VA Loan Articles
News, updates, and explanations to keep you informed.
VA Home Loan Down Payment Facts
One of the most important thing a borrower can do when considering the purchase of a new home is to compare loans, loan types, and loan options.
Once you begin making these comparisons, it’s easy to see why many veterans choose a VA guaranteed mortgage as opposed to an FHA mortgage loan or conventional mortgage. One area where VA loans can provide borrowers with a major advantage? Down payments.
Conventional lenders may require ten percent or more down on a home. This down payment requirement can be even more if the borrower has credit issues and can’t qualify for the most competitive interest rates or loan terms.
When you compare FHA loans to conventional mortgages, the government-insured loan does provide much better down payment rates--a minimum of 3.5%. But VA mortgages are available for no money down for qualified borrowers and under specific circumstances. The no-money-down VA insured mortgage gives borrowers dealing with tight budgets more flexibility in the all-important early years of the home loan.
Why does the VA allow borrowers to apply for a loan with no money down? The VA lender’s handbook explains the motivation behind the benefit, stating “…because VA loans can be for the full reasonable value of the property, no down payment is required by VA.” FHA loans and some conventional mortgages require a down payment because the loan does not cover the full reasonable value of the property.
VA loans are not automatically offered as a no-money-down mortgage. The buyer must have the home appraised by a VA-assigned appraiser so a notice of value can be issued; if that notice of value has a figure lower than the purchase price of the home, the buyer has to make up the difference in cash.
The difference between the purchase price and the notice of value cannot be financed, and the borrower must provide the extra money–the seller cannot pay the difference as a concession or incentive to buy.
In cases where the borrower is fully qualified to get a no-money-down VA home loan, it is still financially sound to consider a down payment if the borrower can afford to do so. Put enough money down, and a buyer pays a reduced VA loan funding fee, something required in order to use a VA insured home loan.
One not-so-commonly asked question, but an important one to answer for some borrowers, involves the length or term of a VA home loan. Unfortunately, a new purchase VA home loan cannot be issued for a term longer than 30 years.
For those still shaking their heads at the housing market crisis of 2008 and beyond, the idea of a home with growing equity probably sounds unrealistic. A great many home owners are still struggling with underwater mortgages.
In order to successfully process the loan assumption, the VA loan “must be current or will be brought current at the closing of the sales transaction”. The person assuming the loan must be creditworthy.
The passage of Public Law 112-154, known as the Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012 has resulted in several important policy changes for the VA loans program.
The passage of Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012 meant a great many changes to the VA loans program in 2012. One of those changes includes expanding the criteria for VA loan funding fee exemptions.