down payment.
When might a VA loan require a down payment?
Although VA loans typically do not require a down payment, there are special circumstances where one might be necessary:
Loan amounts exceeding appraised values
If the purchase price of a home is higher than its appraised value, the VA will only guarantee the amount up to the appraised value.
In such cases, the borrower may need to pay the difference as a down payment to cover the gap between the loan amount and the home’s market value.
VA loan limits
Prior to 2020, VA loan limits capped the amount the VA would guarantee without a down payment.
While these limits were removed for most borrowers with full VA entitlement, veterans who have previously used their benefit and haven’t restored it, or those who have defaulted on a previous VA loan, may still be subject to loan limits.
If the loan amount exceeds these limits, a down payment may be required to secure the loan.
Apply for a VA loan today
VA loans often require no down payment, making them an accessible and affordable option for veterans and service members.
Whether you’re ready to buy a home or just exploring your options, understanding the VA loan down payment requirements is key to getting started.
Let MyPerfectMortgage.com match you with the perfect lender.
