VA Loan Articles
VA Loans and Down PaymentsOne of the most attractive features of the VA home loan is the no-money-down option. Ask any lender and you'll discover it's hard to top the VA loan in this area--even the FHA insured loan program requires a minimum down payment for all buyers.
The VA Lender's Handbook states, "No downpayment is required by VA unless the purchase price exceeds the reasonable value of the property, or the loan is a Graduated Payment Mortgage (GPM)."
Why is a down payment required when the purchase price exceeds the value of the home? The Department of Veterans Affairs will not insure a loan amount higher than the appraised value of the home as determined by a VA-assigned appraiser. In these cases, the down payment is the difference between the reasonable value of the property and the amount of the home loan.
But other VA loan situations may also require a down payment. The VA Lender's Handbook tells lenders, "The lender may require a downpayment if necessary to meet secondary market requirements."
VA insured loans feature what the VA calls "flexible standards" for underwriting. According to the VA, the veteran must have:
-- satisfactory credit, and
-- satisfactory repayment ability
-- stable income
-- residual income (net effective income minus monthly shelter expense) in accordance with regional tables, and
-- acceptable ratio of total monthly debt payments to gross monthly income (A ratio in excess of 41% requires closer scrutiny and compensating factors.).
Compensating factors include the ability to provide a larger down payment. If you're considering using your VA loan benefits, why not save up for a larger down payment during the planning stages of your journey to home ownership?. A down payment could help a borrower worried about past credit issues or current debt-to-income concerns--the more down payment you come to the bargaining table with, the better advantage you have in the VA loan application process.
In some cases, making a down payment might not be enough-depending on the circumstances, a lender may require a larger down payment as a compensating factor. 10% down is often a good figure to start planning with in these cases. This is one reason why home loan experts advise people to start planning for a new home purchase as early as possible.
Saving up for a possible down payment-even when not required-is definitely something to consider. Even if you don't use the money for a down payment, it could be put towards closing costs or other VA home loan expenses.